SYNOPSIS:

SCARBOROUGH: All right, thanks so much, Bob. I appreciate you being with us. Also, of course, Annie, as always, thanks for being here. And, Steve Emerson, we greatly appreciate it. Now, coming up, some people are saying that John Kerry gave a great speech last Thursday. I'm not one of those people. But we're going to find out what "The New York Times"' Paul Krugman thought of John Kerry's big night and about out-of-control spending on Capitol Hill and why that is a capital offense. That's coming up next.

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SCARBOROUGH: "New York Times" columnist Paul Krugman writes the following -- quote -- "The Bush administration poses a challenge to America as we know it. Bush represents a revolutionary power that aims at a transformation of American politics. And the radicalism of this movement, I argue, extends across both domestic and foreign policy." The book is called "The Great Unraveling: Losing Our Way in the New Century." It's now available in paperback from Mr. Krugman. I spoke with him earlier today and I asked him if he was worried about the out-of-control spending in Washington.

(BEGIN VIDEOTAPE)

PAUL KRUGMAN, AUTHOR, "THE GREAT UNRAVELING": Big spending increases domestically are all either military related or national security related. Once you look at the rest, it really isn't happening. There's just a lot of deceptive statistics being put out by the usual suspects, at places like the Heritage Foundation. But if you take that aside, it really -- all that's been happening is the growth of cost of Medicare and, of course, the Medicare prescription drug bill. But this is -- no, Bush as big spender is actually mostly a myth. The other thing to bear in mind is, they have an election to win. Spend money before the election. But if you look at the underlying plans, it's actually to dismantle a lot of the programs they say now they'll defend to the death.

SCARBOROUGH: And I want to talk about John Kerry for a second. Again, I have been very critical of the Republicans, the Bush administration, because, again, the numbers that I see, the increases in the departments, the increases in domestic spending also, as well as foreign, it seems they want to cut taxes. The want to increase spending. They don't want to balance the budget. In John Kerry's speech on Thursday night, this is what John Kerry talked about. He actually tax cuts for the middle class. He talked about tax cuts for businesses. He talked about universal health care when he talked about health care being a right. And he didn't propose cutting any existing programs. Anything in that speech concern you, or do you think that people like me might be playing Chicken Little by talking about these deficits and the debt and what it may do to interest rates?

KRUGMAN: I would probably want to be -- if it was up to me and if I didn't have an election to win, I would be more aggressive about tackling the deficit than Kerry is. But there's nothing in Kerry's program that is any less responsible than what is in Bush's program. If anything, it's a bit

(CROSSTALK)

(LAUGHTER)

SCARBOROUGH: That's actually damning with faint praise, when Bush got $150 billion surplus and now we're sitting at a $450 billion deficit.

KRUGMAN: Let me put it this way. Bush has a plan, he claims, to cut the deficit in half. It makes no sense at all. Kerry says he's going to cut the deficit in half and there's more to it than there is to Bush. Now, I say, OK, gimlet-eyed accountant, I would like to see more. But the things that Kerry is proposing, he has also proposed ways to pay for. The fact is that the Kerry health care and education stuff is paid for by rolling back tax cuts for the top 2 percent of families. And if you do the math, it works.

(CROSSTALK)

SCARBOROUGH: The numbers actually add up on just the top 1 percent?

KRUGMAN: The numbers actually add up. Yes, the numbers actually add up. And let me say something else. You know, who was carefully placed sitting next to Teresa Heinz Kerry during the speech? It was Robert Rubin.

SCARBOROUGH: Yes.

KRUGMAN: Now, if that isn't a signal that we're going to have fiscal responsibility, what is?

SCARBOROUGH: And how sad is it for Republicans like me that came into Congress in 1994 to balance the budget that actually it's Robert Rubin that I see up there going, we may get a balanced budget after all. And It's sad, I think.

(CROSSTALK)

KRUGMAN: But that's telling you something, right? We went through, you know -- people who think that Republicans are the party of fiscal responsibility are living in the Eisenhower years. It just hasn't been true for a long, long time.

