Nightly Business Report, October 7, 2009: Susie Gharib interviews Paul Krugman

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GHARIB: The big topic at the White House today: jobs and the economy. President Obama met with top congressional lawmakers to talk about ways to stimulate the economy. No official word on proposals that came out of that meeting but the possible options include a tax credit for companies that create new jobs and extending jobless benefits. Earlier this week the Obama administration said it has no plans for a second stimulus package. So what`s the solution to getting Americans working and the economy growing again? That`s what I asked Paul Krugman today, the Nobel prize winning economist and professor of economics at Princeton.

PAUL KRUGMAN, ECONOMICS PROFESSOR, PRINCETON UNIVERSITY: We need lots more -- don`t call it stimulus if that`s a bad word, but we need lots more government action to create and preserve jobs. Because we stepped back a couple of paces from the edge of the abyss, but that`s a long way from having an actual recovery and the job situation still looks dismal for a long ways ahead.

GHARIB: There`s some talk in Washington about offering companies that create jobs a tax credit and also extending jobless benefits. Would that do the trick?

KRUGMAN: No, but it would help. I mean extending jobless benefits is absolutely necessary because we`re now reaching a point where long-term unemployment is on the rise. We got to have benefits. We can`t just let the people fall off the edge and it also puts some purchasing power in the hands of people so at least helps sustain the economy. The job credit is not -- there are a lot of pros and cons but on balance, it`s a good thing. If I was up to me I`d probably have a new WPA, but it`s not going to happen. So the jobs credit is helpful.

GHARIB: Are you against some kind of second stimulus package is that (ph) we just can`t afford it. So what`s the next best option?

KRUGMAN: That is just not true. It`s a deep misunderstanding. First of all, the stimulus package, although it costs money up front, it also helps the economy and so some of the money comes back to you fairly quickly in tax revenues and then it also helps avoid long-term damage to the economy. So really not doing those stimulus packages on an adequate scale, is being penny wise and pound foolish on a grand scale.

GHARIB: So in your view when does the U.S. economy recover?

KRUGMAN: Technically the recession is probably over. GDP is probably growing. Industrial production is growing. So we`re no longer in a situation where everything is falling, but gosh, we don`t have anything that feels like a recovery until not only jobs start growing, but jobs start growing enough to make a dent in the unemployment rate. And we won`t be fully recovered until the unemployment rate is back down to something like 5 percent, which at this point is in the remote (INAUDIBLE) of the future. We have no idea when that`s going to happen.

GHARIB: JPMorgan just came out with a report and they said it`s going to take four years for the economy to recover all the jobs that have been lost in this recession. Does that sound about right to you or is that too long?

KRUGMAN: No, that sound about right. I mean this is a financial crisis-led recession. Financial crisis -- recessions are the result of financial crisis are very persistent. Four years is not an unusual number in this case. I mean it took us almost that long to recover all the jobs that were lost in the 2001 recession and that was a much milder affair. So this -- it used to be four years. What I worry about is that we could be looking at a much longer period than that, that we could be looking at a lost decade. That`s not my central forecast, but it a real and not negligible possibility.

GHARIB: So are you saying that it`s possible that the economy could nose dive from here?

KRUGMAN: No, I don`t see a nose dive. But a possibility that the recovery will lose momentum, maybe even a double dip, so we have a second recession, although probably not a severe one. Those are all very real. You try and tell me where a strong recovery will be coming from in the middle of next year. It`s very hard to tell that story and it`s awfully easy to tell a story where the recovery kind of sputters.

GHARIB: So where do you stand on this whole double dip recession debate?

KRUGMAN: I think it`s a little bit less than even odds but it`s not that much less. We got an inventory bounce, is a big part of our growth. That will go away. The stimulus will peak early next year. So that will start to fade out. So we have to, if we`re not going to have a double dip, something else has to come along and it`s not sure that something will.

GHARIB: So if the job situation is going to be bleak for a while, what does that mean about consumer spending?

KRUGMAN: Consumer spending has got almost everything running against it. Half this country is feeling the effects of the joblessness, directly or through people close to them. This is not a small thing. Yes, consumers come roaring back, maybe. There`s -- certainly look at individual things. You look at consumer durables and current rates of sale are sort of not replaceable rates. So at some point people start to buy new cars just because their things wear out. But I can`t see how a strong consumer recovery is even possible.

GHARIB: If President Obama asks for your advice, what would you tell him is the most important thing he needs to do right now to fix the economy?

KRUGMAN: If I had a single thing that I want most of all it would be a (INAUDIBLE) That`s where we`re having a totally gratuitous cutbacks, should not be happening. They`re doing double damage. They`re both depressing the economy and they`re scarring our future because we`re losing education. We`re losing all these things that are terribly important for people. So I would push for another round of aid to those state and local governments. That would be my top priority.

GHARIB: Professor Krugman, thank you so much for your time, a pleasure talking to you.

KRUGMAN: Thank you.

GHARIB: Anheuser-Busch InBev is selling its theme parks business to private equity firm the Blackstone Group. Those 10 parks include Sea World and Busch Gardens. Blackstone will pay $2.5 billion for the parks and keep the management in place. And as you know Paul, InBev has been selling off assets to help pay for its $45 billion takeover of Anheuser Busch and that happened last year.

Originally broadcast, 10.7.09