Tim Russert, August 7, 2004

SYNOPSIS: Paul Krugman goes bravely into the heart of the storm and debates the unhinged Bill O'Reilly for a full and raucous hour. Please read the critiques from Media Matters and from Daily Howler regarding O'Reilly lies and blustering in his commentary on this show. Shut up! Cut his mic!

TIM RUSSERT: Good evening and welcome again. Tonight, two observers and commentators on the American political scene. Both have books that are must-reads for Americans who are interested in public affairs. Paul Krugman, "The Great Unraveling: Losing Our Way In The New Century"--he writes his column for The New York Times every Tuesday and Friday. Welcome.

Professor PAUL KRUGMAN ("The Great Unraveling"): Nice to be on.

RUSSERT: And, "Who's Looking Out for You?" by Bill O'Reilly of "The O'Reilly Factor" on FOX News Channel. Welcome.

Mr. BILL O'REILLY (FOX News, "The O'Reilly Factor"): Tim.

RUSSERT: Mr. Krugman, let me start with you. You have a simple premise in your book which says that George Bush is a radical. Why do you use a word like radical to describe the president?

Prof. KRUGMAN: Well, just look at the record, right? This is the first president in American history--in fact, first leader in any history, as far as I can tell--who cut taxes on the rich while fighting a war. This is a--they follow an extremely radical policy agenda. And if you look at the groups behind the administration, look at the think tanks, they make no bones about the fact that they want to roll us back to what we were before Franklin Roosevelt; that they want to get rid of these nasty things like Social Security and Medicare, privatize them. So, you know, this is a highly--this is a radical conservative movement. And just, you know, look at Tom DeLay, the most powerful man in Congress, who is certainly not somebody you'd call a moderate.

RUSSERT: Radical--fair word?

Mr. O'REILLY: You know, I think the Bush administration wants to impose a smaller government on the country. I think they don't trust the government to operate the funds. Obviously Social Security has been looted by the federal government. So, you know, one man's radicalism is another man's practicality. But I'm not here to defend the Bush administration; I want everybody to know that. They can defend themselves, all right? But obviously I don't see them as the harmful, pernicious influence that Mr. Krugman does.

RUSSERT: Why not?

Mr. O'REILLY: Because I believe that Mr. Bush's philosophy is a philosophy that the Republicans have embraced for decades: smaller government; let the private sector drive the economy; let the folks have their money back; let the entrepreneurial class get a tax break, so they'll hire more people. And if you look at The New York Times op-ed on last Wednesday, you'll see George Shultz has a chart that the economy is rebounding after a tremendous blow on 9/11. So that's the supply side, that's the Republican philosophy. I don't see any deviation from what Ronald Reagan did to George Bush.

RUSSERT: Can't you make the case that tax cuts stimulated the economy?

Prof. KRUGMAN: George Shultz is a good economist and a partisan Republican. He's a good enough economist that he knows how to make a chart that is true but misleading. And what that chart shows you is just rates of change. Doesn't give you any sense of level. And what it's really telling you is that after three terrible years on jobs, we've had one year where the rate of change is OK. But that's like saying, 'Well, we're down 400 feet, and we've now climbed 100 feet, so we're back where we started.' And it's not true. The fact is--simple comparison--in the 2002 economic report of the president, which they--you know, this is the Bush administration that's put out after 9/11, it's put out after the stock market crash--they said by--you know, on average in 2004, we're going to have 138 million payroll jobs in the United States. The actual number right now is about 131 million, so we're seven million short of where the Bush administration said we were going to be. And they said that after these blows. So it takes a lot of spinning to call that success. And, you know, think above all--when people say, 'We want less government,' you know, let's talk about what that means. You actually go through the numbers, and the only way you can get a significantly smaller government, the only way you could bring spending in line with the amount of revenue that we've lost from the Bush tax cuts, is to cut deep into Social Security, Medicare and Medicaid 'cause that's where the money is. The federal government--you know, a Bush administration official once said, 'The federal government is, basically, a big insurance company that's got a sideline business in national defense.' And if you're talking about smaller government, let's be clear, that's a euphemism for saying, 'Let's slash Social Security, Medicare and Medicaid.'

