SYNOPSIS: Paul discusses the recession and The Great Unraveling

KAI RYSSDAL, anchor: This is MARKETPLACE, I'm Kai Ryssdal. Yesterday, in this segment, we heard New York Times columnist and economist Paul Krugman tell us what he thinks is wrong with the economy and how it's being run by the White House. Today, what he says should be done to fix it.

Mr. PAUL KRUGMAN (The New York Times): Look, there are certainly things that you always do when the economy is in a slump. The federal government always provides aid to state and local governments so they don't have to lay off school teachers and t--and policemen and so they don't have to put off road maintenance and all these things that--that, aside from being bad for the country in other ways, also destroy jobs. We haven't done that. We should be providing--we should be spending on reconstruction after terrorism and on--on homeland security. In other words, we need a little bit of New Deal. Not obviously a whole Works Progress Administration, but we need actual job creation by the federal government as opposed to giving big tax cuts to rich people and hoping that somehow that will stimulate the economy.

RYSSDAL: I'm glad you mentioned New Deal. There were those in 1932 and 1933 who were as opposed to what Franklin Roosevelt was doing then as you are to what George Bush is doing now.

Mr. KRUGMAN: In 1932, there were--in the '30s, there were a lot of people who were very anti-Franklin Roosevelt. But history has told us that in the end, the--the public is very happy with the institutions he created and for that matter that Lyndon Johnson created--Great Society, New Deal. What we have--what I say in--in the beginning of "The Great Unraveling," is that we have in power now people who really don't like those institutions.

RYSSDAL: If you look at where we are right now in the economy, which is somewhere in the second half of--of the year, people have been saying for a long time, it's going to get better in the second half. What do you think?

Mr. KRUGMAN: The growth numbers will be better. Look, anybody who tells you what--what is happening with the economy right now, anyone who tells you that he knows what's happening with the economy right now, by that very statement proves that he doesn't. Because, let me just step aside from politics and all that for a moment, just say that the numbers that we're getting are downright weird. They just do not compute. If I look at the numbers for third quarter on output, you know, the surveys of--of businesses, the industrial production numbers, they would seem to suggest something like a 5 percent growth rate in the third quarter, which is very good. If I look at the employment numbers, they look really lousy. And then you ask, 'Is it possible that productivity growth has accelerated to such a pace that this growth rate is consistent with job loss?' And I say, 'No, that doesn't seem plausible.' And yet something is wrong. I--I--I have to say, we--all of us who watch this sort of thing--and this is--this is wearing my professor hat...

RYSSDAL: Mm-hmm.

Mr. KRUGMAN: ...are just scratching their heads and saying, 'Is there something wrong with the data? And if so, which part of the data?' The trouble is there are multiple indicators indicate--that seem to support each other on the labor market. There are multiple indicators that seem to support each other on the output market. So we're just in weird territory. We seem to have gone into the Twilight Zone. We don't know quite what's going on.

RYSSDAL: Paul Krugman's book, a collection of his New York Times columns and some other writings, is called "The Great Unraveling." In Los Angeles, I'm Kai Ryssdal. Thanks for being with us.

Originally broadcast, 9.18.03