I Used To Like Him When He Was Shrill And Partisan...

But now Paul Krugman is just writing about economics, and doesn't seem to have the nerve to say anything.

Paul Krugman's latest effort, "One Good Month", is sure to provide one good Friday for the Krugman Brute Squad. The Earnest Prof ponders the latest employment statistics (hence his title) and finds them wanting. He then describes the choice before us this November - Kerry is surrounded by Rubinomics veterans, and will almost surely walk that road; Bush is an unreconstructed Reaganomics guy, and will take us in that direction. Rather than quibble with the specifics of his characterization of either approach, we will, as a time management exercise, simply identify a few obvious attack lines.

(1) Hey, Dude, Where's My Conclusion?

If this is a choice between Rubinomics and Reaganomics, mightn't we expect a future Nobel-laureate in Economics to offer his informed opinion on the two approaches? Instead, we get economics as talk-therapy:

In short, this year's election will be a contest between a candidate who advocates a return to economic policies that were associated with eight years of very solid job growth, and one who advocates continuation of policies that have, after three years, yielded exactly one good monthly jobs report. I know: Mr. Clinton doesn't deserve all or even most of the credit for the good times on his watch, and Mr. Bush doesn't deserve all the blame for the bad times on his. Still, on the face of it there's nothing to recommend Mr. Bush's approach.

Didn't you feel good under Clinton? Don't you feel bad now? But take out the qualifiers in this paragraph and there is nothing left - Rubinomics is "associated" with eight good years, but Mr. Clinton doesn't deserve "even most of" the credit. "On the face of it" there's nothing to recommend Mr. Bush's approach? My mom knew that - perhaps a big time economist might get behind "the face" and give us his professional evaluation.

(2) Apocalypse When?

We have heard countless times from the earnest Prof (Banana Republic / Banana Republic / bits of sense on entitlements) that the looming deficits and the entitlements bubble must be addressed, or it will crater the US economy. Has that stopped being an issue? If not, why not tell us that Kerry, unlike Bush, will do the right thing - unless there is no evidence of him tackling those issues either, of course.

(3) Catch A Wave, And You're Sitting On Top Of The World

There are serious baseline problems with comparing job creation under Clinton with job uhh, non-creation under Bush (creationists play a different role in this Administration). Check the stats - non-farm payrolls languished around 109 million for three years (Jan 90 to Feb 93), so the US economy is perfectly capable of spending time in the wilderness. Secondly, payrolls bottomed out in May 91, and had regained their previous peak by the time Bill Clinton took office in Feb 93. Consequently, he inherited an economy that had felt the pain, (including that of the Bush I tax hike) and was already experiencing the gain.

George Bush, by gloomy contrast, inherited an economy that was about to hit a wall (based on the lagging employment indicator) - employment peaked in Mar 2001, and only bottomed out in Aug 2003. This makes Clinton-Bush comparisons tricky, and creates huge problems with statements like:

It also tells us that by past standards, March 2004 was nothing special.

And we should be seeing something special, because our economy should be on the rebound. Bad times are usually followed by big bouncebacks. .

One year after employment bottomed out in May 91, the economy had added roughly 400,000 jobs - some bounceback. And is Krugman now predicting a big bounceback for the US? Japan had weak recoveries followed by new recessions for a decade - is Krugman now saying it won't happen here?

Comments

[IceCold]

I can no longer forgive politicians (of all stripes, there are no exceptions I'm aware of) who pretend to think that short-term policies have any large or traceable impact on macroeconomic trends. But ECONOMISTS who play along with this preposterous charade are especially laughable.

Krugman is a poor writer and an ignorant sophomoric dolt in anything outside his narrow area of expertise (but as he presumably relies on NYT reporting, I guess this is to be expected) -- but by virtue of his adoption of the make-believe model of politicians "managing" the economy, he's even unserious in his own "specialty."

Of course economic "policies" can affect the economy over time -- with the leverage almost exclusively to the down-side, once public goods and rule of law are provided -- but the discussion of job growth over short periods as a function of marginal tweaking of tax rates or fiscal balance/imbalance is a fantasy akin to Soviet Marxist babbling about historical imperatives and correlations of forces.

I'm waiting to see polling data that provides the responses to the question "which party do you think is better at managing the orbit of Pluto and the tides in the Bay of Biscay, Democrats or Republicans?".

[George]

Uh, there was a completely plausible economic analysis just a couple of weeks ago that asserted, and offered evidence for, the idea that the Clinton/Rubin notion of "paying down the national debt," while appearing commendable to the ordinary schmo, was taking too much spending power out of the economy and lead to the recession in the first months of the Bush Administration.

It is also pretty reasonable to assert that the "national debt" is a smaller percentage of GDP than average corporate debt is to the value of production. Most people get blown away by the size of the absolute value of the debt and ignore the ratios.

[Paul Zrimsek]

Given the unprecedented length of the preceding expansion, I've never been convinced that we need any explanation for the recession other than "Well, it was due."

[Pat Curley]

Actually, anybody who looked at the Treasury yield curve in the summer of 2000 could tell that it was extremely likely that an economic slowdown was coming. Most of the time the Treasury yield curve is normal, with longer maturities having higher yields (effective interest rates) than shorter maturities. This is natural; there is less uncertainty about the short term than the long term.

However, prior to recessions, the Treasury yield curve commonly becomes inverted, with higher yields in the short term than in the long term. For example, on July 3, 2000, the 3-month Treasury yielded 6%, the exact same yield as the 10-year Treasury. By August 1, 2000, the 3-month Treasury was yielding 6.25%, while the 10-year was still at 6%. The spread continued to widen in August and as of September 1, the 3-month yielded 6.27%, while the 10-year was down to 5.68%.

Compare that to the 1999 data. At no point in that year were the 3-month Treasury yields higher than the 10-year yields; in fact for most of the year the longer term instruments were yielding over 100 basis points (1%) higher.

Why does an inverted yield curve lead to recession? Well, it's complicated, but essentially businesses borrow short term for expansion and construction, so when short term rates are relatively high they tend not to expand and build new facilities.

That is also why finance professionals and real economists have all laughed at Krugman's continual fear of a "double-dip" recession. The Treasury yield curve is normal and steep today, which always indicates good economic times ahead. The yield curve has not been inverted since early in 2001.