Mr. O'REILLY: Well, I don't buy that all. And, you know, Mr. Krugman is a smart guy, but Mr. Krugman was absolutely dead 100 percent wrong in his columns two years ago when he predicted the Bush tax cuts would lead to a deeper recession. You can read his book and see how wrong he was.

Prof. KRUGMAN: Actually, you can read it. I never said that.

Mr. O'REILLY: Sure you did...

Prof. KRUGMAN: I said that it would lead to a lousy job creation...

Mr. O'REILLY: ...column after column after column. You made the point, in your book, OK, that these tax cuts were going to be disastrous for the economy.

Prof. KRUGMAN: No.

Mr. O'REILLY: They haven't been.

Prof. KRUGMAN: I'm sorry, that's a lie.

Mr. O'REILLY: It's not a lie.

Prof. KRUGMAN: Let me just say it's a lie. I said they were ineffective at job creation. And if you look at the Bush administration...

Mr. O'REILLY: Hold on, hold on. Hold it. Now 'ineffective at job creation,' what is that? Semantics now?

Prof. KRUGMAN: No, it means that...

Mr. O'REILLY: The economy is based on job creation, and you're saying it's ineffective. Don't call me a liar, pal. That's what you do all the time, and I'm not going to sit here and take it.

Prof. KRUGMAN: Well--no. I'm sorry. You just did.

Mr. O'REILLY: 'Ineffective'? You can--that's the biggest bunch of spin in the world.

Prof. KRUGMAN: Find a place where I said that they were going to cause a recession.

Mr. O'REILLY: You said--you...

Prof. KRUGMAN: Find a place where I ca--said it.

Mr. O'REILLY: Look, you want to call it ineffective in job creation. What is a recession? A recession is when the GNP...

Prof. KRUGMAN: No.

Mr. O'REILLY: ...goes backward. Everybody knows it's going forward.

Prof. KRUGMAN: I...

Mr. O'REILLY: Pounded column after column: 'Disastrous for the economy,"Tax cuts are disastrous.'

Prof. KRUGMAN: No, I...

Mr. O'REILLY: It hasn't been.

Prof. KRUGMAN: I said the tax cuts were not going to be effective at creating jobs, and the job creation...

Mr. O'REILLY: And you were wrong.

Prof. KRUGMAN: ...record is lousy.

Mr. O'REILLY: In your opinion.

Prof. KRUGMAN: This is the worst...

RUSSERT: There has been a net loss of jobs.

Prof. KRUGMAN: There has been a net loss of jobs.

Mr. O'REILLY: Since when?

RUSSERT: In the Bush administration.

Prof. KRUGMAN: In the Bush administration.

Mr. O'REILLY: Yeah, 9/11 did it. Not happen? Did it not happen?

Prof. KRUGMAN: Again, 2002 economic report of the president, they said we were going to be seven million jobs ahead of where we are now.

Mr. O'REILLY: OK, they were wrong. I'll say, again, I'm not defending them.

Prof. KRUGMAN: They--the job creation over the last 10 months, the 1.5 million...

Mr. O'REILLY: Look...

Prof. KRUGMAN: ...which the Bushies boast about, that is a slower pace of job creation than Clinton had from ninety...

Mr. O'REILLY: We've got a 5.6 percent unemployment rate here. In the state of Florida, which is one of the states that's going to be the election (unintelligible), you got over 60 percent saying the economy is good or excellent. It's a state-by-state situation, all right? And I'm just tired of this stuff.

Prof. KRUGMAN: Well, I'm tired of...

Mr. O'REILLY: Look, if you think it's bad, fine.

Prof. KRUGMAN: You know...

Mr. O'REILLY: And if Bush made a mistake in his estimation of job creation, you're probably right.

Prof. KRUGMAN: Look, let's...

Mr. O'REILLY: But you paint Armageddon; so does your newspaper. And it's baloney.

RUSSERT: All right. We need to stop.

Prof. KRUGMAN: Well, this is what--yeah, OK. This is not your show; you can't cut my mike. Look, what...

Mr. O'REILLY: Oh, another cheap shot.

Prof. KRUGMAN: No, I--well, it's true.

Mr. O'REILLY: You know, you're a cheap-shot artist, and you know it.

RUSSERT: Wait, wait, wait, wait. Hold on, hold on.

Prof. KRUGMAN: Good man.

RUSSERT: All right. Go ahead, you finish.

