SYNOPSIS: Paul discusses job loss in the U.S. with Ted Koppel. The topic of their conversation is a report on unemployment by David Marash, only part of which is included

graphics: NIGHTLINE: America in the Red

FORMER EMPLOYEE OF HOOKER FURNITURE: Seeing the last piece furniture I'll make here at Hooker Furniture. It's rough. I thought I was gonna get to retire here but looks like I'm on the way out the door.

FORMER EMPLOYEE OF HOOKER FURNITURE: I don't know what I'm gonna do. Somewhat down the line I hope I can find a better job. I've enjoyed working here and I've enjoyed working with the people.

PAUL TOMS: It's unlike anything I've seen in my 21 years in the industry. Plants have closed, people have been sent home, and it's really, has come quicker than anybody expected. And I think it's hard to say, three, four, five years from now, what will this industry look like domestically?

DAVE MARASH (Voice Over): Paul Toms says he understands the logic of the new global markets and the Chinese push into the furniture business.

PAUL TOMS: You know, they have millions of people that they're trying to have employed. So, it's hard to fault them. But I think, at some point, this country has to think about what's best for us and our citizens. And there's a balance in there somewhere. I do think you have industries and examples of predatory pricing, where you will have companies or countries that come in and sell products, perhaps artificially low, to take market share, run the domestic manufacturers out of business. And I think that's a risk we run, not just in furniture, but in any industry that we're letting leave this country.

FORMER EMPLOYEE OF HOOKER FURNITURE: Textile, furniture, tobacco, everybody's leaving. What North Carolina was based on, it's gone.

DAVE MARASH (Voice Over): For 14 years, Andrew Brod has watched the furniture industry, much of it once within easy driving distance of his office in Greensboro. Some things have changed, some haven't.

ANDREW BROD: Only then, an industry that does not invest very much in its own productive capital, its own productive capacity. And over the last few years, countries like China have done so.

DAVE MARASH (Off Camera): Has the furniture industry made capital investment during this period of low interest rates? And if so, where did they bet their dollars?

ANDREW BROD: The irony of the kind of investment the industry has made recently has been -making it in China. Some of them have contracted with Chinese producers, but others have entered into joint ventures to establish new factories, to refurbish existing factories. There's a lot of new efficient productive capacity over in China right now.

DAVE MARASH (Voice Over): Hooker Furniture has gone to China for an ever-increasing share of the products bearing its brand name. This year, about a third of Hooker's furniture came from overseas. And that proportion and the healthy profit it brings to the company are both growing. If the American furniture industry wants to survive in America, Andrew Brod says, it'll have to save itself.

ANDREW BROD: Compare this furniture industry of the early 2000s to the automobile industry of the 1970s. And one of the first thing that the automobile industry did was to appeal to government, to the Federal government, to institute trade restrictions on, primarily on Japanese automobiles at the time. Well, the government complied and it worked for a while but it really didn't work in the long run. And the -only fact that they pulled the American automobile industry out of the, out of its doldrums was not Federal government action but rather, well, Detroit just buckled down, improved quality, improved its production processes, became more efficient and maybe got a little lucky, found the minivan. And so the question for furniture is, what's our minivan going to be?

DAVE MARASH (Voice Over): For North Carolina, the answer better come quickly. Because furniture for the Tarheel state is much more than just factory jobs. It's marketing and retailing and tourism and things harder to see and measure, like image and history and soul. I'm Dave Marash for "Nightline" in Kernersville, North Carolina.

TED KOPPEL (Off Camera): And joining me now is Paul Krugman, professor of economics and international affairs at Princeton University and a columnist for the "New York Times." Professor Krugman, is this in microcosm, the story of Hooker Furniture, is this a microcosm of what's happening across the manufacturing landscape?

PROFESSOR PAUL KRUGMAN, PRINCETON UNIVERSITY: It is but it's an old story. What's different is the context. I mean, if you look at this, this kind of thing happens all of the time. In fact, when those plant were created in the Carolinas, at that point that was cheap labor in the Carolinas.

TED KOPPEL (Off Camera): Exactly. They were taking it away from Michigan.

PROFESSOR PAUL KRUGMAN: That's right. And so, you know, there's always this churning, they're always plants being closed, it's always local pain. When the economy as a whole is doing well, the pain is masked by gain elsewhere. So, what's special now is that we have an economy which isn't generating any new jobs anyplace else. So that, you know, even in the Carolinas, during the '90s, we had a lot of foreign companies opening up new manufacturing plants in the area, not necessarily employing the same workers. But, you know, right now in this - seemingly endless jobless recovery, doesn't feel like a recovery, these stories -become extremely painful and they mean -a lot of real human catastrophe.

TED KOPPEL: (Off Camera) It sounds, from what Dave Marash reported, as though the Hooker Furniture people really did try to do everything they could to maintain the jobs. Indeed, by closing the plant I think they're trying to maintain jobs in other nine plants which are staying open. But is this -a losing battle? I mean, are they bailing out a sinking ship?

PROFESSOR PAUL KRUGMAN: Ultimately, yes. I mean, you know, we are a rich, high-tech, high wage country. And stuff that can be done, basically the rule is, if you can do it in China, it's cheaper to do it in China. It's only the things that you can't do that are going to stay here. But again, here we are, stagnant economy, no job creation, so these things become really tragic.

TED KOPPEL: (Off Camera) You've been highly critical in your "New York Times" column of the Bush Administration. But, put it into larger, more abstract terms. Is there anything that any Administration could do that would change that fundamental equation?

PROFESSOR PAUL KRUGMAN: Sure. I mean, you have to ask, why aren't we doing the things that governments faced with a persistent slowdown do? Where is the public works spending? Where are the, where is the aid to state and local governments so that they don't have to be cutting back even in the face of a depressed economy.

TED KOPPEL (Off Camera): Let me ask you a question in return. Where is the money for the Federal government to give money to the states? They don't have the money, they're operating at a huge deficit.

PROFESSOR PAUL KRUGMAN: Yeah, but we just had wave after wave of tax cuts, which are costing the Federal treasury $200 billion this year, $300 billion in the next fiscal year which starts next month. It's hard to believe. You know, that's, $300 billion is the equivalent of the salaries of six million ordinary American workers. It's hard to believe that that money was being spent on job creation in a direct way rather than given in tax cuts that supposedly do something that we wouldn't be doing a whole lot better than we are.

TED KOPPEL (Off Camera): To sort of borrow from the old chestnut, to those people at the Hooker Furniture company in North Carolina, this is a depression, they're out of work.

PROFESSOR PAUL KRUGMAN: That's right.

TED KOPPEL (Off Camera): With little, if any, hope of getting another job. Is there any note of hope that you can give those people?

PROFESSOR PAUL KRUGMAN: Well, it's a, you know, America is a great economy. It can survive a lot of mismanagement. It is worth remembering that back in the early '90s we had the same kind of feeling of despair that's spreading in the country right now. And we pulled up our socks, we had this decade of extraordinary economic boom that followed. That can happen again. It's not guaranteed, but it can happen. But I have to say, right now, I think they should be asking their -elected officials, what's your plan? What are you going to do about it?

TED KOPPEL (Off Camera): Professor Paul Krugman, thanks very much for being with us.

PROFESSOR PAUL KRUGMAN: Thank you.

TED KOPPEL: (Off Camera) I'll be back in a moment with the latest on the violence in Iraq.

Originally published on the Official Paul Krugman Site, 8.8.03