'This Week' Transcript: McCain

KRUGMAN: ... because of census jobs. So it's -- so what's actually happening is the private sector is continuing to add jobs, but slow, not enough to make a dent in the unemployment.

Yes, it -- this has been always the -- the track for stimulus. If you -- if you do a half-measure, which is what we did, in the face of this incredibly negative shock to the economy, the worst financial shock since the 1930s, then the odds were even -- in -- in advance, the odds were pretty good that you were going to end up with a situation where things were actually not all that good, even after the stimulus had gone into effect.

And then the argument -- the counterfactual that says, well, they would be much worse if we hadn't done this, although true, doesn't cut very much politically.

Plus, there's this worldwide panic. I mean, it's not just the United States. Everyone out there has been saying, oh, you know, we've got to move, because even though the arithmetic says that what we spend on stimulus now isn't really going to matter very much, the bond markets will turn on us.

And this is -- I've been calling it the attack of the invisible bond vigilantes, because everybody is afraid that the bond market is going to turn on us, and they -- they're doing that, even though the actual fact is that the bond markets are signaling a willingness to lend the U.S. government lots of money at very low interest rates, because they see the U.S. government as the only safe thing out there.

RAMOS: (inaudible) recovery without -- without jobs. I mean, we have created -- the private sector created 83,000 jobs. And just to keep pace with the new workers, we need 130,000 per month. So -- so we are in a really bad situation.

But are we going to be cutting deficits right now? I mean, is that -- is that the way to go?

KRUGMAN: I'm simply...

RAMOS: We -- we can go -- I'm sorry -- we can go the way of Greece or -- or I don't know if you've seen the (inaudible) coming from Puerto Rico, but they've been cutting the deficit, and then we have this violent repression of the police against students and demonstrators.


KRUGMAN: ... the countries -- the countries that actually have gone the fiscal austerity route...

TAPPER: Germany and Greece.

KRUGMAN: Well, Germany is only saying they're going to do it. They haven't done it yet. Greece is a -- Greece is a special case, because they really were massively irresponsible, you know, mega times (ph).

But look at Ireland, which has been a good soldier in this crisis, has done everything it was supposed to, savage cuts. Their deficit has hardly gone down, because their economy has shrunk so much that the revenues have collapsed. They have mass unemployment. It's -- it's -- it's a mess. And the -- and the markets aren't even rewarding them.

They're -- you know, the -- the cost of insuring against an Irish default has gone up, not down, after the austerity. So there's this -- you know, while we actually have some evidence of -- of how this works, and it works terribly.

TAPPER: Cynthia?

TUCKER: Well, I think that President Obama deserves some of the blame for the politics on this, not the policy. He does want more stimulus, and that's absolutely the right approach, I think. But the public is clearly confused about the difference between short-term deficits and long-term deficits.

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