SCARBOROUGH: Well, unfortunately, I think we did some things right for a couple of years in the mid-'90s. And, unfortunately, again, it seems everybody is driven by, again, cooking the -- getting the economy burning through tax cuts, through bigger spending. I want to ask you this, though, because Republicans and Democrats alike in the 1990s seemed to understand that higher deficits, higher national debt eventually would lead to higher interest rates. Why isn't that happening now and why don't you hear people on either side of the aisle, you know what, we better curb spending and we better curb these deficits and we better not allow these tax cuts or else we're going to have interest rates shooting up 2, 3 percent? That will cripple the economy, less revenue, higher deficits for us in the future.

KRUGMAN: Well, I think, actually, you will find people saying it. And, in fact, Robert Rubin, again, has a pretty -- he had a pretty blood-curdling piece on this back that was presented at the American Economics Association back in January. Now, the fact is there has been a race to the bottom here, which has been led by Bush. Bush has kept on telling people, don't worry. Deficits are no problem. Let me tell you about the good things I'm going to do for free. And, realistically, the focus of anyone who is going to run against that, since the public isn't sitting there saying, well, let me take a look at those -- oh, the administration has gone over the five-year budget projections, but that's missing the real stuff because it's all in the out years. Ordinary people sitting at their kitchen table trying to pay their own bills are not thinking that through. So a candidate who is going to run against him has got to talk about the good things he can do. I'm sorry, but this is -- it might be good if we had Ross Perot and his charts in this election, but we don't. And so what you have to do is, you have to look at the candidates we've actually got and ask which one do you think is more fiscally responsible.

(END VIDEOTAPE)

(LAUGHTER)

SCARBOROUGH: Longing for the days of Ross Perot, who would have thunk it? Now, straight ahead, more of my interview with "New York Times"' Paul Krugman. Don't go away. We'll be right back.

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SCARBOROUGH: Tomorrow night, SCARBOROUGH COUNTRY is live from Liberty Island for the grand reopening of Lady Liberty after almost three years. But stick around with us tonight, because there's much more SCARBOROUGH COUNTRY from the Redneck Riviera straight ahead.

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SCARBOROUGH: Welcome back. You know, I asked "The New York Times"' Paul Krugman what he thought about John Kerry's convention speech and whether or not the presidential candidate rushed his remarks.

(BEGIN VIDEOTAPE)

KRUGMAN: The network coverage was disgraceful, one hour a night for a national convention in an election that's going to decide a lot about America's future. And they should have done -- now they're going to have to do the same thing with the Republicans, unless they're going to -- unless they open themselves to charges of gross bias. But I'm not sure that's what Kerry was doing. I think part of it was, he was trying to give a serious speech, not just a set of applause lines. And so he sort of waited a couple of seconds, then talked over each applause line. And I actually thought it worked pretty well. I watched -- I watched the convention on C-SPAN, which was the way to do it, not -- unfiltered. And I actually thought that the thing -- that it was a pretty effective, maybe not the best for an emotional connect. But what he needed to do was convince people that he really was serious, he really was presidential. And I thought he did a pretty good job of that.

(END VIDEOTAPE)

SCARBOROUGH: All right, we thank Paul Krugman for coming on SCARBOROUGH COUNTRY. And, again, the book is called "The Great Unraveling." And it is now available in paperback. I don't agree with a lot of the content, but I like -- I'll tell you what. I liked reading this book because it certainly challenges a lot of my beliefs. And I think, in the end, if you're a conservative, read the book. I think it will make your views stronger. If you're liberal, read the book. It will help you going into the fall election and give you some talking points when you eat dinner across the table from somebody like me. Hey, we'll see you tomorrow night. You know, it's been three years. The symbol of America's freedom reopens tomorrow. And we're going to be there. We're going to take you live to Liberty Island. That's tomorrow night at 10:00 Eastern. We'll see you there. Have a great night.

Originally broadcast, 8.2.04