March 19, 2004

#150: Krugman and Greenspan are both wrong on this issue

P. Krugman
KRUGMAN TRUTH SQUAD

In No More Excuses on Jobs (04/12/04) Paul Krugman makes two errors which undermine his entire column. First he relies on his old nemesis Alan Greenspan to argue that the business establishment survey of payrolls is superior to the household survey of employment on the question of jobs and job creation. As you might expect, the former survey, which Krugman always touts, shows the largest job losses. This is the first time we recall that he sided with Greenspan on anything.

In fact, however, he and Greenspan are both wrong on this issue. The Bureau of Labor Statistics which publishes both surveys has made major progress in reconciling the two series and addressing the issues raised by Greenspan. He and Krugman should both read the most recent BLS report on this subject. LINK. In particular, the erratic population control shifts which impact the survey each January (and about which Greenspan complained) have been smoothed to make the survey more useful in research.

In addition, Krugman's claim that the establishment payroll survey captures new businesses is just plain wrong. True they have a model which makes a frail attempt at estimating new businesses, but as critics have pointed out it has proved notoriously wrong at economic turning points - just when we need accurate information most. The best that can be said of the establishment survey is that the revisions using data from state unemployment insurance programs eventually do catch start-ups, but this is typically 6 months to a year after the fact.

This column should be read a yet another attempt but Krugman to exploit the jobs issue which is all he has left to gripe about. Every other indicator of the economy's health is strongly up.

[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 19, 2004 2:23 PM
Weblog by John Weidner