Prof. KRUGMAN: Yeah, let's finish this. The--what we were saying--what I said--you know, people can read the book. Actually, what I want to do is sell books. Go ahead, buy the book, paperback edition. The--what I said was this was not the kind of stimulus program that was going to be effective. And if you gave any of my college sophomores the right to run budget deficits as big as what we're now running, any of them could do a whole lot better than this. What we have--look, these days Bush is out on the road boasting of 1.5 million jobs over the last 10 months; that's 150,000 jobs a month. The US economy needs 140,000 jobs a month just to keep up with population growth. So that's just barely gaining ground, and that's after three terrible years. Right now you take a look, you say--the other comparison is under Bill Clinton, the economy for 96 months added an average of more than 230,000 jobs a month. So here we are with Bush with one year, which I admit is not bad--not great, but not bad.

Mr. O'REILLY: Did you predict that year?

Prof. KRUGMAN: After a couple of--no.

Mr. O'REILLY: Did you predict it?

Prof. KRUGMAN: No.

Mr. O'REILLY: OK, fine. There we go.

Prof. KRUGMAN: But compare me with anyone else, and I think my forecasting record is not great. Economists are not 100 percent. But the point is to claim that this thing...

Mr. O'REILLY: Economists are not 100 percent. Does that mean when Bush misanalyzed his job creation...

Prof. KRUGMAN: No.

Mr. O'REILLY: ...maybe you ...(unintelligible).

Prof. KRUGMAN: That job creation number was a guess at what it would--what success would look like.

Mr. O'REILLY: Right. And obviously not 100 percent.

Prof. KRUGMAN: I'm not saying they had to be right, and this doesn't...

RUSSERT: What's the next year's going...

Prof. KRUGMAN: ...look like success.

RUSSERT: ...to look like?

Prof. KRUGMAN: Damned if I do. I mean, to be honest, what it looks like--if you look at the growth rate over the last four quarters, you know, here's where--it's 7.4, 4.2, 4.5, 3.0. So it looks like something that started out great and is going down to sort of "eh.' And my guess is that's what the next year will look like.

RUSSERT: We're going to take a quick break. We're talking to Paul Krugman. His book is in paperback, "The Great Unraveling: Losing Our Way In The New Century." Bill O'Reilly's book is still in hard cover, "Who's Looking Out for You?" A lot more right after this.

(Announcements)

RUSSERT: And we're back. Paul Krugman of The New York Times; his book, "The Great Unraveling." Bill O'Reilly of FOX News Channel, "The O'Reilly Factor," "Who's Looking Out for You?" Bill O'Reilly, what about deficits, the largest in history? Is that a problem for a conservative president?

Mr. O'REILLY: Sure, it's a problem. It's a problem for anybody. And I'm not a big spending kind of guy. I think Bush is pandering to the electorate by a whole bunch of programs. And you know that the No Child Left Behind Act and all the federal money that poured in to try to help the kids, which, you know, everybody wants to help the kids--Right?--states can't spend the money. Most of the states are going to have to give it back to the Treasury because they just can't spend the money. They're not organized enough. They can't get it to the right people. And I am, basically, a guy who says that both parties try to buy votes, and they have ever since FDR. They'll buy your vote by targeting certain segments and saying, 'We're going to create a big government thing to do this for you,' OK? So Bush basically doesn't like that but still does it, and then the deficits rise. But, again, the war on terror is such that we're living in a totally different time than we did in the '90s.

RUSSERT: Mr. Krugman has a theory in his book that there really is a group of Republicans who want to starve the beast, and that is if you drive spending up so high and you cut tax cuts, you'd be left with no choice but to cut...

Prof. KRUGMAN: No, it's not--the driving spending up is not in there. It's just cut taxes, starve the beast; deprive the government of revenue, and then you can say, 'No alternative, we've got to cut...'

Mr. O'REILLY: I don't know how much taxes you want. I mean, that's...

Prof. KRUGMAN: Can we do a number here? I mean, we've got a deficit now which is probably going to be about $440 billion, $450 billion for this year; of that, $270 billion is Bush tax cuts. So when people talk spending, spending, spending, yeah, spending is an issue, but it's--the dominant force in this deficit is, in fact, tax cuts. And...

Mr. O'REILLY: My opinion is without those tax cuts, we'd be in a deep recession right now.

