July 10, 2006

#199: NYC and Kugman

P. Krugman

KRUGMAN TRUTH SQUAD

For several months now Paul Krugman has been stuck in the equivalent of a computer “DO-loop” as he ricocheted back and forth between trashing the US economy because of George W. Bush and trashing US foreign policy because of George W. Bush. Today he broke out of his “loop” with The New York Paradox (07/10/06) but in a very strange way–he actually praised the direction currently under way in the economy of New York City. To us, the only thing that’s consistent about this is that George W. Bush is not the Mayor.

But what’s going on in NYC that has “sad sack” Krugman so optimistic? It’s a New York Times report to the effect that corporate headquarters are moving back to the City in spite of the high costs of locating and doing business there. As Krugman puts it;

“And the report on the headquarters boom suggests that New York may, paradoxically, be doing well precisely because technology has made it possible to move many jobs away from high-cost locations.”

So who’s moving away and who’s coming back? Why middle class folks are leaving, of course, and rich folks (read corporate bigwigs) are coming back.

“In the past…. in order to keep their top executives in Manhattan, companies also had to pay the rent on large office buildings and fill those buildings with thousands of lower-level employees, paying those employees wages high enough to compensate for New York’s high cost of living. Many companies decided that the benefits of a New York headquarters weren’t worth the cost.
Now, however, it’s possible for many of the people who would formerly have worked at corporate headquarters to work somewhere else instead, communicating with management electronically. And that makes it worthwhile to move top executives back to the center of things.”

Well, excuse us, but isn’t this exactly what Krugman has been bitching about for years with regard to the US economy, as a whole, compared with the rest of the world? Middle class jobs are being outsourced to India, low wage growth is happening at home as a result and the rich are getting richer? If it pertains to just New York City are we to believe it’s suddenly okay? Toward the end of the column Krugman seems to get an inkling of the corner he is painting himself into:

“The story of the New York economy isn’t entirely a happy one. The city has essentially lost all of its manufacturing, and it’s now in the process of outsourcing both routine office work and many middle-management functions to other parts of the country. What’s left is an urban economy that offers a mix of very highly paid financial jobs and low-wage service jobs, with relatively little in the middle.”

Well, no kidding! So why does NYC get a pass from Krugman? There’s no clue in this column. Maybe he will explain later why the thinks like an economist on NYC but like an ordinary liberal sap on the rest of the economy.

Our position is the same as always. We applaud what’s happening in both New York AND in the rest of the country (and in the world, for that matter). American labor will respond to globalization and lower cost international competition the way it always has: by taking advantage of unparalleled educational opportunities to retrain, upgrade skills and within a generation the whole economy will equilibrate to a much higher standard of living, both here and abroad. Indeed it’s happening as we write. Maybe when Bush is out of office, Krugman will get groove back.

[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 July 10, 2006 10:19 AM
Weblog by John Weidner