SYNOPSIS:

DAVID BRANCACCIO, anchor: A depression is oceans away, she just said. Perhaps. I asked noted Princeton economist Paul Krugman to weigh in on the doomsaying din.

Professor PAUL KRUGMAN (Princeton University): I actually have to say that the biggest concern is that there doesn't seem to be enough concern among the people who make the decisions.

BRANCACCIO: But are you worried about a doomsday scenario, something on the order of what has happened to Japan in the last decade or so?

Prof. KRUGMAN: Everything would have to go wrong. You'd really have to have Murphy's law applying for it to occur. And I have to say that it looks less unlikely than it did six months ago. We're not Japan, but we're l--a libbl--little bit more like Japan than we did and it's not a good sign.

BRANCACCIO: 'Cause Japan is practically a depression. It's not our Great Depression, but it's certainly not just any old recession.

Prof. KRUGMAN: It's--it's a low-key--it's a minor key slow-motion Great Depression, and it shows that it can happen in the modern world, and if it can happen in Japan, it could happen here.

BRANCACCIO: But as you say, it's not all that likely here. What is more likely? A recession?

Prof. KRUGMAN: Will we have a technical recession? I think the odds are a little better than 50-50 at this point that we will, in fact, have those two quarters of negative growth. We'll certainly have a rise in the unemployment rate. And there's an alarming possibility that if this thing build momentum and even if it doesn't turn into a 10-year Japanese-style slump, it does turn into a one-year very, very nasty downturn.

BRANCACCIO: Doesn't sound like you're buying this theory that's currently in vogue that technology which allowed the economy to sink so quickly will allow us to come out quickly--the V-shaped curve.

Prof. KRUGMAN: Well, there are at least as many things out there suggesting that the momentum for the downturn is still building as there are things suggesting that it's turned around. You know, consumers are--are starting to buckle, a lot of in--business investment is being canceled; you just sort of look for good, solid reasons to think that the worst is over, and they aren't out there.

BRANCACCIO: What would a recession look like--a modern, 21st-century recession? Will history be a guide, or do you think new technology and new styles of management will maybe color this or flavor this in some different way?

Prof. KRUGMAN: I've been startled at how little difference the technology seems to make. We had all kinds of explanations about how in this modern, high-tech age companies wouldn't find themselves producing too much, building up big stocks of excess inventory and then slashing production, and yet in fact that's exactly what happened. I think the big question is whether this is a mild recession--sort of a 1990, '91 recession or whether it's a terrifying drop like 1979 to '82 with unemployment going up above 10 percent. I don't think it's going to look like that one, but, you know, we have precedent in living memory, even in my memory, for some pretty nasty scenarios.

BRANCACCIO: Paul Krugman teaches economics at Princeton. You've heard of speed reading? How about speed writing? Krugman has just finished a book called "Fuzzy Math," the essential guide to the Bush tax cut, out at the end of the month.

Originally broadcast, 4.13.01