Prof. KRUGMAN: Yeah, but are those permanent tax cuts, right? Why aren't they temporary tax cuts to fight the recession?

Mr. O'REILLY: Good question.

Prof. KRUGMAN: And why are the tax cuts heavily targeted towards the people who are least likely to spend the money, which is people...

Mr. O'REILLY: Well...

Prof. KRUGMAN: ...at the top end of the income distribution.

Mr. O'REILLY: See, I don't believe that at all, and let me give you a personal example. I work my buns off, all right? I'm sure both of you do, too. And I make a lot of money. I like to make--now if they raise taxes on me any more--because I live in the most heavily taxed state in the union, New York, all right? I'm paying taxes like crazy. Every time I turn around, I'm paying more taxes. If they tax me any more, I'm knocking the radio out. I'm not going to do it, all right? Now how many people lose jobs then? Fifty because O'Reilly says, 'Not worth it. I'm not going to...'

Prof. KRUGMAN: Did you stop...

Mr. O'REILLY: You know, it's not worth my--wait a minute. I would give it up. That is the entrepreneurial class. And R&D is the same thing and corporate. You tax the people who are creating jobs and creating opportunities to over a certain point, they say, 'I got enough money. I'm not going to kill myself because right now I'm killing myself. And I'm not going to do it if the feds are in my pocket any more.'

RUSSERT: You think we're undertaxed.

Prof. KRUGMAN: Well, I think, yeah, right now we are. Look, I think Mr. O'Reilly had a show and did a whole lot of entrepreneurial work during the '90s when we had the Clinton-era tax rates. And nobody is proposing pushing those tax rates higher than they were in 2000. So if you--you've got to make a case that the '90s were a terrible time, when there was no entrepreneurialship, to say that just rolling back some of these recent tax cuts is a bad idea.

Mr. O'REILLY: Do you know...

Prof. KRUGMAN: And... ****

RUSSERT: Why do you think we're undertaxed?

Prof. KRUGMAN: Well, because there are certain things we want. We want to make sure that everybody has health insurance. We want to make sure that we can sustain the programs we have, like Medicare and Social Security. And you go through, you do the arithmetic and you discover that, at this point, after all those Bush tax cuts, we are way short. We're probably about 20 to 25 percent short of the revenue that the federal government needs to provide just the programs that middle-class Americans currently count on. So...

RUSSERT: So what do you do?

Prof. KRUGMAN: Well, I think, look, the Bush tax cuts, it turns out they divide quite--because the way they were set up was the big tax cuts were all for very high-income people. And then they threw in middle-class sweeteners, so that they could roll out those tax families. So there's the Child Tax Credit, there's the marriage thing, there's the 10 percent bracket. And it turns out it's a nice 80/20 split: 80 percent of the tax cut is the stuff that doesn't touch the middle class at all but that only affects at all, really, 20 percent of the population. So what I would do--and this is further than Kerry is willing to go--I would roll back the non-middle-class portions. You can go to taxpolicycenter.org, and they have analyses. And they'll tell you--they now divide everything: middle-class tax cuts vs. non-middle-class tax cuts. I would roll back the non-middle-class tax cuts.

RUSSERT: And what would that do to the job creators in the country?

Prof. KRUGMAN: Well, you know, again, we're getting back only to the tax rates we had in 2000, you know, the tax rates we had all through the '90s. There's no sign--you know, the United States is the lowest-taxed, advanced country by far. Now...

Mr. O'REILLY: Yeah, because we're not a socialist country.

Prof. KRUGMAN: Oh, gosh.

Mr. O'REILLY: And when did the R&D blow and get into the go-go '90s? It happened when Reagan cut taxes, all right...

Prof. KRUGMAN: I love this.

Mr. O'REILLY: And all the corporations started R&D. I don't care whether you believe it or not.

Prof. KRUGMAN: Going to give...

Mr. O'REILLY: You're a quasi-socialist. You want a big government creating jobs. I want the private sector to create jobs.

Prof. KRUGMAN: We're going to give...

Mr. O'REILLY: It's a difference.

Prof. KRUGMAN: Reagan's '81 tax cut--credit for the prosperity in 1999.

Mr. O'REILLY: When do you think all that R&D took place?

Prof. KRUGMAN: So that means that everything good...

Mr. O'REILLY: Back during FDR?

