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MADDOW: OK. So here is an awkward moment in the political news world. As everybody is waiting for the still-president to exit stage right, we are obsessively following every move of President-elect Obama. The result is that pretty much the entire national press corps has been following almost-President Obama around during his vacation in Hawaii, hoping maybe simply by virtue of his being president-elect that some news might sprout up around him. When it didn`t happen, we got the distinct privilege today of reading about an Obama family bathroom break and a presidential tuna sandwich ordered without mayonnaise. Paging the National Archives. But then, news did actually happen. A thunderstorm crashed through Oahu on Friday, and the whole island lost power, which left the first family to be without power for about 11 hours. So we now know the soon-to-be-president is capable of lighting some candles, firing up some flashlights and roughing it during a black out. But the Hawaiian power failure is, of course, also a very appropriate allegory for the power politics going on in Washington about Obama`s economic stimulus plan and the increasingly obvious need for that plan. When candidate Obama appeared on this show in October, he talked about his desire to rebuild our country`s infrastructure. He specifically mentioned the electrical grid. Hawaii, are you listening? But the need for immediate infrastructure help is apparent all over the country. In Michigan, more than 413,000 people lost power yesterday because of high winds. Yes, wind is, apparently, our electrical grid`s kryptonite now. Tens of thousands of Michiganders, still without power as of this afternoon. In Savannah, Georgia this morning, underground electrical cables exploded, blowing manhole covers into the air and starting several fires in the city`s downtown area. And in Tennessee, remember last week`s spill of coal ash? It has spilled - now they say it`s about 1 billion gallons of toxic sludge threatening residents and their drinking water some 40 miles west of Knoxville, Tennessee. We are, in fact, at a moment, when we have an actual infrastructure crisis on our hands, and we need to spend money to fix it. The good news, and it`s not so much the good news as it is the good news part of the bad news, is that the solution to our economic crisis is widely-considered to be self-investment, putting money into our own physical circumstances - infrastructure. But even though we clearly need it, there is building political resistance among some Republicans to the idea of an infrastructure stimulus plan. John Boehner, the Republican leader in the House, is asking Democrats to not bring an infrastructure spending bill to the House floor until, quote, "there have been public hearings in the appropriate committees, the entire text has been available online for the American people to review for at least one week, and it includes no special-interest earmarks." Senate Minority Leader Mitch McConnell is also firing off an "I`m digging my heels in" warning shot saying, quote, "The American people need to know if their money is spent on mob museums and waterslides," obviously trying to alleviate the fear that when Mr. Obama says electrical grid, roads and bridges, he secretly means oceans of fun waterslides and shrines to Vinny the Chin. Joining us now is Nobel Prize-winning economist, Paul Krugman who has written extensively on the economic and infrastructure crises in his columns for the "New York Times." Mr. Krugman, thank you so much for coming back on the show.

PAUL KRUGMAN, NOBEL PRIZE-WINNING ECONOMIST: Great to be on.

MADDOW: Is there a principled economic argument against infrastructure spending as economic stimulus as a way of helping us out of this crisis?

KRUGMAN: Well, you know, there are economic theories that say that demand is not the problem, that problem - we don`t need more spending. You know, University of Chicago economists recently said the real problem is that, for some reason, people don`t want to work. Add that to your theory then, you know, economic stimulus is not going to help. But, there is no coherent theory being offered by Mitch McConnell or John Boehner or these people. They don`t really have a story. They`ve got more slogans, you know. Government is bad. Big spending is bad. Watch out for the earmarks. And, you know, this is not really a story, but they are putting up roadblocks, and the way of doing this is kind of some, you know, politics plus suspicion.

MADDOW: You have been arguing that the stimulus plan may need to be bigger than has previously been grappled with politically. Why does it need to be really big and what is really big?

KRUGMAN: OK. I mean, the thing - one way to say this -Obama has been saying three million jobs, which sounds like a big deal.

MADDOW: Yes.

KRUGMAN: But we have lost two million in the last year. And since we need more than one million extra jobs just to keep up with population, we are already down three million jobs right now. We are losing jobs at the rate of at least 500,000 a month, probably faster than that. By the time a new stimulus package, you know, gets going, really, we are going to be way down in the hole. Three million is not actually going to be enough to close the gap. So we need - you know, the numbers, when you start to do them, get huge. You know, Larry Summers talked in a recent op ed about us being $1 trillion under capacity in the U.S. economy. How much money does the Federal Government need to spend to, you know, use up that capacity? Not the full trillion, but a good share of it. So it`s very easy to come up with numbers that are like, you know, $600 billion, $700 billion in one year. And of course, we are talking about at least two years of doing this stuff.

MADDOW: We are thinking about the need to create jobs for an economic purpose ...

KRUGMAN: Right.

MADDOW: ... as well as a social purpose here. Are there more jobs- intensive ways of spending money on economic stimulus and less jobs- intensive ways? Is that the way that we should measure good infrastructure-spending, good stimulus-spending as opposed to bad?

KRUGMAN: You know, there are two objectives here and they don`t perfectly coincide. One thing we want to do is we want to - you know, we want to make sure that we don`t have exploding manhole covers, right? And that is stuff that`s important because it`s important for the future. And there is stuff that we want. We want to create jobs. We want to keep this economy from going into an even deeper tailspin than it is in. And those are not the same thing. The things that you want to do for the future might not be the kinds of things that would come online fast that would give us a lot of jobs by May or June of 2009. So the Obama administration - they have to try and make some compromises between those two. The one thing we know is that the good thing about federal spending is it`s actually spent, that it actually does boost the economy. And if it`s infrastructure, it also leaves you with something of value afterwards. Whereas if you do it the way the Republicans want to do it, which is always tax breaks, first of all, it might not be not be spent or it might not help the economy at all. And then, you`ve got nothing to show for when the thing is over.

MADDOW: In your column today in the "New York Times," you wrote that the nation`s governors are essentially behaving like 50 Herbert Hoovers for cutting spending during this economic downturn. Many of them, of course, have to contend with not being able to deficit-spend. What should governors be doing differently? What should states be doing differently than they are doing right now?

KRUGMAN: Oh, this wasn`t actually a call to the governors. You know, I think most of them got no choice. I mean, as I said in the column, you know, governors are not stupid, or at least, not all of them. They are under constraints. They have balanced budget rules. And also, they are not being very successful. You know, the capital markets don`t want to lend them money. The rates of interest on state bonds are outrageous right now. So, this is a call for Washington to come to the aid of the states. I mean, the one thing you can do, the fastest thing to do in terms of economic stimulus is to avoid cuts. You know, we are having anti-stimulus taking place at the state level. We`ve got the state of California calling a halt to all construction projects because of the money situation. That`s crazy, from a national point of view, for that to be happening right now. So what we really need is aid from the Federal Government. We need the Federal Government to pick up more of the tab for Medicaid, for unemployment insurance. We need the Federal Government to be taking on some of the costs of these infrastructure projects that are already underway or already about to start, but which the states are now too cash- strapped to do. So it`s - you know, the state is the first place to look for something. You can stop bad stuff from happening, which is always quicker than starting good stuff.

MADDOW: Paul Krugman, Nobel Prize-winning economist, "New York Times" columnist, it`s always nice to have you on the show. Thanks for joining us.

KRUGMAN: Thanks.

MADDOW: Next, the White House pardons someone who broke the law which I then got very complicated and confused about, because after they pardoned somebody, they tried to un-pardon them. They tried to take the pardon back. I don`t think they can actually do that. "Lame Duck Watch" is next.

Originally broadcast, 12.29.08