Hardball, December 3, 2008

Watch this broadcast on Video


MATTHEWS: I leave you with that brilliantly stated thought there. Clarence Page, Chris Cillizza, we are all, Mr. President, if you're watching, fascinated with you, sir. Coming up: How today's economic crisis looks eerily similar to the start-well, I'm not going to say this. This is in the script. It's not as bad as the Great Depression. It's 6.5 unemployment. The Great Depression was 25 percent unemployment. But let's bring on an expert, Nobel Prize-winning economist Paul Krugman of "The New York Times." He's going to be here to tell us what we need to do, what Obama needs to do. And here's the guy that thinks you better not do it on the cheap. This guy's no conservative, Krugman. He believes the biggest mistake Obama can make is to be squeamish and do little stuff instead of big stuff. It's time to show you won the election, President Obama. You're watching HARDBALL, only on MSNBC.


MATTHEWS: Welcome back to HARDBALL. Joining me now, "New York Times" Pulitzer-oh, Nobel Prize-winning columnist Paul Krugman, whose new book is called "The Return of Depression Economics: The Crisis of 2008." Just tell me, sir-congratulations, by the way, on winning a Nobel-are we going into a Great Depression again? Is it that bad?

PAUL KRUGMAN, "NEW YORK TIMES": I don't think so, but you know, I'm not 100 percent sure of that. It's certainly going to be the worst thing since the Great Depression. This is going to be-this is really bad. It may not be-you know, I don't know if we're going to have guys selling apples on the streets, but it's going to be really very bad, and much worse if we don't have an effective response.

MATTHEWS: How long's this deflation going to work, where-are we going to reach the point, like they did in the Great Depression, where it was more expensive to make something than you could sell it for, you had the prices were so low, they didn't even reach the cost of production, and that's why you did throw things on the ground?

KRUGMAN: Well, that's happening already in some-you know, some resource sectors. It's-there's a lot of manufacturing where they don't cut the prices so much but where stuff is piling up. You know, we've got luxury cars landing at the docks in Los Angeles and then just sitting there because no one could buy it. So look, this is a lot like-this is functionally a lot like the Great Depression. You know, the thing about the Depression was they couldn't cut interest rates because they were already at zero. And guess what? You know, three-month Treasury bills are 2 one hundreds of 1 percent interest rate right now. We're basically in those kind of conditions.

MATTHEWS: What do you have to do to sell a car now? What do you have to do to sell a house? I mean, it seems to me if you've got a Great Depression, what you want is consumption to go up, investment to go up, or government spending to go up. Is there any chance we can get consumption to go up? Because the only three ways people spend money, either consumers spend it, you and I, business spends or the government spends. That's how spending works.


MATTHEWS: Is there any chance the consumer's going to start spending? This Christmas holiday season apparently down, even with all the bargains out there. Is there any way to juice it up?

KRUGMAN: No. The thing is, we were running on empty in terms of consumers anyway. We had a near zero savings rate. We had people living by using their houses as ATMs, and that's not going to work anymore. So consumption-I mean, consumption should not go up. People should be saving more. It was-we were not in a good state. Investment won't go up until people see the demand, until businesses see that they're-you know, with the shopping malls going vacant and with manufacturers having their plunging sales, who's going to invest in new factories? So it really is up to government. We're in a situation now where...

MATTHEWS: OK, that's what-that's what Warren Buffett said a couple weeks ago. If consumption is zero, is flat, and investment is zero, the only person or the only institution in American life capable of over-leveraging, of getting this economy rolling again, pumping the prime, priming the pump, is the federal government. Now, I've looked at some numbers. I've heard about them. You know, we have a GDP in this country of $13 trillion. That's our economic activity in this country. You put it over three years, that's still only -that's $39 trillion. What good is a goose of a trillion-dollar stimulus package against that kind of economic weight that's being held down, our economy?

KRUGMAN: No, but the economy...

MATTHEWS: One trillion, is it enough?

KRUGMAN: I'd say $600 billion for next year is probably at least most of the way there. It's-we're probably going to have a deficit of a trillion dollars. Look, I mean, we're not talking about an economy-as you say, we're not in the Great Depression, not yet. So we're not talking about 25 percent unemployed economy. We're talking about an economy that's going to be operating maybe 7 or 8 percent below what it should be producing, and that-government spending can make a big dent in that gap. It can fill a lot of the hole, and then maybe we can have some investment, consumers at least won't plunge as much as they otherwise would. No, it makes a huge difference if we can get that spending going.

