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TEXT OF INTERVIEW

Bob Moon: Just for the record, today marks the end of the first full week of the new year. And already -- based on the news so far -- we can tell 2009 is gonna be a doozy. Let's see... Record high unemployment, retail bankruptcies, rocky stocks. But, for better or worse, we'll have a new guy in charge. To talk about all this and more we have Leigh Gallagher from Fortune Magazine and Felix Salmon of Portfolio.com. Welcome back to the show both of you.

Leigh Gallagher: Thanks, Bob.

Felix Salmon: Thanks, Bob.

Moon: The inauguration just around the corner now and the president-elect came out with, I guess you could say, just a few stimulus proposals this week, from bridge repair to teacher training. The big question of the week seemed to be though, how we get there from here, when we face such a huge deficit. Leigh, how do we get there from here?

Gallagher: Well, it's a good question. We're talking about vast sums of money obviously, and it's a risk. I mean, any time you're talking about deficit spending, you're talking about sticking future generations with a tab. But the thing here is that we're looking at an economic slump that's so severe, it's really not anything we've seen since the Great Depression. And the judgement call that's being made is that the risk is far greater to not do something -- that we need to do something immediately and think about now, instead of the future.

Moon: Felix, Mr. Obama was hinting that perhaps the size of this deficit is going to affect the size of the stimulus program. Is there a risk of the stimulus being not big enough, as opposed to too big?

Salmon: There's certainly a risk that it won't be big enough. We do need a big stimulus to turn things around and stop things from getting worse. On the other hand, deficit constrains, I think, is quite small. I think that debt to GDP levels are relatively manageable right now. The government can borrow money at very, very low interest rates, at very long terms. And so, although there are future generations that are going to have to pay this off in 30 years, I don't see that as a huge problem today.

Moon: I talked to somebody from the Cato Institute earlier this week who said, 'Look, we don't really need to spend all this money we don't have anyway. We should just let the private sector take care of this problem.' Do we have to have this--

Salmon: But the private sector can't borrow money, Bob. That's what happened in a credit crunch. The government has access to pretty much unlimited amounts of money at very, very low interest rates. You go along to the private sector and ask them how much money they can borrow, they'll say none. And if they do borrow, they'll just put it under the mattress; they want that liquidity.

Moon: But I've also talked to a lot of people who say, 'Look, the government can't really, the president in particular, can't really do much about the economy.' Leigh, what about that?

Gallagher: I think he absolutely can. I mean, he's talking about creating three million jobs, immediate projects that can create jobs that can happen now. I mean, that's what helped after the Great Depression. You also have to think about it. We've already tried to throw all of our other tools at this. Interest rates are as low as they can go, we've spent trillions on bailouts, and the recession has deepened since then. So, we're clearly looking at desperate times.

Moon: Mr. Obama also talked about tax cuts -- a $1,000 cut for 95 percent of working families. Is that a good thing, Felix?

Salmon: I like that idea. I think especially if he does it in the deductions from your paycheck. There's been talk that instead of just getting a $1,000 check in the mail, which you might think about saving rather than spending, you're just going to find your take-home pay go up by about $20 a week. And you're not really going to notice that in the same sense. You'll be more likely to spend it, and it's going to be more likely to stimulate the economy that way.

Gallagher: I'm not sure. I'm not sure I totally agree with that. I mean, it really, it's almost like a rebate re-packaged, using the tax system as a delivery mechanism. So, I think that was really an effort to rally support from the Republican side for this whole package.

Moon: Yeah, but -- yeah, but, the president-elect was saying several times this week, "the economy's in dire straights." So, it sounds to me, like he really wants a quick pop here.

Gallagher: Oh, he does. But to get the quick pop, he has to have support on both sides of the isle. So, I think with the tax bill -- you know, the $300 billion tax bill he proposed earlier in the week -- I think top on his mind was just enactment, whatever he has to do to get it passed.

Salmon: And tax rebates and spending are both forms of fiscal stimulus. It's not like they're, you know, not interchangeable in many ways.

Moon: So how tough is the president-elect's job going to be when he takes office?

Gallagher: It's, it's, it's extraordinary. I mean, it's, it's, it's really unprecedented. Things are probably going to get worse before they get better. He's got a massive problem to deal with. On the other hand, he has a historic opportunity. I mean, it's not every day that an incoming president gets to affect U.S. economic policy. It's historic.

Moon: You folks are no fun at all. Talk about fresh starts in a new year.

Gallagher: We're really not.

Salmon: But Treasury bonds are still going to be the bubble. We can have a bubble somewhere, right?

Moon: Well, somewhere along the way, yeah. Leigh Gallagher from Fortune Magazine and Felix Salmon, who blogs for Portfolio.com. Thanks very much for joining us.

Gallagher: Thank you, Bob.

Salmon: Thank you, Bob.

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