Prof. KRUGMAN: ...that happened under Reagan is Lyndon Johnson's policies.

Mr. O'REILLY: OK. Wait a minute. When did the R&D that led to all of the technological advances take place, sir? When did it take place?

Prof. KRUGMAN: Actually a lot of it in the '90s right at the time...

Mr. O'REILLY: Oh, sure. OK.

RUSSERT: You said the only thing good in Ronald Reagan's administration was Lyndon Johnson's policies?

Prof. KRUGMAN: If you're willing to give Ronald Reagan credit for good things that happened 18 years later, then credit for good things that happened...

Mr. O'REILLY: All right.

Prof. KRUGMAN: ...under Ronald Reagan go to Lyndon Johnson.

Mr. O'REILLY: Call any corporation, any high-tech corporation in Silicon Valley, and just ask them when their R&D ramped up and when the machinery that has led the the United States and the world--when it started getting developed. They will all tell you it happened during the Reagan administration. When corporate taxes were cut, there was more income to devote to that. I mean, look...

Prof. KRUGMAN: Gee, what corporations...

Mr. O'REILLY: ...what Krugman is the government to run the economy. Kerry's going to create 10 million jobs or 30 million, whatever he's going to do. What I want is the private sector to drive the economy. There's a fundamental difference between him, Mr. Entitlement, and me, Mr. Self-Reliance. That's it.

RUSSERT: What about the deficits, though? What would you do about them, and how do you deal with them?

Mr. O'REILLY: What I'd do with them is I would reorganize the entitlements that are the bulk of the deficits, OK, reorganize it. And I believe in privatizing some of the Social Security, medical savings funds, all of those things, educational funds. He wants the government to pay everything. That, in a nation of 300 million, is impossible. Ask any working-class person. They're all in debt. They're all struggling to survive. You want to buy a house? Look at the housing prices, OK? When my father bought a house in Levittown, it was 8 grand after he got out of World War II. This same house is $250,000. They can't afford to buy a house and pay the property taxes, pay his taxes, pay the state taxes. It's ridiculous. The government has got to shrink. They've got to get smart. They've got to run it like a private business would run it, not Mr. Big Government because they can't keep track of the money. There's no waste management in the money. Corruption is rife. And he wants more tax money to waste. It's outrageous.

RUSSERT: Give him a chance to respond.

Prof. KRUGMAN: Let's talk about this. This is a wonderful thing because you're talking about this tax burden on middle-class people and...

RUSSERT: I'm going to take a break, Professor. I'm going to take a break.

Prof. KRUGMAN: OK.

RUSSERT: ...and give you a chance to fully respond, OK?

Prof. KRUGMAN: OK.

RUSSERT: Paul Krugman, Bill O'Reilly--a lot more right after this.

(Announcements)

RUSSERT: And we're back. Paul Krugman, you'd like to respond?

Prof. KRUGMAN: Yeah, the bait and switch. What we're talking about--what I was talking about was rolling back the high-end tax cuts, and all of a sudden you're talking about those terrible tax burden on middle-class families who can't afford a house. Look, the basic fact is the tax cuts we've had, which is the stuff that I want to roll back--I mean, I don't even want to roll back the middle-class tax cuts, which are small change. But the Bush tax cuts--the total amount of tax cuts for people earning more than a million a year, that's 0.13 percent of the population, are larger than the total tax cut for the bottom 60 percent of families, basically everybody earning less than $50,000 a year. So these people that you're saying are suffering under the burden of taxes got nothing from Bush. And it's people like you or me, if I sell more books than I have so far, who are the prime beneficiaries. So, you know, this is the bait and switch. This is not the real story. And you take a look at anything I've written about economics, and I'm not a socialist. You know, that's a slander.

Mr. O'REILLY: I said quasi.

Prof. KRUGMAN: Well, that's a wonderful--then you're a quasi-murderer. I mean, why--what...

Mr. O'REILLY: I'm a quasi-murderer?

Prof. KRUGMAN: Well, quasi is a pretty open thing.

Mr. O'REILLY: That's ridiculous. All right.

Prof. KRUGMAN: Right. I'm nowhere close to that.

Mr. O'REILLY: I think we defined where we both are on this.

RUSSERT: Yeah. Let me go to Iraq. Mr. Krugman said--you wrote this--'Mr. Bush's war on terror has played with eerie perfection into Osama bin Laden's hands.'

