This is a rush transcript from “Your World,” June 6, 2012. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST OF “YOUR WORLD”: Well, it could be Governor Mitt Romney riding on the coattails of Governor Scott Walker, lots of Republicans predicting Wisconsin could be in play right now after Walker’s stunning victory big recall last night.

But a Fox News exit poll shows that Romney is still trailing the president in the Badger State.

Virginia Governor Bob McDonnell one of those Republicans saying these numbers could flip come November.

What do you think of that, though, Governor? Because it’s interesting that the president and Governor Walker enjoyed similar approval ratings in the state. I guess that bespeaks of why the president avoided the state, to avoid ticking people off, but it would still be a tough road for a Republican to win this state.

GOV. BOB MCDONNELL, R-VA.: Well, sure.

It has been a blue state, Neil, for a while. By the way, the president did fly from Minnesota to Illinois, and decided not to go to Wisconsin last week, which I think says something about what they thought about the campaign.

But what I do think is that the issues that Scott Walker campaigned on — and that is being honest with people about the need to rein in spending and cut taxes and create jobs and have a commonsense fiscal policy — those are the same issues that Mitt Romney’s going to campaigning on against Barack Obama.

And so, I do think that it’s going to have some impact down the road. The other thing, Neil, is that the turnout was extraordinarily high. There’s a lot of enthusiasm with the Republican base, the coalitions of the Republican Governors Association that I chair donating $9 million.

The Americans for Prosperity, the NRA, all these groups on the ground I think really says that our turnout mechanism really surpassed that of the unions. And that’;s a positive thing that could mean a couple points in a Romney win.

CAVUTO: When I spoke to Governor Walker about this whole phenomenon, what was going on, the one thing he kept mentioning again and again to me is that Wisconsin is part of a trend, and this is now an accepted trend to go after spending abuses. Is it?

MCDONNELL: Absolutely.

Neil, you know our country is in deep trouble. We are the greatest country on Earth, but we are $15 trillion in debt. The president’s run up another $1 trillion a year-plus, and we do not have a coherent plan to create more jobs and opportunity to get us out of debt.

In fact, his budget gets it another $10 trillion in the next decade. So, absolutely, spending has got to be reined in, or we are going to be in deeper trouble in America. And that is a significant issue that Romney is going to prosecute in the battle against Obama, because he has had no plan to get us out of debt.

Scott Walker said, elect me, I will kill a $3.6 billion budget deficit without raising taxes, and that’s what he did. And now the reforms are working, creating jobs and eliminating debt, same thing that Mitt Romney’s going to be talking about for November.

CAVUTO: But maybe — and I know you — hope springs eternal. You hope the state goes red, but maybe we’re reading too much into this.

Sir, I bumped into a lot of Wisconsinites, many of whom who had not supported Governor Walker in his original election who did now because they were just so incensed about the whole recall process, that it wasn’t necessary, it was a waste of money, et cetera, et cetera, but that they are still Democrat at heart, and they are not about to flip. How do you win those guys over?

(CROSSTALK)

MCDONNELL: Well, I think there’s some sentiment there. There’s no question there’s recall fatigue in Wisconsin.

CAVUTO: Absolutely.

MCDONNELL: I mean, Neil, this was the third recall — the third recall in a year, the judge, then the legislature and now the lieutenant governor.

Of course, it was a debate about policy. That is not what you recall people about. So there’s no question that that was some of it. But what I say, it’s a combination of, one, the grassroots, secondly, the significant financial resources that were marshaled for Walker and that will also be marshaled for Romney because of his support for the American dream and the free enterprise system, and, third, because the issues are largely the same, that the majority of those Wisconsin voters voted for Walker because his reforms, while they might have appeared unpopular a year ago, they’re working. More jobs. Lower taxes. A balanced budget. I think that when you get results, people reward you, and those issues are going to be the same things Romney will be talking about against Obama — 8 percent unemployment rate in America, $15 trillion in debt, Romney’s going to go after Obama on that, and rightly so. And same thing Wisconsin voters I think elected Walker on last night give him a chance to win.

But it’;s tough. It’s a blue state. And I think Walker win does help him, though.

CAVUTO: Your state turned blue last go-round in 2008. I guess its purple now or whatever they…

(CROSSTALK)

MCDONNELL: I’d call it purple.

CAVUTO: Yes. How is it looking right now?

MCDONNELL: Neil, since Obama won — and, look, he had a ton of money, doubled McCain’s money. He ran on an uplifting, positive message of hope and change, which now has turned into recession and division with the campaign he’s running right now.

But I’d say that since then, I won by 18 points and we elected three new congressman, the highest number of legislators in the General Assembly history Republican last November. I think we’re returning to our right-of-center roots. It’s a dead heat right now.

Romney was down eight points just a couple months ago. It’s now a dead heat. And the more you compare Romney’s vision with Obama’s abysmal record on jobs and taxes and energy, the better it gets for Mitt Romney. I’m encouraged and we’re going to win Virginia.

