February 10, 2004

#144: Brother, can you spare a dime?

P. Krugman

During his interview on Meet the Press last Sunday, President Bush commented with a sly smile that the improvement currently underway in the US economy was "just about right" What he meant, we think, is that in an election year having a strong economy that is getting stronger is more important than having an economy that is just strong. We agree and the momentum of this expansion is likely to continue for many months, if not years.

So what's with Jobs, Jobs, Jobs (02/10/04) by Paul Krugman in which he focuses on what he terms the "grim job picture." It's pretty simple really. As we've said before, employment is the last arrow in his quiver. While all economic recoveries are a little different they have in common that employment growth lags other indicators. In this particular recovery, despite it's strength otherwise, job growth is lagging more than usual. This is perhaps because labor productivity growth is so strong or because 9/11 and other geo-political shocks have made employers more cautious. Whatever the reason, Krugman is pounding on the jobs issue for all it's worth. The trouble is, it's not worth much. It's temporary! By the time the election rolls around the job picture will be as bright as the rest of the economy. And that's why Bush was smiling.

There are a couple of howlers:

1. "For a while, that famous 8 percent growth rate seemed to be just what he needed. But in the fourth quarter, growth dropped to 4 percent."
Dropped to 4 percent! Dropped! Who's he kidding. A year ago Krugman would have though 3 percent impossible.
2. "The only seemingly favorable statistic is the unemployment rate, which has recently fallen to 5.6 percent, the same as in November 2001. But how is that possible, when employment has grown more slowly than the population, or even declined? The answer is that people aren't counted as unemployed unless they're looking for work, and a growing fraction of the population isn't even looking. It's hard to see how this is good news."
Actually, it IS good news. If Krugman kept up with the research literature on employment trends he would know that as countries become wealthier the age of retirement becomes lower. There seem to be no exceptions to this trend, even in workaholic countries such as Japan. The reason these people aren't looking for work is because they are happily trading some "stuff" for more time off. Maybe PK should join them after November.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at February 10, 2004 9:39 AM
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