Today, November 25, 2008

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MEREDITH VIEIRA, co-host: Princeton University professor Paul Krugman is a New York Times columnist and author of the forthcoming book "The Return of Depression Economics and the Crisis of 2008." And he also won the 2008 Nobel Prize in economics. Good morning to you, Paul.

Professor PAUL KRUGMAN (Author, "The Return Of Depression Economics And The Crisis Of 2008"): Good morning.

VIEIRA: You know, yesterday, President-elect Obama refused to assign a dollar amount to his economic stimulus plan, but he did say it needs to be large enough to jolt the economy into recovery, as he put it. And now we are hearing that the federal government may loan as much as $7.4 trillion to get us out of this mess. Where is that money going to come from?

Prof. KRUGMAN: It's going to be borrowed. You know, we shouldn't be under illusions. This whole recovery thing is going to add substantially to the federal government's debt. It's going to be a--you know, there's--we're going to have to eventually tighten our belts a bit to pay this stuff off. But there's no alternative. You've got to do something now.

VIEIRA: But is it sound policy, Paul, or could we be digging a deeper hole for ourselves?

Prof. KRUGMAN: It is, because the downside is so great. I mean, there's a reason I use the phrase "depression economics." We're not in a depression right now, but we are seeing syndromes that look an awful lot like the 1930s, and you want to stop this thing before it gets too far. You don't want the spiral to--the downward spiral to build up momentum.

VIEIRA: So what are those signs that you are seeing? And are you saying, then, that it is not inevitable, a depression?

Prof. KRUGMAN: No, it's certainly not inevitable. But what we're seeing is, first off, that conventional policy--you know, normally the Federal Reserve cuts interest rates. We used to think Alan Greenspan could solve all our problems, now Ben Bernanke can do that. But right now the interest rates the Fed can effect are very close to zero, and the economy's still sliding. We're probably losing jobs at the rate of around 300,000 a month at this point. So you really do not want that to keep on. It's a nose dive. You've got to pull the plane up right now.

VIEIRA: President-elect Obama is expected today to talk about possible cuts to the federal budget, and also ways that maybe the American citizens can sacrifice or must sacrifice in this difficult time. What kinds of sacrifices do you think are necessary?

Prof. KRUGMAN: Well, you know, right now we don't want sacrifices this minute. Right now we want people to spend. But because we're going to be running up this debt, we're going to have to be making some sacrifices coming out. So that's probably going to mean that we're going to have to look for savings in the federal budget two, three years down the road. There's lots of things that we--there is ways, there is fat. You're going to have to get rid of that--some of that soon, but not right this minute.

VIEIRA: Your colleague Tom Friedman has suggested that President Bush should swear in as secretary of the treasury Mr. Geithner, immediately. And you have also said in comparing 2008 to 1932...

Prof. KRUGMAN: Mm-hmm.

VIEIRA: ...that one of the comparisons is this power vacuum. So how is important--how important is it that we move very quickly here?

Prof. KRUGMAN: Well, there's a lot of damage being done as we speak. It's very likely that by the time President Obama gets his first job report in February that the economy will be down a million jobs from the last job report we've had. There is damage going on to the financial system. You saw Citigroup came right up to the brink just over this weekend. So you know, I--we will survive, but it will be a lot easier to get the economy moving if we do it sooner. Every week that passes makes the task of recovery substantially harder.

VIEIRA: But do you expect that that will happen, Paul?

Prof. KRUGMAN: I would be surprised.


Prof. KRUGMAN: I mean, it's not just that it's very awkward. You know, we do have this Constitution which says that there's only one president at a time. And there is a big ideological gap between the current administration and the administration to come. Hard for them to agree on even the basics of a plan.

VIEIRA: All right, Paul Krugman, thank you so much.

Prof. KRUGMAN: Thank you.

VIEIRA: And congratulations on that Nobel award.

Prof. KRUGMAN: Thank you so much.

VIEIRA: And once again, here's Matt.

MATT LAUER, co-host: All right, Meredith, thank you.

Originally broadcast, 11.25.08