Krugman: What did Democrats believe about the economy?

[Kurt_and_Hunter]

Paul Krugman
December 11, 2009, 1:34 pm

What did Democrats believe?
Interesting back and forth between Brad DeLong and Noam Scheiber over the question of whether Democrats, possibly including the White House, really believed last summer that “he stimulus was working more or less on schedule, and the job market was gradually recovering.”

I guess it must have been true. But all I can say is, what were they thinking?

There was ample warning, even before the severity of the crisis was clear, that the recession was likely to be followed by a prolonged jobless recovery. E.g., here (January 2008):

I still keep reading articles asserting that the last two recessions were brief and shallow. Formally, that’s true. But … in both cases the employment slump went on for a long time after the recession was supposedly over.

There’s every reason to think that the same thing will happen this time. There’s a huge overhang of excess housing inventory; it will probably take several years before housing prices fall to realistic levels; and it’s not at all clear what will fill the gap left by weak housing and consumer spending.

Plus, there was no point in the summer during which unemployment claims signaled any real good news, as opposed to things getting worse more slowly.

Oh, and the Reinhart-Rogoff work made it clear that the aftermath of a financial crisis is usually a long employment slump.

So you really have to wonder who was giving the Dems very, very bad advice.

http://krugman.blogs.nytimes.com/2009/12/11/what-did-democrats-believe/

[kenny blankenship]

1. Unfortunately what most of them believe about the economy is no diff from what Republicans believe

Reaganism. Pure unreconstructed Reaganism. Supply side uber alles. Give those who're already rich all the money, free them of any responsibility, and they'll "do what's best".

Democrats do not have a coherent distinguishable economic viewpoint to separate them from the "opposition". They are supply siders, free marketeers, and globalists. At this point in their decadence their difference with Republicans is mostly tone and symbolism. They give lip service to values of fairness, whereas the opposition honestly espouses last-man-standing and winner-take-all as the American Way. They make conciliatory noises towards the disadvantaged -a growing group- but give nothing in writing. They gesture at the idea of shared prosperity and sometimes allow their pictures to be taken next to union leaders. On special occasions and Democratic party Holidays, they speak of defending and expanding the agenda of the New Deal. But this is an attitude which is so virtualized and attenuated that it rarely translates into even the slightest concrete actions. It's all kept 95% at the level of gesture, lip service and symbolism. Meanwhile they approve trade deals that destroy the wages of American workers, pass insane military budgets and scream for more, and vote for war.

[Orrex]

2. Sadly, you're correct.

But do you suppose that anyone really believes in supply-side economics? Or do they just act like they believe it because they know it'll funnel huge truckloads of money to them, so they'd better play along?

[Kurt_and_Hunter]

3. pretty much

[DrToast]

4. But we're not having a jobless recovery

The unemployment rate always lags the end of the recession, just as it did this time.

The jobless recovery of the last two recessions were called so because they took almost two years after the end-date of the recession before we started creating jobs again.

Right now we're about 5 months out since the recession ended and we're likely adding jobs again, or will be soon. That's a classic recovery scenario, not a "jobless recovery."

[Kurt_and_Hunter]

5. Brilliant observations

Once again you have humiliated Dr. Krugman with your incisive analysis.

He is probably at home crying like a little girl right now.

[DrToast]

8. Aww....did I hurt your feelings?

Gotta stick up for your man, huh?

By the way, those were some pretty brilliant counters to my argument.

[Kurt_and_Hunter]

10. Does somebody want to argue with Dr. Toast?

I'm putting him on ignore but since he seems in a feisty mood, and is indifferent to any sort of reality I imagine anyone with time on their hands could engage him in a spirited non-discussion till the cows come home.

[DrToast]

11. Good idea. You'll just keep embarrassing yourself

[northernlights]

9. you're joking, right?

After my 20 year career crashed with hi-tech in 2002, it was 3 years before I finally got hired -- at about 25%, yes 25%, of my former income.

That job lasted 18 months before I quit in disgust. Not because they bullied and poisoned me (which they did). Not because they harrassed me in my home with early morning hang-up calls (which they did). But because they trespassed and assaulted my animals. :grr:

I went back to school to learn a new trade, and recently found part-time work. Without my student loans (which I've just been informed are now cut off) I would not be earning enough even full time to cover my expenses. So now I have no way to finish the program, and no way to pay back the loans if I drop out.

There's finding a job...and there's finding a job that will support you.

Not only is it taking longer to find *any* job, it's nearly impossible to find one that offers a living wage.

Get real. Once you're *dumped* from our current society, you are out for good. All those people in tent cities, the woman I spoke with last night who was just fired from her 13th job in 12 months because she's "just not the right fit," the people with degrees and years of experience and expertise who are earning minimum wage...we are out for good.