CAVUTO: All right, but maybe Mitt Romney needs a Virginian on his ticket. What do you think?

MCDONNELL: Well, there’s a lot of them. There’s eight million to choose from.

(LAUGHTER)

MCDONNELL: We can find one if he needs one.

CAVUTO: All right.

MCDONNELL: But, hey, look, I’m going to help him win in Virginia because I believe we need new leadership for America.

CAVUTO: All right, Governor, people forget you started that wave when all this turnover was going on.

Governor McDonnell, thank you very much.

MCDONNELL: OK. Neil, keep up the good work. Thanks.

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by Dee Gill

Economist Paul Krugman has long preached that our government’s cost cutting measures and corporate tax breaks will lead straight to a 1930s-style economic depression, and this does not make him a popular man with Wall Street’s fiscally conservative crowd. But with Europe’s economies tanking despite austerity measures, and the U.S. jobs outlook suddenly looking darker, perhaps an objective look at the Nobel laureate’s prophecies are in order. [Image Source]

(click to enlarge)

^SPX data by YCharts

Krugman contends that government spending cuts, at a time when private companies aren’t spending either, inevitably cause economies to contract now and in the future. People with no jobs and fewer benefits can ill afford to buy products, so companies don’t have enough demand for their products to hire the people with no jobs. He sees it as a self-feeding cycle of doom any way you slice it, because cost-cutting governments and struggling companies don’t buy stuff either.

U.S. governments at federal, state and local levels have been slashing budgets for more than a couple of years now, and for awhile, it looked like companies would eventually fill the void with new jobs. But the latest figures on hiring throw serious doubt on that expectation. Employers added half as many jobs in May as expected, and rosier reports of job additions from earlier months were revised down. The unemployment rate actually ticked up.

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US Change in Nonfarm Payrolls data by YCharts

Tax, regulatory or borrowing incentives for companies– in the hope that they’ll hire more– has not and will not create more jobs, Krugman contends. He points out that in the U.S., company after company reports that it’s lack of sales that keep it from hiring more workers now, period; not lack of access to capital or even uncertain regulation. No one wants to hire workers unnecessarily, tax break or not.

Krugman believes it’s governments’ role to create jobs – more teachers, public safety officers, construction workers for public works projects, for example — when the private sector can’t. If the government needs to borrow money – or print money, or whatever slur his opponents call it – so be it. Krugman’s philosophy says that leaving our children to inherit an economy without jobs is a far worse sin than leaving them with a big debt to pay down. He notes that interest rates are so low that the government can get cash cheaper than ever, and inflation is hardly an imminent threat.

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US Core Inflation Rate data by YCharts

To understand just how repugnant Krugman’s opinions are to fiscal conservatives, listen to the disgust in the voices of a British venture capitalist and a conservative Member of Parliament who debated him over jobs creation economics on a recent episode of “BBC Newsnight.” The 8 minute debate is a wonderful primer on the differences between liberal and conservative jobs plans these days.

Krugman points out that austerity measures in Europe have not been particularly successful in staunching the pain of struggling economies so far. He blames austerity measures in Ireland, Greece, Spain and Italy for aborting any recovery and leading to their current unemployment rates between 10% and 24%. Fiscal conservatives, including the Brits who called Krugman “reckless” and “really seriously wrong,” blame inadequate austerity measures. They believe deeper government cuts would result in stronger private sector hiring.

U.S. market watchers of all stripes have grown increasingly alarmed by jobs data here, which seem to suggest that our current unemployment rate of 8.2% is either an illusion or unsustainably low. In his current book “End This Depression Now!” Krugman notes that about a million applicants lined up to fill roughly 50,000 new job openings at McDonald’s (MCD) last year. The latest labor force participation data suggests that thousands of job seekers have given up looking for work, which removes them from the actual unemployment rate.

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US Labor Force Participation Rate data by YCharts

Krugman accuses some fiscal hawks of pursuing spending cuts not for job creation purposes, but because they’re exploiting the situation to attain an ideological goal of smaller government generally. He notes that Sweden, the world’s poster child for big government, has survived the economic crises surrounding it quite nicely.

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Sweden Unemployment Rate data by YCharts

It’s standard procedure of politicians on both sides of any debate these days to find reasons to dismiss opposing views rather than to mine them for workable parts, and Krugman’s Sweden comparison gives his critics a big one. They just write him off as a socialist to be justifiably ignored. He’s not – he’s all for budget cutting during prosperous times – but extolling the poster child for socialism just paints a big red bullseye on his back.

That’s a shame, because unless the economic picture unexpectedly improves in coming months, the U.S. will be forced to face the fact that without government action of some sort, we could be stuck in this hole for a very long time. And when we get serious about doing something, we’ll need all the data, all the experience, and all the ideas we can get.

Disclosure: No positions

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