Prof. KRUGMAN: Yeah. We couldn't have done it better, right? We neglected the pursuit of al-Qaida, and we might catch Osama in the next few months, but it's too late. That organization has now sort of, you know, spread like a cancer through the world. And instead we've diverted--look, there was this moment--we had Arabic-speaking Special Forces hunting for Osama in the mountains of Afghanistan. We pulled them off to go into Iraq. And instead we sent our Special Forces, who are Spanish-speaking, who are trained to go chasing druglords in Colombia, and sent them to Afghanistan because we needed those soldiers for Iraq. Boy, you know, talk about giving them exactly what they wanted.

Mr. O'REILLY: Look, the Iraq War was a big screw-up, all right? I think every clear-thinking person in the country knows it was. First of all, weapons of mass destruction did not materialize, which was the primary motivator for the war. All right? Now Mr. Krugman and his left-wing pals throw around the lie, 'Oh, they lied.' Do you believe Bush lied, by the way, about weapons of mass destruction? You still pumping that drum?

Prof. KRUGMAN: I've never actually said the word 'lie,' I don't think.

Mr. O'REILLY: No. You're clever in your rhetorical vices.

Prof. KRUGMAN: Well, so is Bush. You know, one of the things about his speeches...

Mr. O'REILLY: Wait. Do you believe he lied or not?

Prof. KRUGMAN: I believe he knew what he wanted to hear, and people found a way to tell it to him.

Mr. O'REILLY: All right. So you're not going to call him a liar then.

Prof. KRUGMAN: Not on that.

Mr. O'REILLY: OK. Good. But you're...

RUSSERT: But you did say bait and switch to the war as well.

Prof. KRUGMAN: That's right. No, it was clear that what they wanted from day one after 9/11...

RUSSERT: Clear to whom, by the way?

Prof. KRUGMAN: Bush and the people running it. We have repeated accounts that top administration official and Bush himself immediately said after 9/11, 'Is there a way to tie this to Iraq? Is it Iraq?' And, you know, when the top guys keep on saying, 'I want to hear stuff about Iraq,' isn't that going to put a whole lot of pressure...

Mr. O'REILLY: OK.

Prof. KRUGMAN: ...down the system?

Mr. O'REILLY: Now...

Prof. KRUGMAN: They weren't listening to the real evidence.

Mr. O'REILLY: ...I'm appointing Russert as president of the United States right now, OK? I talked to Tommy Franks the other night, and I said, 'You know, what's this weapons of mass destruction deal?' And he was the general that commanded the war. He said, 'Before we went to war, Egypt and Jordan told me,' Tommy Franks, all right, 'that Saddam had weapons of mass destruction. I passed that along to President Bush.' So you're sitting there in the White House, Russert, OK--frightening thought, but you are--and you're getting your top general going, 'I just heard from Egypt and Jordan weapons of mass destruction are there.' Blair's telling you, 'MI6--weapons of mass destruction.' Putin's telling you, 'Russian intelligence--weapons of mass destruction.' Your own CIA chief is telling you, 'Slam dunk weapons of mass destruction,' according to Woodward. Now the 9-11 Commission harshly criticized Clinton and Bush for not doing enough to get bin Laden. That was one of their main thesis, and I believe that and I think everybody does. So you're told by Jordan, Egypt, Russia, Britain, your own guy, 'Weapons of mass destruction.' You know Zarqawi, a top al-Qaida lieutenant's, sitting in Baghdad because he just had a leg operation, all right? You know that. You know, as the 9-11 Commission pointed out, there's been repeated contacts between al-Qaida and Saddam. You know all this. And you don't move against Saddam? So they did have the WMDs. Say there was an anthrax attack on Krugman's apartment block, OK? You're sitting there, you had all this information, you didn't act. Impeachable offense. He had to act. That's the truth.

Prof. KRUGMAN: No, the truth--look, you're talking all about commissions and governments that were under political pressure, and we have some independent stuff, right? The best reporting was actually by Knight Ridder, which was talking to the analysts off the record and not to the top officials. And this is the fall of 2002. And all the analysts said, 'You know, they're exaggerating this threat. We're under enormous pressure to go and find reasons to attack Iraq.' And you've actually got people who are close to the administration, like, you know, editorialists at The Washington Post, Jim Hoagland saying--boasting about how we're managing to put the screws on these CIA analysts who don't want to believe that Saddam is such a threat. So, come on, this is rewriting history. And the fact of the matter, as...