Do you really think we're going to be able to fuel an economy 70% based on consumerism? :eyes:

[depakid]

13. You do realize HOW MANY are required simply to keep up with increases in population

and the labor pool?

It's not simply a matter of "adding" some jobs.

[jaysunb]

14. Agreed !

:thumbsup:

[girl gone mad]

16. classic recovery scenario?

in what respect, Charlie?

[mkultra]

18. the recovery hasnt started yet

the end of the decline is approaching. There really is no such thing as a jobless recovery and this graph shows it. Sometimes, it just takes longer.

[girl gone mad]

19. Actualy, the last two recessions were technically "jobless recoveries"..

because the growth in GDP was not accompanied by a significant expansion of employment. That's the standard definition economists use.

The chart I posted shows we only got back to 0% job loss 4 years from the start of the 2001 recession. It says nothing of growth.

If we extrapolate a recovery in jobs similar to that of the two most recent recessions, it will take us about 6 more years to stop shedding jobs.

[mkultra]

24. most economists agree that if not accompanied by strong

post recession growth, that we sill make up those jobs in the coming periods. A "jobless recovery" is just a recovery that doesn't show the usual strong post recession expansion. The idea that there is a pool of uncounted unemployed that have stopped looking for work that are stacking up over time is just false. the U3 numbers put out by BLS using the ILO survey method accounts for anyone not working. we may not be back to clinton levels in 18 months, but we will be back in 24-30 months.

[girl gone mad]

28. "Jobless recovery" is specifically defined as a return to growth in GDP..

which is not accompanied by job growth. The periods of 1991-92 and 2001-4 are both textbook examples of this phenomena. And didn't you just tell me there is no such thing as a "jobless recovery"? Now you are trying to make up your own definition for the term. I appreciate that you have an interest in this topic, but I find your knowledge of the subject to be rather weak.

Of course there are people that have stopped looking for work who aren't counted in U3. I'm not sure where you learned economics, but your statement about U3 is http://www.ritholtz.com/blog/2008/06/unemployment-reporting-a-modest-proposal-u3-u6/">completely bogus.

And, by the way, we never made up for the job losses of the 2001 recession. The private sector is close to a net negative for jobs over the last decade.

[mkultra]

30. the mistaken idea that "jobless recovery" means we total a net loss

of jobs is what im addressing. This is why im calling it a misnomer and indicating that there is no jobless stacking occurring. This is the belief of many both here and in the public.

As per your claim regarding the U3, not counting those who no longer need a job is fine by me. I'm addressing the generally flawed idea that the UE numbers do not count people that have stopped receiving benefits. People who have stopped looking for a job, are people who no longer need a job. The idea that there are a bunch of people out there that have become so discouraged by the work situation that they have just given up looking completely is pretty far fetched. This definition refers to people who have scaled down there costs to live on other incomes or those who have returned to school full time. Again, my data comes directly from BLS and the UE rate is still just 10%.


again, from BLS.

<snip>
Some people think that to get these figures on unemployment the Government uses the number of persons filing claims for unemployment insurance (UI) benefits under State or Federal Government programs. But some people are still jobless when their benefits run out, and many more are not eligible at all or delay or never apply for benefits. So, quite clearly, UI information cannot be used as a source for complete information on the number of unemployed.

The number of unemployed persons in the United States and the national unemployment rate are produced from data collected in the Current Population Survey (CPS), a monthly survey of over 60,000 households. A person's unemployment status is established by responses to a series of questions on whether they have a job or are on layoff, whether they want a job and are available to work, and what they have done to look for work in the preceding 4 weeks. The unemployment rate is the number of unemployed persons as a percent of the labor force (employed and unemployed persons). See "Who is counted as unemployed?" for more information.
<snip>

Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work.

Workers expecting to be recalled from layoff are counted as unemployed, whether or not they have engaged in a specific jobseeking activity. In all other cases, the individual must have been engaged in at least one active job search activity in the 4 weeks preceding the interview and be available for work (except for temporary illness).<snip>

[DrToast]

20. In this resepect, Sarah

Similarly, this interesting chart from two classic V-shaped recoveries.


(In fact, that last chart completely ruins Krugman's argument that jobless claims weren't showing positive signs last summer.)

And of course, all the evidence suggesting that growth in the early stages of the recovery are much stronger than they were in the last two recoveries:
Economists Revising Up Fourth Quarter Growth Projections

[girl gone mad]

22. That statistic says little about overall jobs or job creation.

Just that big businesses are running out of people to fire and a lot of the job losses right now are occurring in small businesses, and among people who don't qualify for unemployment.

