'This Week' Transcript: David Plouffe and Lindsey Graham

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STEPHANOPOULOS: Said it was historic, said it was victory in a limited sense, but wouldn't be voting for it. But take a step back. And I would love to hear Paul on this, as well. You go back since this Republican majority was elected in the House in November. Since then, the Bush tax cuts have been extended. They got about $30 billion in government spending cuts in the spring. They're going towards $2.4 trillion now without any of the revenue increases the president has called for. You know, you talked to people in Speaker Boehner's House. They say this is a big, big win. And I don't know how you can deny it at this point.

KRUGMAN: No. The first thing is, we shouldn't -- you know, from -- from the perspective of a rational person -- in other words, a progressive on this stuff -- we shouldn't be even talking about spending cuts at all now. We have 9 percent unemployment. These spending cuts are going to worsen unemployment. That's not even -- it's even going to hurt the long-run fiscal picture, because we have a situation where more and more people are becoming permanent long-term unemployed. And if you have a situation in which you're going to permanently raise the unemployment rate, which is what this is going to do, that's actually going to reduce future revenues.

So this -- this thing -- these spending cuts are even going to hurt the long-run fiscal position, let alone cause lots of misery. And then on top of that...

AMANPOUR: Well, you...

KRUGMAN: ... we've got these budget cuts, which are entirely -- basically the Republicans said we'll blow up the world economy unless you give us exactly what we want, and the president said, OK. That's what happened.

AMANPOUR: You know, you've been consistent about this, saying that there should be no cuts at a time of recession and weak recovery. What is your scenario, though, once this goes through and there are significant spending cuts and no revenues?

KRUGMAN: We're looking. I mean, we used to talk about the Japanese and their lost decade. We're going to look to them as a role model. They did better than we're doing. We're -- this is going to go on -- I have nobody I know who thinks that the unemployment rate is going to be below 8 percent at the end of next year.

With the spending cuts, it might well be above 9 percent at the end of next year. There is no light at the end of this tunnel. And all the -- we're having a debate in Washington which is all about, gee, we're going to make this economy worse, but are we going to make it worse on 90 percent the Republicans' terms or 100 percent the Republicans' terms? And the answer is 100 percent.

WILL: Paul's right. We are a third of the way through a lost decade, but we're a third of the way after TARP, the stimulus, Cash for Clunkers, dollars for dishwashers, cash for caulkers, the entire range of stimulus, the Keynesian approach, which, by its own evidence, simply hasn't worked. Now Paul says double down.

KRUGMAN: Can I just say -- in advance, one important point is to make that -- is that people like me said in advance this wasn't remotely big enough. It's not an after the fact. It's not coming back afterwards.

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