Is someone paying them to give their readers inaccurate information? I’m inclined to doubt that explanation, but why does the paper keep using this description when it is so obviously not true?
The issue came up in the context of a discussion of the agenda of the Democrats in the House of Representatives. The article notes differences between House Democrats and President Obama and trade, and then tells readers;
“Republican leaders are preparing legislation that would grant Obama broad authority to finalize one of the largest free-trade pacts [the Trans-Pacific Partnership] in the nation’s history.”
The Trans-Pacific Partnership (TPP) is far from a “free-trade” deal. It actually will increase some protection in some areas, notably stronger and longer patent and copyright protection. Most of the deal is devoted to creating a uniform and largely business friendly regulatory structure. It creates special courts for businesses to sue governments outside of the normal judicial process. Since most trade barriers between the parties in the pact are already low, it will do little to reduce formal barriers to trade.
It is difficult to see why the Post cannot simply refer to the TPP as a “trade agreement,” or even more accurately a “commercial agreement.” It could save its praise of the pact for the opinion pages.
Is someone paying them to give their readers inaccurate information? I’m inclined to doubt that explanation, but why does the paper keep using this description when it is so obviously not true?
The issue came up in the context of a discussion of the agenda of the Democrats in the House of Representatives. The article notes differences between House Democrats and President Obama and trade, and then tells readers;
“Republican leaders are preparing legislation that would grant Obama broad authority to finalize one of the largest free-trade pacts [the Trans-Pacific Partnership] in the nation’s history.”
The Trans-Pacific Partnership (TPP) is far from a “free-trade” deal. It actually will increase some protection in some areas, notably stronger and longer patent and copyright protection. Most of the deal is devoted to creating a uniform and largely business friendly regulatory structure. It creates special courts for businesses to sue governments outside of the normal judicial process. Since most trade barriers between the parties in the pact are already low, it will do little to reduce formal barriers to trade.
It is difficult to see why the Post cannot simply refer to the TPP as a “trade agreement,” or even more accurately a “commercial agreement.” It could save its praise of the pact for the opinion pages.
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Steven Rattner doesn’t like people focusing on stimulus as a path to help Europe grow because it is “simplistic.” Instead he wants Europe to focus on reducing business regulation, protections for workers, and taxes for the wealthy.
Interestingly, he presents zero evidence that these changes will boost the continent’s growth, in contrast to the now vast amount of evidence (e.g. here, here, and here) that stimulus will increase growth. On their face, many assertions seem outright wrong. For example, according to the OECD’s assessment, employment protection for workers in Germany are the second strongest in Europe, yet it has an unemployment rate of 5.1 percent. This suggests that labor market protections are not the biggest problem stunting growth.
Rattner also warns about Europe and even Germany losing “competitiveness.” It is not clear what meaning he assigns to that word, but Germany has a trade surplus of more than 6.0 percent of GDP, in contrast to a deficit of 2.4 percent of GDP in the United States.
In some cases, his complaints not only lack evidence, but they defy logic. It is not efficient to allow companies to dismiss workers at will. Long-term employees make substantial commitments and sacrifices to develop firm specific skills. It will often be difficult for them to find new employment if they lose their job in their late forties or fifties. Dismissing these workers imposes costs on them and the government in the form of unemployment benefits and other transfer payments. That might be good for the businesses who can chalk up higher profits, but it is bad for the economy and society.
In short, this piece tells us that Rattner wants Europe to be more pro-business at the expense of the rest of society. He doesn’t have any real argument as to why anyone who is not rich should support his position, although I suppose it is not simplistic.
Steven Rattner doesn’t like people focusing on stimulus as a path to help Europe grow because it is “simplistic.” Instead he wants Europe to focus on reducing business regulation, protections for workers, and taxes for the wealthy.
Interestingly, he presents zero evidence that these changes will boost the continent’s growth, in contrast to the now vast amount of evidence (e.g. here, here, and here) that stimulus will increase growth. On their face, many assertions seem outright wrong. For example, according to the OECD’s assessment, employment protection for workers in Germany are the second strongest in Europe, yet it has an unemployment rate of 5.1 percent. This suggests that labor market protections are not the biggest problem stunting growth.
