SYNOPSIS:

MATTHEWS: You know, I find it fascinating, being a student of politics, like a lot of us. And I think -- you know, Franklin Roosevelt destroyed his opponent in 1944 by talking about "My dog Fala (ph)." And Reagan destroyed Carter, my old boss, by making fun of him, saying, "There you go again, Mr. President." Ridicule is a damning weapon. And this side, the one you're covering, Priya, is doing a great job this week with ridicule. It's interesting to watch why Kerry can't seem to figure this fight out. Anyway, Priya David, thank you, cover the -- so well -- cover the Dick Cheney campaign this week. And Felix Schein, thanks for covering Kerry for us. You can follow Felix and Priya's campaign reports on our Web site, hardball@msnbc.com. Up next, by the way, "The New York Times's" Paul Krugman and radio talk show host Blanquita Cullum are going to take a look at the latest political ads and new poll numbers in the battle for the White House. You're watching HARDBALL on MSNBC.

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MATTHEWS: Welcome back to HARDBALL. Paul Krugman is the columnist with "The New York Times." He is author of the book, "The Great Unraveling: Losing Our Way in the New Century." And Blanquita Cullum is a radio talk show host. I want you, Paul, to go through what you think were the political traces that Governor Jim McGreevey of New Jersey went through yesterday to make his best possible presentation at his worst possible moment in his life.

PAUL KRUGMAN, NEW YORK TIMES: Well, my verdict on McGreevey, I think he has actually been a pretty good governor, but he has got really lousy political judgment. And he has had really lousy choice in intimate. So there's been a lot of stuff swirling around him, never stuff about personal corruption, but always about him being too chummy with people who probably were corrupt. And in a way, I have to say this sort of personal crisis that he went through was almost a kind of a godsend. It allows him to go out on a note saying I have sinned, I have betrayed my wife, I'm on my way out. And I don't think Democrats or Republicans will be particularly sorry to see this particular, sort of silly chapter in New Jersey politics to come to a close.

MATTHEWS: In other words, the gay stuff, being a gay man, which you pointed out was his chief announcement, and having had this relationship with a state employee that he put into a rather posh job with no training, are the cover for worse.

KRUGMAN: Well, yes. And the funny thing is that it's sort of -- it's a three-layer cake here. On the one hand, this is cover for the stuff that's worse; on the other hand, the stuff that's worse didn't actually affect the job he was doing as governor of New Jersey, which was pretty good. So at some level...

MATTHEWS: Except for the corruption.

KRUGMAN: But it didn't -- it was really, as far as we could make it, it was really minor league stuff. On the big issues of handling the budget, a whole lot better than Schwarzenegger actually in California. So, you know, this is sort of -- the trivial has triumphed the less trivial, but that in turn would have triumphed over the substance. So, you know, I hope we can just sort of put this whole embarrassing thing behind us.

MATTHEWS: Blanquita, could he have been reelected if he had not made this announcement, if he hadn't been pressured by this staffer he hired and was going to apparently sue him or disclose his gay relationship?

BLANQUITA CULLUM, RADIO TALK SHOW HOST: Maybe. Maybe. I think that there are underlying things that kind of come up and embarrass him. You know, one of his biggest contributors, he's been named several times in a 47-page document. I think there are going to be a lot of things to embarrass him. But I think, really, it was a very clever way that he manipulated the whole issue. When he got out there, he played right to the Christians and so forth, and he talked about my truth and he talked about his problems, to try to make people respond, which I thought was very clever, of not being bigots and saying, oh, poor thing. But on the other hand, I think that the Democrats are going to rue the day, because I believe that the hammer is going to come down and more is going to surface. And it is not just trying to write this issue off as just something it was just sex, kind of like the Bill Clinton thing, it was just sex. And anybody who says anything, you know, he has a right to his sexual preference. They're going to find out that there's more to it. And I think it is going to be pretty, pretty bad.

MATTHEWS: Well, I thought he went -- he covered the bases the other day when he gave that press conference. I was taken with it as a person. I thought, well, here's a guy going through hell. He had to cover up his reality all these years. But I thought about it afterwards, like I usually do, I get quite skeptical about these guys, and I go, wait a minute, he always knew what he was. The only reason he's telling us the truth now is because he is about to be sued and disclosed. It was really a political move. It wasn't a personal sort of coming to Jesus kind of thing for anybody.

KRUGMAN: Yeah, if I can just say, I mean, I don't cut him a lot of slack here, because, you know, suppose it had been an affair with a female employee. We would all have been really upset, and it's really not different. That's the correct...

(CROSSTALK)

MATTHEWS: Would he have been out the door if it had been a girlfriend, a babe, so to speak, who he put in a position of $110,000 a year to guard New Jersey against terrorism in the very months after 9/11? Would people have laughed that off or focused on the fact -- suppose he just said, yeah, I'm a horny heterosexual and I just had to do this sort of thing. Whereas this time he says, since I'm a gay man, it explains everything. I mean, this sort of odd sexual defense he posed. Blanquita's point is I think that he used his sexuality, his orientation, as sort of a cover for his behavior, when in fact the behavior is what's at issue here.