Here's what you should pay attention to, the number of people on extended UE continues to rise:



As does U6:

[DrToast]

23. If you're looking at that, you've going to miss it

Initial jobless claims is the leading indicator. Continuing claims tell you nothing.

[girl gone mad]

27. That's where you're wrong. Continuing claims tell us a great deal...

and must be taken into account. Your analysis is quite lacking. John Mauldin addressed this specific issue nicely in his recent newsletter which you can read in full http://www.businessinsider.com/the-economy-needs-125000-new-jobs-created-per-month-and-thats-being-optimistic-2009-12">here.

Yesterday we were told that initial unemployment claims were up slightly to 474,000 on a seasonally adjusted basis. That is down 78,000 from the same week last year. The four-week moving average is almost exactly the same. On a four-week-average basis, initial claims are down about 10% from last year.

Let's look under the hood. The non-seasonally adjusted number (NSA) is 665,000, down almost 95,000 from last year, which is good, but still a very large number. The actual average had been over 550,000 for the last three weeks.

Everywhere the headlines said continuing claims are plunging. And they did. But what really happened is that the drop was not from people getting jobs but from people rolling over to the extended benefits programs. The states by and large pay for the first 26 weeks, and that is where we get the continuing-claim reported number from. (In some parts of the US however, you can get unemployment insurance for up to 99 months, paid for by the federal government).

There are 5.16 million on the continuing-claim rolls. But when you add in the extended benefits rolls, it increases to over 10 million. Average length of unemployment is now over 26 weeks, and the median length is over 33 weeks!

[mkultra]

25. actually, you shoudl be looking at the cps

put out by the BLS which shows UE down to 10.0% in November. This number does account for people that are off benefits and if a person is working part time 20 hours per week it is counted as .5 of a job. They only think not included in this number is the prison population.

[girl gone mad]

26. Actually, the bls “adjusted” household survey..

shows we lost 109,000 jobs in November.

http://markettalk.newswires-americas.com/?p=6816#more-6816

The 10% number was almost entirely due to an artificial drop in the labor pool caused by the ridiculously flawed brith/death model.

I fully expect that figure to be revised downward at some point in the future.

[mkultra]

29. diectly from the BLS

im sorry, but im not familiar with any "adjusted" for of the household survey that exists. but im open to new things if you can show me this report at BLS. On EDIT: i found the report. According to the BLS, teh CPS is considered more accurate than the payroll survey because the CPS also includes agricultural jobs and those who are self employed. The true UE number is 10%.

<snip>
The unemployment rate edged down to 10.0 percent in November, and nonfarm
payroll employment was essentially unchanged (-11,000), the U.S. Bureau of
Labor Statistics reported today. In the prior 3 months, payroll job losses
had averaged 135,000 a month. In November, employment fell in construction,
manufacturing, and information, while temporary help services and health care
added jobs.

Household Survey Data

In November, both the number of unemployed persons, at 15.4 million, and the
unemployment rate, at 10.0 percent, edged down. At the start of the recession
in December 2007, the number of unemployed persons was 7.5 million, and the
jobless rate was 4.9 percent. (See table A-1.)

<snip>

Total nonfarm payroll employment was essentially unchanged in November
(-11,000). Job losses in the construction, manufacturing, and information
industries were offset by job gains in temporary help services and health
care. Since the recession began, payroll employment has decreased by 7.2
million. (See table B-1.)
<snip>

Employment in professional and business services rose by 86,000 in November.
Temporary help services accounted for the majority of the increase, adding
52,000 jobs. Since July, temporary help services employment has risen by
117,000.
<snip>

The change in total nonfarm payroll employment for September was revised from
-219,000 to -139,000, and the change for October was revised from -190,000 to
-111,000.

<snip>

http://www.bls.gov/news.release/empsit.nr0.htm

[backscatter712]

6. Why are people unreccing Krugman?

:spank:

[DrToast]

7. Because he's wrong?

[HughMoran]

15. No, he can't be wrong

He's a critic, therefore he's closer to God than the rest of of "mere humans".

[mkultra]

31. KRUGMANS FOR PRESIDENT!

[depakid]

12. "So you really have to wonder who was giving the Dems very, very bad advice."

No wonder at all. It was (and is) the same (corrupt) set of economists who repeatedly got it wrong throughout the 90's and 00's.

What does make me wonder is why in the world ANYONE would want to reward (much less listen to) abject failures. Ideology over evidence based analysis- the center right Dems in the administration and Congress are not all that different than Republicans in that regard.

[girl gone mad]

17. Larry Summers?

Robert Rubin?

Ben Bernanke?

Take your pick...

[depakid]

21. Mary Shapiro of FINRA

to head the SEC.

Now there was a :wtf: moment.