Rattner also warns about Europe and even Germany losing “competitiveness.” It is not clear what meaning he assigns to that word, but Germany has a trade surplus of more than 6.0 percent of GDP, in contrast to a deficit of 2.4 percent of GDP in the United States.
In some cases, his complaints not only lack evidence, but they defy logic. It is not efficient to allow companies to dismiss workers at will. Long-term employees make substantial commitments and sacrifices to develop firm specific skills. It will often be difficult for them to find new employment if they lose their job in their late forties or fifties. Dismissing these workers imposes costs on them and the government in the form of unemployment benefits and other transfer payments. That might be good for the businesses who can chalk up higher profits, but it is bad for the economy and society.
In short, this piece tells us that Rattner wants Europe to be more pro-business at the expense of the rest of society. He doesn’t have any real argument as to why anyone who is not rich should support his position, although I suppose it is not simplistic.
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That is not exactly what the NYT said. Instead its article on the dispute between the new Greek government and Germany and other northern European countries chose to use bias in the opposite direction telling readers:
“But beneath the arguments over austerity is a deeper conflict of democratic wills, between the verdict of voters in Greece, who are desperate for some relief, and those in Germany, Finland and the Netherlands, who do not want their taxes used to underwrite a blank check for countries that get into financial trouble.”
Really? The voters in Germany, Finland, and Netherlands are just concerned about issuing blank checks? Have they noticed that Greece cut its budget by 27 percent since 2008? This would be equivalent of a cut in annual spending in the United States of almost $1 trillion in its impact on the budget and close to $2 trillion in its impact on the economy.
These cutbacks, coupled with the austerity that the European Union has imposed on much of the rest of the euro zone, has had the predictable effect of throwing Greece’s economy into a downturn that makes the U.S. depression look like an economic boom. Are voters in Germany, Finland, and the Netherlands really so ignorant of economics that they do not understand this fact?
At another point the article tells readers:
“Jeroen Dijsselbloem, the head of the group of finance ministers from countries using the euro, said he did ‘not believe in this north-south divide,’ noting that ‘there are a lot of countries in the north, think of the Baltics; in the south, think of Spain; and Ireland’ in the west, and they ‘have done major reforms, and they are all back on the growth track.'”
It would have been worth pointing out that on Mr. Dijsselbloem’s “growth track” Spain’s economy is projected to first exceed its 2008 GDP in 2019. Ireland is projected to first pass its 2007 peak in 2016. By comparison, in the Great Depression, U.S. GDP was 6.0 percent larger in 1937 than it had been at the onset of the depression eight years earlier in 1929.
It also would be worth pointing out that many of the crisis countries’ problems did not stem from a lack of “budget discipline.” Several were running modest deficits and Spain and Ireland actually had large budget surpluses before the crash. Their economic problems stemmed from the fact that bankers in places like Germany, Finland, and the Netherlands were not very competent and thought that the housing bubbles in these countries could keep growing forever. Therefore they funneled hundreds of billions of dollars in loans that further inflated the bubbles and distorted the crisis countries’ economies.
That is not exactly what the NYT said. Instead its article on the dispute between the new Greek government and Germany and other northern European countries chose to use bias in the opposite direction telling readers:
“But beneath the arguments over austerity is a deeper conflict of democratic wills, between the verdict of voters in Greece, who are desperate for some relief, and those in Germany, Finland and the Netherlands, who do not want their taxes used to underwrite a blank check for countries that get into financial trouble.”
Really? The voters in Germany, Finland, and Netherlands are just concerned about issuing blank checks? Have they noticed that Greece cut its budget by 27 percent since 2008? This would be equivalent of a cut in annual spending in the United States of almost $1 trillion in its impact on the budget and close to $2 trillion in its impact on the economy.