MATTHEWS: One of the knocks on Franklin Roosevelt is, he took office in March of 1933. And because it was the lame duck period still then, it had not come into becoming January 20 yet, it was 25 unemployment when he came in. Unemployment was still about 19 percent in '38, five years later. It took him a long time. It took World War II. It took Hitler and Tojo to get us out of war-the Great Depression.

KRUGMAN: OK. There's a-there's a lot of-there's a lot of cherry-picking going on there. Unemployment actually came down a lot from '33 to '37. And, then, in '37, Roosevelt listened to the wrong people...

MATTHEWS: Yes, we're looking at it.

KRUGMAN: ... who said, we should-we should-we should balance the budget. And he-you know, he cut back, cut the WPA in half.


KRUGMAN: He raised taxes. And unemployment went back up again in '38. So, people say, oh, look, in '38...


KRUGMAN: ... he hardly made any progress.


KRUGMAN: He was actually doing pretty well up to '37.


MATTHEWS: OK. Let's suppose...


MATTHEWS: Suppose-let me just ask you the bottom line here, because we are trying to avoid a Great Depression, not relive one.


MATTHEWS: Hitler and Tojo forced us to spend a lot on production. And America's greatest-we became the arsenal of democracy...


MATTHEWS: ... in-in Roosevelt's words, and we really saved the world from evil. But...


MATTHEWS: ... economically, if we had spent that kind of money in '33, rather than '41 or '40, would we have been able to get out of the Depression? In other words, was it within the government's ability to end the Depression in, say, '33, and not wait for the war to get us out of it?


KRUGMAN: Oh, sure. Sure. There is nothing special that says that spending...

MATTHEWS: Well, that's a big answer.

KRUGMAN: What? No, I mean, there is nothing special that says that-that-that buying weapons, you know, buying shells and explosives is more stimulative than-than building roads and-and repairing bridges. You know, any kind of spending would have done it. It was only under wartime conditions, though, that you could get the political will to do what amounted to the giant stimulus package that was needed. So, the question, right now, I think, is not, can we do this, but can we persuade Congress to do it. Can we persuade Obama that he needs to go really big? That's the issue.

MATTHEWS: Well, one of the advantages, it seems to me, Paul, from a political perspective, is that, when you have a really big problem, most people intuitively believe you have to have a big solution. And although there were some governors the other day in Philadelphia arguing what we need to do is balance the budget, the Hoover position...


MATTHEWS: ... it seems to me that moderate Republicans will join Democrats in-in giving the president the power he needs to actually do something really big, because we have a really big problem. The unemployment rate this coming Friday-it's at 6.5 -- what do you think it's going to get to? I mean, if it gets 7, are we going to be scared to death and start doing big stuff already?

KRUGMAN: Yes. I don't know if it will get over 7 this Friday, but that 6.5 was the unemployment rate for October. What we're going to hear about on Friday is the unemployment rate for November. And this thing-this economy is falling like a stone. This is really-so, we're going to go over 7, if not-if not this week, four weeks later. It's-it's going to happen. And I think that will concentrate people's mines, but it is still-I mean, I have-I'm still finding that even people you would think would be really pro-big economic recovery package says, so, let's spend a lot of money. Let's spend $400 billion. And I say, $400 billion is not a lot of money, I'm sorry to say, given the kinds of problems we face. So, it's still hard for people to wrap their minds around the scale of the thing we need to do.

MATTHEWS: Right. Well, I hope you give a...


MATTHEWS: I hope you-Paul, Paul, I hope you give a Nobel speech like William Faulkner, which is, we will not only survive, but we will prevail. Something that optimistic about America, I think, is called for. So, check back and see what Faulkner said when he got his Nobel Prize. I hope it applies to the experts like you. Thank you very much, Paul Krugman. Congratulations again...

KRUGMAN: Thanks a lot. Thanks a lot.

MATTHEWS: ... Nobel Prize-winning economist and-and-and columnist for "The New York Times," Paul Krugman. The name of the book is "The Return of Depression Economics and the Crisis of 2008." Thank you, Paul Begala. Up next, the big question when president-elect Obama named Bill Richardson commerce secretary today, what about Richardson's beard? A little funny story here about what Obama-you want to think about a guy quick on the uptake. He had an interesting comment. He is pro-beard, this guy, Obama. Today, we have got the new president's verdict on that beard. That's next on the "Sideshow." You're watching HARDBALL, only on MSNBC.


Originally broadcast, 12.3.08