Mr. O'REILLY: Like I'm going to believe a Washington Post editorial writer over all the people I've cited.

Prof. KRUGMAN: He's writing this during the time; he's not writing it after the fact.

Mr. O'REILLY: The record says...

Prof. KRUGMAN: Even t--no. Come on.

Mr. O'REILLY: ...9-11 Commission and the Senate Intelligence Committee...

Prof. KRUGMAN: And your faith's in Vladimir Putin, ex-KGB, is touching.

Mr. O'REILLY: All right. I know. You're smarter than everybody. You'll reject all of that information. The 9-11 Commission and the Senate Intelligence Committee..

Prof. KRUGMAN: Heavily politicized.

Mr. O'REILLY: ...both have said...

Prof. KRUGMAN: Heavily politicized, and you know it.

Mr. O'REILLY: All right. There you go.

RUSSERT: Got to take a quick break. We'll be back. A lot more coming up. Paul Krugman, Bill O'Reilly and Iraq right after this.

(Announcements)

RUSSERT: And we are back, talking to Paul Krugman, the columnist for The New York Times. His book is in paperback, "The Great Unraveling: Losing Our Way in the New Century." Bill O'Reilly, you watch him every night on "The O'Reilly Factor" on Fox News Channel. His book, "Who's Looking Out for You?"

Bill O'Reilly, what about the nuclear threat, the mushroom cloud? Was that hyping his intelligence?

Mr. O'REILLY: I have no idea. I never bought that. I never bought they had nuclear. I was worried about anthrax and the other thing. But I just want to make one more point. You know, we left one guy out: Bill Clinton thought they had weapons of mass destruction. I mean, it was across the board and saw--like that.

Prof. KRUGMAN: Let me--can I just say...

Mr. O'REILLY: Go ahead.

Prof. KRUGMAN: ...let--WMD is one of the worst phrases we've ever invented, because it lumps together chemical shells, which are nasty things, but so is high explosives, with nuclear weapons, which is a real threat. You know, the fact that Kim Jong Il seems to have nukes now has me really scared. The fact that some guy has chemical warheads is not in the same league at all. And Bill Clinton thought, and I thought, everybody thought that he probably had some chemical warheads. They were probably still--you know, they had shells. They probably--maybe they had anthrax. Maybe they had this stuff, which is nasty and evil, but is not something that allows a minor...

Mr. O'REILLY: No, you've got to take anthrax and smallpox seriously.

Prof. KRUGMAN: No, anthrax, smallpox...

Mr. O'REILLY: They wipe out hundreds of thousands of people.

Prof. KRUGMAN: Smallpox is a hugely different thing.

Mr. O'REILLY: All of those things...

Prof. KRUGMAN: Anthrax isn't contagious.

Mr. O'REILLY: All of those things can ruin an economy and create panic and you have to do it.

Prof. KRUGMAN: No, it's not. Look, that's just...

RUSSERT: So let me go to Bill O'Reilly's question, Paul Krugman. If you're the president of the United States and all these people have laid out this in front of you, and you yourself acknowledged you thought he had biological and chemical, potentially anthrax, do you have an obligation as commander in chief to go after it?

Prof. KRUGMAN: You have an obligation to say, 'We want those inspectors back in,' and guess what? We had the inspectors back in, and we were telling inspectors where to search and they were going. And remember, we went to war when there was an effective inspections regime back in place. We did not have to actually go to war. We were doing--we were--we had Saddam pretty effectively caged...

Mr. O'REILLY: Well, not according to Hans Blix. He came on my program flat out and said, 'They're not letting us interview the scientists,' which was a key.

Prof. KRUGMAN: But...

Mr. O'REILLY: The scientists were the key. One...

Prof. KRUGMAN: ...there was no way for them to be effectively running a WMD program...

Mr. O'REILLY: No, listen, I know--look, I know that you know much more than I do and everyone else, but just let me get a sentence out here. Blix came on the program and said to me flat out, 'They aren't cooperating. We can't interview the scientists, and we can't go where we want to go.' They gave him all kinds of time, Saddam, to stop the nonsense. Seventeen violations of the Gulf War cea