These cutbacks, coupled with the austerity that the European Union has imposed on much of the rest of the euro zone, has had the predictable effect of throwing Greece’s economy into a downturn that makes the U.S. depression look like an economic boom. Are voters in Germany, Finland, and the Netherlands really so ignorant of economics that they do not understand this fact?
At another point the article tells readers:
“Jeroen Dijsselbloem, the head of the group of finance ministers from countries using the euro, said he did ‘not believe in this north-south divide,’ noting that ‘there are a lot of countries in the north, think of the Baltics; in the south, think of Spain; and Ireland’ in the west, and they ‘have done major reforms, and they are all back on the growth track.'”
It would have been worth pointing out that on Mr. Dijsselbloem’s “growth track” Spain’s economy is projected to first exceed its 2008 GDP in 2019. Ireland is projected to first pass its 2007 peak in 2016. By comparison, in the Great Depression, U.S. GDP was 6.0 percent larger in 1937 than it had been at the onset of the depression eight years earlier in 1929.
It also would be worth pointing out that many of the crisis countries’ problems did not stem from a lack of “budget discipline.” Several were running modest deficits and Spain and Ireland actually had large budget surpluses before the crash. Their economic problems stemmed from the fact that bankers in places like Germany, Finland, and the Netherlands were not very competent and thought that the housing bubbles in these countries could keep growing forever. Therefore they funneled hundreds of billions of dollars in loans that further inflated the bubbles and distorted the crisis countries’ economies.
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Robert Samuelson cautioned, somewhat reasonably, against over-optimism on the U.S. economy. His basic point is that other economies around the world don’t look very good right now. Their weakness could spill over and dampen growth in the United States. This is largely right, especially with the recent run-up in the dollar making U.S. goods and services less competitive.
However Samuelson does get some items wrong. He tells readers that Japan’s economy is in a recession. This is almost certainly wrong. We don’t have growth data for fourth quarter yet, but it is almost certain to be positive. Furthermore, even the drop in the third quarter was misleading. The economy contracted because of a large drop in inventory accumulations. Final demand actually grew modestly in the quarter. The unemployment rate has actually fallen slightly through Japan’s recession, with the unemployment rate averaging 3.5 percent in October and November, compared to 3.6 percent in the first quarter.
The Japan story is fairly simple. The austerity gang got the government to impose a large tax increase in April, which was a severe hit to the economy. However, with aggressive monetary policy and no further austerity, the economy is again growing at a modest pace.
The other point worth correcting is Samuelson’s comment that one-third of U.S. corporate profits now come from overseas. This is true in an accounting sense but it is almost certainly a gross exaggeration of the economic distribution of profits. Most major U.S. corporations find ways to have profits from the United States show up on the books of subsidiaries in countries with lower tax rates.
Insofar as profits are foreign only in accounting, they will not be affected by the slowdown elsewhere in the world. Of course reduced corporate profits are not likely to have much impact on domestic demand in any case. Companies are already sitting on vast piles of cash, so lower profits would likely have little impact on investment. A reduction in dividend payouts or a fallback in stock prices may have a modest impact on the consumption of the wealthy, but this would probably not be large enough to have noticeable impact on the economy.
Robert Samuelson cautioned, somewhat reasonably, against over-optimism on the U.S. economy. His basic point is that other economies around the world don’t look very good right now. Their weakness could spill over and dampen growth in the United States. This is largely right, especially with the recent run-up in the dollar making U.S. goods and services less competitive.
However Samuelson does get some items wrong. He tells readers that Japan’s economy is in a recession. This is almost certainly wrong. We don’t have growth data for fourth quarter yet, but it is almost certain to be positive. Furthermore, even the drop in the third quarter was misleading. The economy contracted because of a large drop in inventory accumulations. Final demand actually grew modestly in the quarter. The unemployment rate has actually fallen slightly through Japan’s recession, with the unemployment rate averaging 3.5 percent in October and November, compared to 3.6 percent in the first quarter.
