Power Line: Krugman: Nailed Again

January 03, 2004

Krugman: Nailed Again

Paul Krugman's column titled "Our So-Called Boom" appeared in the New York Times on December 30 and was reprinted in the Minneapolis Star Tribune on January 2. Krugman's column appeared at a time when gross domestic product has just increased at the fastest rate since 1983, unemployment is dropping sharply, and manufacturing activity, in the month of December, grew at the fastest rate in twenty years.

The purpose of Krugman’s column was to debunk all of this good news. He advanced the argument that the current "so-called boom" is illusory, notwithstanding the flood of data to the contrary. The heart of Krugman's argument is contained in this paragraph:

"The measured unemployment rate of 5.9 percent isn't that high by historical standards, but there's something funny about that number. An unusually large number of people have given up looking for work, so they are no longer counted as unemployed, and many of those who say they have jobs seem to be only marginally employed."

Krugman is an economist, so he must know that whether an "unusually large number" of people have given up looking for work is not a matter of guess or speculation. The Department of Labor keeps statistics on the number of people who say they are not in the labor force because of "discouragement over job prospects." The Bureau of Labor Statistics defines “Discouraged workers” as “Persons not in the labor force who want and are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months), but who are not currently looking because they believe there are no jobs available or there are none for which they would qualify.” The number of such persons is one of the many sets of data that the Labor Department tries to measure.

Anyone willing to spend a few minutes on the Bureau of Labor Statistics’ web site can quickly access the historical data on “discouraged workers.” Here they are; this is the BLS’s downloadable graph covering the last ten years:

It is immediately obvious that the number of people who “have given up looking for work” is not “unusually large.” On the contrary, it is just about average: a bit higher than it was during the late 1990’s, but lower than it was in the early and mid 1990’s--considerably lower as a percentage of the labor force.

Moreover, the number of “discouraged workers” rises and falls with the unemployment rate, for obvious reasons. But if you superimpose a graph of the unemployment rate over the graph of “discouraged workers”--as Donald Luskin did on his excellent web site--you find that the current number of “discouraged workers” is significantly smaller than it was last time the unemployment rate was around 5.9%, and rose more slowly than the unemployment rate during the recent period of increasing unemployment which started in 2000.

And finally, the number of “discouraged workers” is very small in absolute terms. The difference between the highest number of “discouraged workers” recorded in the last ten years and the lowest such number represents only around 400,000 people; fluctuations in that range have almost no impact on the unemployment numbers. The difference between the current number of “discouraged workers” and the lowest such number recorded in the last decade corresponds to less than two-tenths of one percent in the unemployment rate.

In short, Krugman’s claim that an unusually large number of people have given up looking for work, and the current unemployment figures are therefore “funny,” is false, and would be known to be false by any competent economist.

What about Krugman’s second claim, that “many of those who say they have jobs seem to be only marginally employed?” This claim is less transparently a lie, simply because the term “marginally employed” has no technical definition. (I think Luskin goes astray here; he tries to check the accuracy of Krugman’s claim by referring to the BLS data on “Marginally attached workers,” which is a defined term. But “marginally attached workers” are, by BLS definition, not working, and Krugman is clearly talking about people who have jobs, but “seem” to him to be working “marginally.”)

The closest objective measure of “marginal” employment in the official labor statistics is, I think, the number of people who would like to be working full-time, but are able to work only part-time due to economic factors. If Krugman were correct that an unusually large number of people are currently only “marginally” employed, it should show up in these data.

Here is the BLS graph showing the number of people who have been involuntarily working part-time during the past ten years:

Once again, there is simply no truth to Krugman’s claim. As measured by the number of people who would like to be working full-time, but in fact are working part-time, “marginal” employment is at an average level.

Paul Krugman is a sad case: a once-respected economist who has become a shrill, hyper-partisan pundit. He cares nothing about truth, and everything about promoting the interests of the Democratic Party. He uses his columns not to inform his readers, but to mislead them. It is hard to think of a worse indictment of a columnist.

DEACON adds: Great work, Rocket Man. "Nailed" is putting it mildly.

Posted by John at 06:02 AM |

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