SYNOPSIS: Krugman debates whether the economy will finally recover and jobs will be created against supply-side crank Stephen Moore on Chris Matthews' Hardball. This appearance is part of Krugman's The Great Unraveling promotion tour

MATTHEWS: Coming up, do the new unemployment numbers prove that President Bush's tax cut was the right fix for this economy? HARDBALL, back in a minute.

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MATTHEWS: Welcome back to HARDBALL. The unemployment rate has fallen six percent, its lowest level since last spring; 126,000 new positions were created in October, new jobs. What does this mean for the economy and of course, to President Bush? Paul Krugman is a columnist for "The New York Times" and author of "The Great Unraveling." We're looking at a picture right now. And Steven Moore is president of the Club for Growth, which I would say is a fairly conservative organization. Am I right?

STEVEN MOORE, CLUB FOR GROWTH: Republican conservative.

MATTHEWS: OK. Republican conservative. President Bush was in North Carolina today, where he talked about the economy. Let's listen up.

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GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: In a recent report, it's the beginning of good news for job seekers. Over the last three months, the economy, the entrepreneurs, the private sector and others have driven the job base up by 285,000 jobs, new jobs, which is good. We're seeing things beginning to brighten up for people looking for work, which is positive.

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MATTHEWS: Paul, let's get the facts. It seems like the business cycle -- I mean, we always assume it has a certain smoothness to it. It's heading down since June in terms of the jobless rate. It was 6.4 in June. That was sort of the tank. It's been down ever since. Do you think it's going to continue on course for the next year in the downward direction, joblessness?

PAUL KRUGMAN, "NEW YORK TIMES" COLUMNIST: The job -- the unemployment rate is a funny indicator now. There really haven't been enough jobs created even to keep up with the growth in the labor force over these few months. That downtick on the jobless take is really just people giving up on looking for work or dropping -- that's not the number to look at. The question is, the real benchmark is, the economy has to create about 150,000 jobs each month, just to keep up with the growth in the working age population. In this most recent month, it has come pretty close to that level, which means that things have stopped getting worse. But it's not exactly what you'd call a favorable trend. It's better than I expected. Better than almost all the economists expected. So that's good news. But you know, you want to -- I think it was Bush who used to say -- warn us against the soft bigotry of low expectations.

MATTHEWS: I know, I know. Let me ask you a real economic question. You know, we all grew up with the term "business cycle." And of course, it went up and stayed up for a long time during the Clinton administration. In fact, it was simultaneous with his tenure for some weird reason. I don't think it's entirely to do with policy, because it went up the month he went in. It went down the month he went out. Almost the month he went out. Let me ask you this. Is the uptick this time likely to be that sustained, or is there any kind of symmetry? Up and down? Or is it going to be jagged up and down for a while?

KRUGMAN: The truth is I don't know. The truth is anybody who says he knows proves his ignorance by saying that. There's a lot that's -- This is a very unusual business cycle. It doesn't look like anything we've ever seen before. But it is weird. I'm glad you mentioned. In the Clinton years, the economy on an average basis, the average month during the Clinton years, the economy added 225,000 jobs. Now, I'm sure that Steven Moore when he comes on is going to say that had nothing to do with Clinton's policies. And now...

MATTHEWS: The first month of it didn't, obviously. I mean, it started in the fourth quarter of '92. George Bush Senior didn't have a break, couldn't catch a break.

KRUGMAN: Right.

MATTHEWS: His recession ended like a quarter before he left office. I'm just saying you don't seriously believe they affect the jobless rate from the date they take office, do you?

KRUGMAN: I would agree that it didn't have a whole lot -- I think Clinton did good things, but I don't think it was mostly his policies. But the point is, if we're going to play fair play here, then we have to say that this gain in the last couple months, which is running at about half the rate that was normal during Clinton years, is not a vindication of Bush's policies either. Right?

MATTHEWS: Steve Moore, respond.

MOORE: Well, I think the only two people in America who are glum about these numbers today are Paul Krugman and Howard Dean. These are very positive numbers. You know, if you compare the United States unemployment rate, Chris, with the rest of the world, we're significantly below Japan. We're below Germany. We're below France. So six percent unemployment rate...

MATTHEWS: OK. Stick your neck out. Is the economy going to still get better next year?

MOORE: I think it's looking like three to four percent growth next year, which is just fine for President Bush.

MATTHEWS: Seven percent last quarter.

MOORE: Seven percent is, you know, off the charts. Seven percent was the highest...

MATTHEWS: Will that growth rate you project be enough to employ more people to then join the job market? In other words, get the unemployment rate down further?

MOORE: It's hard to get much lower than six percent.

MATTHEWS: Six.

MOORE: We might get it down to 5.5 or 6 percent. But here's the thing. You look at the tax cut. And Chris, this is where I disagree with you and Professor Krugman.

MATTHEWS: You disagree with me? What's my position?

MOORE: Well, you were saying that politicians don't affect the economy. I think they do.

MATTHEWS: Well, I don't think the first day in office. It's not until you pass your policy.

MOORE: To that effect, this recession we had over the last couple years was really the leftover residue from the Clinton administration. But let's look at when this expansion really started to pick up steam. It was in July of 2003. What happened in July of 2003? That's when the Bush tax cut really took effect. The reduction in the capital gains tax, the reduction in the dividend tax, the reduction in the income tax rates, those have all had a very bullish effect on the stock market and on jobs. Now people like Paul Krugman said it wouldn't work.

MATTHEWS: Let me ask you, Paul, does the advantage in the economy of a tax cut outweigh the disadvantage of high deficits?

KRUGMAN: If the tax cut was temporary, if it was going to only last long enough to get the economy going, then the answer would be yes. But you know, these are permanent tax cuts. Or at least they're intended to be. The sunsets in them are fake. And look, we've got a situation here where the Bush tax cuts, according to the Congressional Budget Office estimates, are going to add $270 billion to the deficit in this fiscal year. And if they're going to keep on doing that year after year after year. Now, if you ask me, is it, you know, couldn't we find a way to create these jobs without adding...

MATTHEWS: Can I ask you a question?

KRUGMAN: ... $2.7 trillion in debt over the next 10 years I'll answer your question a lot better.

MATTHEWS: Paul, a bad question. I have to ask you a quickie. Will next year be better than this year?

KRUGMAN: I don't know. Honestly...

MOORE: We'll see about four percent growth, and we'll see...

KRUGMAN: I'll tell you...

MOORE: We'll see the unemployment rate migrate down. And we'll see the stock market, the Dow is going to go well over 10,000. The NASDAQ could be well over 2,000.

MATTHEWS: I think we may have another dip next year. Anyway...

MOORE: And that means President Bush is going to get overwhelmingly reelected.

MATTHEWS: Not if we have a down economy next year. And by the way, neither one of you knows because you just admitted it. Steven Moore, thank you. Paul Krugman, thank you. Just a reminder, Treasury Secretary John Snow will be Frank Luntz' guest this week on "AMERICA'S VOICES," Saturday, 6 Eastern on this network. Up next, what do the Democratic candidates for president say about Defense Secretary Donald Rumsfeld -- Not good things -- and whether he should keep his job? That's the "Battle for the White House," coming up. A lot of these guys want this guy out of there. And later in the "HARDBALL Debate," did America invade Iraq to counter a threat or to spread democracy? Stay tuned. You're watching HARDBALL.

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Originally broadcast, 11.7.03