The Japan story is fairly simple. The austerity gang got the government to impose a large tax increase in April, which was a severe hit to the economy. However, with aggressive monetary policy and no further austerity, the economy is again growing at a modest pace.
The other point worth correcting is Samuelson’s comment that one-third of U.S. corporate profits now come from overseas. This is true in an accounting sense but it is almost certainly a gross exaggeration of the economic distribution of profits. Most major U.S. corporations find ways to have profits from the United States show up on the books of subsidiaries in countries with lower tax rates.
Insofar as profits are foreign only in accounting, they will not be affected by the slowdown elsewhere in the world. Of course reduced corporate profits are not likely to have much impact on domestic demand in any case. Companies are already sitting on vast piles of cash, so lower profits would likely have little impact on investment. A reduction in dividend payouts or a fallback in stock prices may have a modest impact on the consumption of the wealthy, but this would probably not be large enough to have noticeable impact on the economy.
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It’s not quite that bad, but pretty close. An article on the victory of Syriza in Greece told readers:
“International economists say the eurozone needs a judicious mix of all of the above: monetary stimulus to avoid deflation, deficit-cutting by debtor countries, higher spending by creditor countries, and broad economic overhauls in many nations to lift long-term prospects.”
Really? Do all international economists say this? Did these international economists predict the economic collapse in 2008? If not, when did these international economists stop being wrong about the economy? Do these international economists know that the OECD says that Germany has stricter employment protection regulations than either Italy or France?
Later we are told:
“Ms. Merkel’s economic medicine, with its focus on Europe’s long-term prospects in a fast-changing global economy, could show benefits eventually, economists say. The problem, they add, is that meanwhile, Europe is staring at a lost decade.”
It’s not clear who these economists are or what they can possibly be thinking. There is a large and growing body of evidence that high rates of long-term unemployment permanently lower a country’s productive potential. With countries like Greece, Spain, and possibly France looking at decade or more of double-digit unemployment under the German plan, the losses to GDP could easily last 20 years or more. If the economists the Wall Street relies upon are making GDP growth projections for 2033 and beyond, they probably should lose their licenses.
It’s not quite that bad, but pretty close. An article on the victory of Syriza in Greece told readers:
“International economists say the eurozone needs a judicious mix of all of the above: monetary stimulus to avoid deflation, deficit-cutting by debtor countries, higher spending by creditor countries, and broad economic overhauls in many nations to lift long-term prospects.”
Really? Do all international economists say this? Did these international economists predict the economic collapse in 2008? If not, when did these international economists stop being wrong about the economy? Do these international economists know that the OECD says that Germany has stricter employment protection regulations than either Italy or France?
Later we are told:
“Ms. Merkel’s economic medicine, with its focus on Europe’s long-term prospects in a fast-changing global economy, could show benefits eventually, economists say. The problem, they add, is that meanwhile, Europe is staring at a lost decade.”
It’s not clear who these economists are or what they can possibly be thinking. There is a large and growing body of evidence that high rates of long-term unemployment permanently lower a country’s productive potential. With countries like Greece, Spain, and possibly France looking at decade or more of double-digit unemployment under the German plan, the losses to GDP could easily last 20 years or more. If the economists the Wall Street relies upon are making GDP growth projections for 2033 and beyond, they probably should lose their licenses.
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A NYT article on the dwindling size of the middle class noted that seniors are more likely to be middle class than in the past. It told readers:
“Today’s seniors have better retirement benefits than previous generations. Also, older Americans are increasingly working past traditional retirement age.”
In fact, seniors on average almost certainly have worse retirement benefits. The increase in the normal retirement age from 65 to 66 is equiavlent to a 6 percent cut in Social Security benefits. In addition, changes in the methodology used for calculating the consumer price index reduced the size of the annual cost-of-living (COLA) adjustment by 0.3-0.5 percentage points compared to the increases in the early and mid-1990s. (This means that for the same actual rate of inflation, seniors would see a COLA that is 0.3-0.5 percentage points less than what they would have received in the early and mid-1990s.)
