Krugman: Payrolls and paradigms

[Kurt_and_Hunter]

It struck me that any post can be a poll and probably should be. More entertaining and interactive than the rec/unrec feature.

Paul Krugman
January 8, 2010, 11:51 am

Payrolls and paradigms

Disappointing job number this morning. Still, a month is just a month, right? Well, not quite.

Here’s the way I think about the economic news: each piece of data tells us something about which model of recovery is right. More specifically, each disappointing piece of data strengthens the case of the pessimists.

From the beginning, there have been two schools of thought about the likely path of recovery. One school — strongly represented among Wall Street economists — said that the 2008-2009 recession should be compared with other deep US recessions: 1957 (the “Edsel” recession), 1974-5, 1981-2. These recessions were followed by rapid, V-shaped recoveries.

The other school of thought said that this was a postmodern recession, very different in character from those prior deep recessions, and that it was likely to be followed by a prolonged “jobless recovery”. Added to that were worries based on the historical aftermath of financial crises, which tends to be prolonged and ugly.

The debate a year ago over the size of stimulus was in part an implicit debate between these two views; those who argued that the stimulus was much too small did so because they had a pessimistic view about the likely pace of recovery.

Sad to say, each successive bad jobs report adds to the evidence that the pessimists were right.

http://krugman.blogs.nytimes.com/2010/01/08/payrolls-and-paradigms/

Poll: Were the pessimists (the economic school of thought to which Krugman is referring) right?

[RoyGBiv]

1. Other

In the context of DU, there are connotative meanings to your terms that Krugman would not agree to.

That being said, the "pessimists," these being the people who said from the beginning that the stimulus was too small and later that the failure of the Fed to focus on boosting jobs recovery is a huge problem, were right. I think every economist worth listening to has been saying this for awhile.

The silver lining to this is it may pull back the idiotic, but growing sentiment that the Fed needs to worry about inflation and raise rates. It also puts more ammunition in the holsters of the Democrats attempting to push through the jobs bill, i.e. Stimulus II. That also needs to be bigger, btw.

[Kurt_and_Hunter]

2. I take your point and edited the poll accordingly

I can certainly think of plenty of pessimistic things I've read on DU that were not right!

Edited to narrow the focus to the general Stieglitz/Krugman/Roubini group.

[HopeHoops]

3. Other: You forgot the "Glenn Beck is an asshole" option.

I think all DU polls should include that as an option. Mine all do.

[Kurt_and_Hunter]

4. My bad... I always forget that.

[Kurt_and_Hunter]

5. .

[TexasObserver]

6. Krugman is so obviously renewing his pitch for Stimulus II.

He said the Stim package was far too small when it was passed, and he was right. Now, in successive articles, he's underscored that the Stim money effect will wane by summer.

He's clearly laying the ground work for a Stim II package, and for that I applaud him.

But I remain optimistic, because I've never doubted that a second Stim package would pass this year. If there's one thing we can count on our congress and president doing, it's passing the one thing that might help keep the party in power across the board in November.

[Goldstein1984]

7. We were very fortunate that our financial company agent

was also a personal friend. While the company was was still pushing "bullish" economic advice, our agent/friend called us in January 2008 and recommended a restructuring of our retirement savings. The result was that, instead of losing 50% of our savings, we earned a modest 2% during the meltdown. She eventually lost her job for giving too many of her clients advice contrary to the company line.

A real estate agent who worked with us through two home sales and one home purchase has also become our friend. Over lunch several weeks ago, she advised us NOT to buy a home until 2011, and even then not to buy if the economy has not changed. So, for the first time in more than twenty years we are living in a rented home.

My point is this: We have to be suspect of any advice or predictions coming from people with a vested interest in a system from which they benefit. It's only because our financial company agent was our friend that we received good advice contrary to what the company was pushing.

Consumption was about 70% of the pre-meltdown GDP. Consumer confidence feeds consumption. So, we should expect the political and economic elite to give rosy forecasts in hopes that they will become self-fulfilling prophecies.

But the bubble that burst was built on credit and an people viewing houses as speculative investments rather than homes. A complete recovery is going to require either a complete restructuring of our economy from consumption to production, and finding another bubble capable of recreating the conditions of the last one. Do we want a recovery based on a new bubble?

My gut, and the advice of two experts with the best interests of their friends in mind, tells me that we didn't just experience a recession, we experienced an adjustment, and what lies ahead of just going to be more of the reality we already see.

I don't consider this skepticism, I consider it realism.