March 9, 2004

#149: Chart cribbed and adjusted...

P. Krugman

Paul Krugman's column Promises, Promises (04/09/04) is really a tale of two charts. It's the chart he cribbed from Brad DeLong and printed in the NY Times today vs. DeLong's original chart [link] posted last week.

Krugman's cribbed chart shows how far the Council of Economic Advisors (CEA) is off in their forecasts of payroll growth. This is a little like criticizing the Dallas Cowboys' cheerleaders for putting too high a point spread on America's Team. Of course the CEA tries to put the administration's case in the best light. That's what they get paid for. And Krugman gets paid for just the opposite.

DeLong at least had the intellectual honesty to include the Blue Chip consensus of fifty leading private forecasters (that's the yellow line in the chart below). Krugman took it out because his mission was to make the CEA look as bad as possible, not enlighten us.

The Blue Chip forecast is not as bullish as the others, but it's imminently reasonable. Moreover, it's about what one would expect under current circumstances emerging from a recession that was preceded by a bubble burst and accompanied by rapidly rising labor productivity. Job recovery can be agonizingly slow and that is not even the worst of it.

DeLong's Payroll Shortfall Chart

The facts are these: Many of the jobs lost in the last few years are not coming back. Ever! They are obsolete. They will be replaced by other jobs, but how well the new jobs pay will depend on the skill brought to the job by labor. The flipside of rising labor productivity is that labor must upgrade its skills to function with the new, more productive technology. Checkout clerks at Best Buy and espresso makers at Starbuck's are not going to make much money. Moreover, they are prone to become obsolete themselves in a few years.

To have it otherwise would be a denial of progress. If we listened to those who rail against "exporting" or "outsourcing" jobs, we would still in living in the world of the movie Pleasantville.

Krugman could better spend his time helping the Democrats come up with some sensible alternatives to taxing the rich and punishing "Benedict Arnold" CEOs for out sourcing.

He should also clear up where he got this chart.

[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 March 9, 2004 1:49 PM
Weblog by John Weidner