In addition, today’s seniors are less likely to have a defined benefit pension, as these are dwindling rapidly. Defined contribution pensions have not come close to making up the loss. Seniors also are far less likely to have retiree health insurance to cover non-Medicare expenses. Medicare has also become less generous in many respects, although the addition of the Medicare drug benefits (Part D) has been a big help to seniors.
The main reason seniors have more income is that they are working later in life. This is a positive insofar as it is the result of the voluntary decision of people in good health who enjoy their work. However in many cases, this is almost certainly not true. Many older workers are staying in the workforce because they have no other way to make ends meet.
A NYT article on the dwindling size of the middle class noted that seniors are more likely to be middle class than in the past. It told readers:
“Today’s seniors have better retirement benefits than previous generations. Also, older Americans are increasingly working past traditional retirement age.”
In fact, seniors on average almost certainly have worse retirement benefits. The increase in the normal retirement age from 65 to 66 is equiavlent to a 6 percent cut in Social Security benefits. In addition, changes in the methodology used for calculating the consumer price index reduced the size of the annual cost-of-living (COLA) adjustment by 0.3-0.5 percentage points compared to the increases in the early and mid-1990s. (This means that for the same actual rate of inflation, seniors would see a COLA that is 0.3-0.5 percentage points less than what they would have received in the early and mid-1990s.)
In addition, today’s seniors are less likely to have a defined benefit pension, as these are dwindling rapidly. Defined contribution pensions have not come close to making up the loss. Seniors also are far less likely to have retiree health insurance to cover non-Medicare expenses. Medicare has also become less generous in many respects, although the addition of the Medicare drug benefits (Part D) has been a big help to seniors.
The main reason seniors have more income is that they are working later in life. This is a positive insofar as it is the result of the voluntary decision of people in good health who enjoy their work. However in many cases, this is almost certainly not true. Many older workers are staying in the workforce because they have no other way to make ends meet.
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The Washington Post had a major business section piece on the “winners and losers of a stronger dollar” which never explicitly discussed its impact on the trade deficit. This is truly remarkable since the $500 billion plus annual trade deficit (@3 percent of GDP) is the main cause of the economy’s weakness and continued high unemployment.
The logic of this is straightforward. The deficit is money that is income that is generated in the United States but is creating demand overseas. It has the same impact on the U.S. economy as if consumers decided to stuff $500 billion every year under their mattresses instead of spending it.
This is the main cause of the “secular stagnation” that has been widely discussed, even in the pages of the Washington Post. There is no easy mechanism for replacing this $500 billion in lost annual demand. We could do it with larger budget deficits, but deficit hawks like the folks at the Post, get hysterical at such suggestions.
In the last decade we replaced the demand lost from the trade deficit with the demand from a housing bubble, which generated record levels of construction spending (measured as a share of GDP) and an unprecedented consumption boom. In the late 1990s we filled the hole with the demand created by a stock bubble, which spurred investment and a slightly smaller consumption boom. However without another bubble, there is no plausible mechanism for filling this hole in demand.
The rising dollar will make things worse since the value of the dollar is the main determinant of the trade deficit. A rise in the dollar will make U.S. goods and services more expensive to foreigners, meaning they will buy less of our exports. It makes foreign goods and services cheaper for people living in the United States, causing us to buy more imports. The net effect will be a larger trade deficit and a loss of jobs.
The piece also makes a common mistake by implying that it matters that oil is generally priced in dollars:
“Oil prices are falling everywhere, but because the commodity is priced in dollars, American drivers are seeing a bigger discount than drivers in other countries.”
Actually, the story would be exactly the same if oil were priced in euros or yen and we saw a similar run-up in the dollar against the value of other currencies. The fact that the price of oil is generally quoted in dollars is of no consequence.
The Washington Post had a major business section piece on the “winners and losers of a stronger dollar” which never explicitly discussed its impact on the trade deficit. This is truly remarkable since the $500 billion plus annual trade deficit (@3 percent of GDP) is the main cause of the economy’s weakness and continued high unemployment.