CULLUM: And the other thing...

MATTHEWS: Well...

(CROSSTALK)

KRUGMAN: Well, let me just say, I think that's right. I think it's -- he actually -- you know, this was a classy but, you know, a performance that leaves a little bit of an aftertaste, a bad aftertaste. But you know, who cares, right? This is a -- he's on his way out. I don't think people voted for McGreevey when he was elected, really. They were voting against Schundler, they were voting against the ghost of Christy Whitman. I don't think this is -- so, you know, I don't think this really shakes things up very much.

CULLUM: Well, sure it does. I mean, it's really creepy, for one thing, that he would go through all these shenanigans to get this guy's papers to come in from Israel, a guy who clearly was put in one of the most important jobs for the state, that's dealing with homeland security. New Jersey has been a place that people have been focusing on, where, you remember, New York City is just across the pond there. And the other...

KRUGMAN: I will not vote for McGreevey for any future office.

CULLUM: But the other thing is, you know, let's be honest here. And it's really -- can we be really honest here and talk about the situation with this infidelity? Because if you're a woman watching that, you know, I mean, look at that poor thing, having to tough it out, to cover up for him. It's hard enough when a woman has to accept an infidelity from another woman, but to have to accept another infidelity from a man...

MATTHEWS: Do you think she was surprised?

CULLUM: I'm sure she was crestfallen.

(CROSSTALK)

MATTHEWS: Do you think she was surprised?

CULLUM: I'm sure she was surprised. And think about it. This is a terrible thing. It's a humiliation.

MATTHEWS: Look at them, look at them coming out here. This woman is, I mean, there is a Stepford quality to this person that is kind of amazing.

CULLUM: I feel so strong...

MATTHEWS: Look at the way she behaves. Why didn't he let her say something yesterday?

CULLUM: Because she's still probably (UNINTELLIGIBLE).

MATTHEWS: Now, why did he have her stand next to him if she wasn't going to say something? She's a human being.

CULLUM: She was there to make him look like a human being.

MATTHEWS: Well, why didn't he say -- she say something?

KRUGMAN: Guys, guys...

CULLUM: He should have turned to her and really apologized.

MATTHEWS: Go ahead, Paul.

KRUGMAN: We don't know what is behind this. I mean, the -- there's a pretty good chance, you know, the rumor mill says that this does not come as a surprise to her. You know, this is -- the truth is, I don't think I care very much about Jim McGreevey.

CULLUM: Paul, she's the victim, and the thing is -- well, can we be honest about this again? You know, whether you're gay or you're not gay, now we have become a sophisticated enough society to have gay politicians. It's one thing to say, he struggled with this as a young guy.

MATTHEWS: We haven't seen that yet. Let me tell you something...

CULLUM: He was married twice.

MATTHEWS: Let me tell you, Blanquita, if he had run for office as a gay man and said, I have got this partner who had just come in from Israel, I intend to give him a job with the government, although he has no training, he would not have -- even in New Jersey, I don't think he would have won.

CULLUM: Well, because that would have been seen as corrupt.

MATTHEWS: No, but I'll tell you...

(CROSSTALK)

MATTHEWS: In other words -- this idea that the country is open minded about this I think is wrong. I think if people have a choice, they vote against guys like this in this kind of a situation.

CULLUM: But then so then they -- he has to be dishonest to be able to get the gig. He has to marry two women, have two children. He has to lie to the federal government. He has to bring a guy in who has been charged with the most responsible -- this guy should be kicked out immediately.

MATTHEWS: (UNINTELLIGIBLE) politics in New Jersey, having grown up and spend all my summers there working or as a kid with my family. I can't believe the Republican Party is so weak it is going to put up with this transition to another Democrat, then another Democrat after that, probably Jon Corzine. What happened to the Republicans of New Jersey?

CULLUM: Well, maybe they'll get a little bit more muscle.

MATTHEWS: We'll come back with Paul Krugman and Blanquita Cullum. That's my pending question. What happened to the Republicans in a big state like that? Up next, the latest ad from the Bush campaign. You're watching HARDBALL on MSNBC.

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MATTHEWS: We're back with "New York Times" columnist Paul Krugman and the radio talk show host Blanquita Cullum. Let me just get to the point I did before, Paul. Are the Republicans going to roll over and let Governor McGreevey after this confession yesterday, call the shots for the next couple years in New Jersey politics?

KRUGMAN: I don't quite know how state politics works really in New Jersey. But the truth is, it's a very Democratic state right now. And I just don't -- nothing -- this is not going to change that. With Bruce Springsteen endorsing Kerry pretty strongly, the Democrats are in the saddle here.

MATTHEWS: I think that's a safe vote for the safe state for Kerry. Do you agree?

CULLUM: No, I don't. I think what happens here, the Republicans don't have to do anything but hold the guy's coat, because he is going to unravel before their eyes. And if they think, the Democrats think this guy is going to last until November 15, well, Virginia, there really is a Santa Clause.