The logic of this is straightforward. The deficit is money that is income that is generated in the United States but is creating demand overseas. It has the same impact on the U.S. economy as if consumers decided to stuff $500 billion every year under their mattresses instead of spending it.
This is the main cause of the “secular stagnation” that has been widely discussed, even in the pages of the Washington Post. There is no easy mechanism for replacing this $500 billion in lost annual demand. We could do it with larger budget deficits, but deficit hawks like the folks at the Post, get hysterical at such suggestions.
In the last decade we replaced the demand lost from the trade deficit with the demand from a housing bubble, which generated record levels of construction spending (measured as a share of GDP) and an unprecedented consumption boom. In the late 1990s we filled the hole with the demand created by a stock bubble, which spurred investment and a slightly smaller consumption boom. However without another bubble, there is no plausible mechanism for filling this hole in demand.
The rising dollar will make things worse since the value of the dollar is the main determinant of the trade deficit. A rise in the dollar will make U.S. goods and services more expensive to foreigners, meaning they will buy less of our exports. It makes foreign goods and services cheaper for people living in the United States, causing us to buy more imports. The net effect will be a larger trade deficit and a loss of jobs.
The piece also makes a common mistake by implying that it matters that oil is generally priced in dollars:
“Oil prices are falling everywhere, but because the commodity is priced in dollars, American drivers are seeing a bigger discount than drivers in other countries.”
Actually, the story would be exactly the same if oil were priced in euros or yen and we saw a similar run-up in the dollar against the value of other currencies. The fact that the price of oil is generally quoted in dollars is of no consequence.
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I have had several readers send me a blogpost from Scott Sumner saying that the Keynesians have been dishonest in not owning up to the fact that they were wrong in predicting a recession in 2013. The argument is that supposedly us Keynesian types all said that the budget cuts and the ending of the payroll tax cut at the start of 2013 would throw the economy back into recession. (Jeffrey Sachs has made similar claims.)
That isn’t my memory of what I said at the time, but hey we can check these things. I looked at a few of my columns from the fall of 2012 and they mostly ran in the opposite direction. The Washington insider types were hyping the threat of the “fiscal cliff” in the hope of pressuring President Obama and the Democrats to make big concessions on Social Security and Medicare. They were saying that even the risk of falling off the cliff could have a big impact on growth in the third and fourth quarter of 2012.
My columns and blogposts (e.g. here, here, here, here, and here) were largely devoted to saying this was crap. I certainly agreed that budget cutbacks and the end of the payroll tax cuts would dampen growth, but the number was between 0.5-0.8 percentage points. This left us far from recession. (All my columns and blogposts from this time are at the CEPR website, so folks can verify that I didn’t do any cherry picking here.)
I know Paul Krugman is the real target here, not me, but we’ve been seeing the economy pretty much the same way since the beginning of the recession. If he had a different story at the time I think I would remember it. But his columns and blogposts are archived too. I really don’t think anyone will find him predicting a recession in 2013, although I’m sure he also said that budget cuts and tax increases would dampen growth.
Anyhow, I’m generally happy to stand behind the things I’ve said, and when they are proven wrong I hope I own up to it. But I don’t see any apologies in order. No recession happened in 2013 and none was predicted here.
Addendum
I see that Alex Tabarrok has found a quote from me from May of 2013 in which argued that the economy would not grow fast enough to make a significant dent in the unemployment rate in the near future:
“It is absurd to think that the economy has enough momentum to make any substantial dent in unemployment in the foreseeable future.”
Since that time, the unemployment rate has fallen by roughly 2.0 percentage points. That would certainly qualify as a “substantial dent.” Interestingly, growth over this period averaged just 2.8 percent. With potential growth generally put between 2.2-2.4 percent (potential growth is the rate needed to keep pace with the growth of the labor force) this difference of between 0.4-0.6 percentage points would ordinarily not be enough to make a substantial dent in the unemployment rate. In fact, if we look at the employment to population ratio (EPOP), the percentage of the population with jobs, it rose by just 0.6 percentage points over this period. At that rate, it would take approximately a decade to get back to the pre-recession EPOPs.
What I had not anticipated is the large number of people who would give up looking for work and drop out of the labor force over the next year and a half. The labor force participation rate fell from 63.4 percent in April of 2013 (the most recent data available when I wrote the column) to 62.7 percent in December of 2014. This drop corresponds to roughly 1.7 million people leaving the labor force. In past recoveries the labor force participation rate rose as more people got jobs.
Anyhow, I will own up to having gotten this one badly wrong. I did not expect people to be leaving the labor force as the economy recovered. I expected that participation rates would follow past trends. I still expect that this will be the case going forward, so I do think both the EPOP and the labor force participation will rise in the next couple of years, assuming that the economy continues on its modest growth path.
I have had several readers send me a blogpost from Scott Sumner saying that the Keynesians have been dishonest in not owning up to the fact that they were wrong in predicting a recession in 2013. The argument is that supposedly us Keynesian types all said that the budget cuts and the ending of the payroll tax cut at the start of 2013 would throw the economy back into recession. (Jeffrey Sachs has made similar claims.)
That isn’t my memory of what I said at the time, but hey we can check these things. I looked at a few of my columns from the fall of 2012 and they mostly ran in the opposite direction. The Washington insider types were hyping the threat of the “fiscal cliff” in the hope of pressuring President Obama and the Democrats to make big concessions on Social Security and Medicare. They were saying that even the risk of falling off the cliff could have a big impact on growth in the third and fourth quarter of 2012.
My columns and blogposts (e.g. here, here, here, here, and here) were largely devoted to saying this was crap. I certainly agreed that budget cutbacks and the end of the payroll tax cuts would dampen growth, but the number was between 0.5-0.8 percentage points. This left us far from recession. (All my columns and blogposts from this time are at the CEPR website, so folks can verify that I didn’t do any cherry picking here.)
I know Paul Krugman is the real target here, not me, but we’ve been seeing the economy pretty much the same way since the beginning of the recession. If he had a different story at the time I think I would remember it. But his columns and blogposts are archived too. I really don’t think anyone will find him predicting a recession in 2013, although I’m sure he also said that budget cuts and tax increases would dampen growth.
Anyhow, I’m generally happy to stand behind the things I’ve said, and when they are proven wrong I hope I own up to it. But I don’t see any apologies in order. No recession happened in 2013 and none was predicted here.
Addendum
I see that Alex Tabarrok has found a quote from me from May of 2013 in which argued that the economy would not grow fast enough to make a significant dent in the unemployment rate in the near future:
“It is absurd to think that the economy has enough momentum to make any substantial dent in unemployment in the foreseeable future.”
Since that time, the unemployment rate has fallen by roughly 2.0 percentage points. That would certainly qualify as a “substantial dent.” Interestingly, growth over this period averaged just 2.8 percent. With potential growth generally put between 2.2-2.4 percent (potential growth is the rate needed to keep pace with the growth of the labor force) this difference of between 0.4-0.6 percentage points would ordinarily not be enough to make a substantial dent in the unemployment rate. In fact, if we look at the employment to population ratio (EPOP), the percentage of the population with jobs, it rose by just 0.6 percentage points over this period. At that rate, it would take approximately a decade to get back to the pre-recession EPOPs.
What I had not anticipated is the large number of people who would give up looking for work and drop out of the labor force over the next year and a half. The labor force participation rate fell from 63.4 percent in April of 2013 (the most recent data available when I wrote the column) to 62.7 percent in December of 2014. This drop corresponds to roughly 1.7 million people leaving the labor force. In past recoveries the labor force participation rate rose as more people got jobs.
Anyhow, I will own up to having gotten this one badly wrong. I did not expect people to be leaving the labor force as the economy recovered. I expected that participation rates would follow past trends. I still expect that this will be the case going forward, so I do think both the EPOP and the labor force participation will rise in the next couple of years, assuming that the economy continues on its modest growth path.
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