MATTHEWS: I think it's another Illinois where the Republican Party for some reason, strong nationally is going to sleep locally. Here's a new ad, by the way, from the Bush campaign. It is running during coverage of the Olympics. And it is also airing in fitness centers.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES (voice-over): I'm George W. Bush and I approve this message.

ANNOUNCER: In 1972, there were 40 democracies in the world. Today, 120. Freedom is spreading throughout the world like a sun rise. And this Olympics, there will be two more free nations and two fewer terrorist regimes. With strength, resolve and courage, democracy will triumph over terror and hope will defeat hatred.

(END VIDEO CLIP)

MATTHEWS: That's a good ad.

CULLUM: It's a great ad.

MATTHEWS: No problem with that? Good ad, huh?

KRUGMAN: I can't see it from where I am.

MATTHEWS: It looked great. It was a swimming meet. It was a lot of flags a lot of countries. The people all looked great. They're all competing for these countries, then you see these two new countries come in at the bottom of the script there, Afghanistan and then you see Iraq come in as the new entries, nations competing in the Olympics.

KRUGMAN: They're counting on people not reading the news from Afghanistan and Iraq. But, it might work.

MATTHEWS: Let me ask you about this morning in American theme in the president. I see it in the music and kind of the mood. A lot of picture of Laura Bush. Is this the time where people feel we're in peace and prosperity and it is calm like it was in 1984 when Reagan did it? Let me go to Blanquita. Do you really feel that synchronizes with the mood of the country right now economically and in terms of our world position?

CULLUM: Well, I think they see it is morning in America. But morning in American doesn't necessarily mean that everything is smooth. But what's happening here is that there is a move towards democracy. We're seeing more jobs, we're seeing businesses prospering better. Of course it's going to be a struggle, but I think Americans, and especially those people who supported the president in the past, really applaud what he's been doing. And I think they're going to be detractors on the other side. This is going to be an interesting battle, because they're going to be people like Paul who will totally disagree with that.

MATTHEWS: No, no. Let me just ask you as a Republican. It's a fair question. Ronald Reagan composed it back in 1980. Are we better off economically than we were four years ago?

CULLUM: Absolutely we're better off four years ago.

MATTHEWS: We are? Are we better off in terms of friendships in the world and alliances in the world and support in the world in terms of terrorist numbers of terrorists in the world than we were four years ago?

CULLUM: I think we are better off in the sense that in dealing with the issue of the war on terrorism, we really know who stands with us. And the ironic thing is, there's no place...

MATTHEWS: We know that. But are we better off?

CULLUM: Yes, we are. Because frankly right now everybody is facing a war on terrorism. Everybody is having to deal with the terror of al Qaeda and other terrorist organizations. So, I think we're better off because we're dealing with it more progressively.

MATTHEWS: Paul, do you think the American people would vote right now and say they're better off economically than four years ago, like they did with Reagan. Let's be honest, Reagan won that argument. And better off in terms of our position in the world.

KRUGMAN: Reagan was presiding over a genuine economic boom with lots of job creation. Things getting much better from a bad start. But with things getting much better. That's just not true today. You look at the number of jobs created over the past year and it is enough to keep one population growth. It is not an improving labor market. Don't take my word for it, the polls show that by very heavy margins, Americans believe that the country is heading in the wrong direction. All of those right track, wrong track polls are very strongly, you know, saying that people are not happy. So, this is a very funny theme to be playing right now. It is playing into this era of good feeling which is just not out there in the American public. It is not just people like me. Many of these polls 60 percent of the population thinks that things are on the wrong track.

MATTHEWS: What about the new report by the congressional budget office today. It is no more Democrat than Republican with the congressional controlled by Republicans. Saying that most of the tax cuts went to basically the top 1 percent, the middle class have a higher burden than before. How can that be better off for most voters than 4 years ago?

CULLUM: And it's also saying that 629,000 new jobs were there for businesses. And they're also saying some of those new jobs...

KRUGMAN: Oh, my God. You're not going to do that one are you?

CULLUM: Excuse me. I am going to do that one. And let me tell you, I'm going to do it, because I'm also a small business person. Remember that 80 percent of all businesses is small business. And a lot of people complain about...

MATTHEWS: Let me ask you...

KRUGMAN: Let me say...

CULLUM: Excuse me for one second, Paul. But people say, it's the upper 1 percent. In the Democrats' mind, what is wealthy? Is it...

MATTHEWS: No, it's just percentages. Let's get crudely political, do you get more votes from the middle or the top?

CULLUM: Frankly, if we're going to look at the upper 1 percent.

KRUGMAN: Can I get a word in edgewise here?

MATTHEWS: Next time, Paul. Please come back. We'll talk about the book. Paul Krugman, Blanquita Krugman, I'm out of time. Sorry, Paul. Up next, the executive director of the Creative Coalition is going to join us. You're watching HARDBALL, obviously, on MSNBC.

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Originally broadcast, 8.13.04