Krugman: The pessimists were right

[Kurt_and_Hunter]

This really sums it up. There were two different theories of the nature of our economic troubles. The progressive academic view has been a better predictor than the Pollyanna view embraced by the super-smart administration economic team. (I doubt Geithner and Summers are really as dumb as they pretended to be. The administration view of the economy was probably driven as much by politics as economic analysis. I suspect that the WH recognized that if they admitted the full nature of the problem it would have precluded taking up healthcare. And that is a legitimately debatable proposition, in terms of priorities.)

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/

[SpiralHawk]

1. "Smirk." - xCommander AWOL (R)

"Before exiting the Oval Orifice, I wanted to cement in place an EPIC W-style Depression so people would always remember how 'special' I was while pResidenting.

"Me and my cabal O' Family Values Chickenhawk Republicon cronies employed our special 'republiconomic stratergery' to Shock & Awe the bejabbers out of America for years to come. Oh well, I guess we'll all just have to live off our oil profits and Swiss bank accounts. Too bad about you noisy proles. Smirk."

- xCommander AWOL (R)

[denem]

2. I continue to hope Krugman is wrong.

There are no winners if he's right.

In 2010, the Obama administration still has the balance of the $750b TARP money being repaid, which as was stressed at the time, is not subject to Congressional supervision. It could be put to work on main street, as a number of Administration sources have suggested.

[jgraz]

18. I'm pretty sure Krugman continues to hope Krugman is wrong.

But his case is pretty damning. :(

[NashVegas]

3. To the Wall Streeteres, The End Of Recession Means Only That Their Portfolio Is Recovering

The rest of us, it means something else entirely.

Fuckers.

[dionysus]

9. or, a lot of people are glad they recovered money their 401k lost.

not all people with a stake in the market are corporate looters or rich people...
:shrug:

[cilla4progress]

17. Good point.

[NashVegas]

35. I Guess It Depends On How You Look At It

If someone knowingly bought stock in any company that puts its bottom line above what's good for the country, overall, I'd say they are complicit.

[uponit7771]

34. EXACTLY !!! That's one criticism of the Obama admin that is fair is they continue to talk about the

...economy in terms America's middle class could care less about

[Greyhound]

37. An ever-shrinking percentage of people reaping an ever-increasing percentage of reward.

Ah, the Good Old Days, again...

[Kurt_and_Hunter]

4. Funny how rec/unrec turns every post into a poll

But, unlike a poll most readers do not view it as such.

So every post becomes a poll of a particular population of folks who are very keyed into recing and unrec'ing.

[Vinnie From Indy]

5. This is not fucking rocket science IMHO

What is not being said by many commenting on this issue is that the American worker and the American middle class standard of living is dying and the condition appears terminal. The MASSIVE, unprecedented offshoring of manufacturing jobs is the elephant in the room. Globalization and the race to the bottom for the cheapest cost of labor has doomed the average American. No amount of "stimulus" money is going to bring these jobs back. Granted, this situation might someday turn around, but it will not be in our lifetimes.

No jobs - no recovery!

[chimpymustgo]

6. You said it. There ARE NO JOBS. Therefore, NO RECOVERY.

[NashVegas]

14. There Is Recovery For Those Who Can Make Money By Eliminating Payroll

It was the Utopian dream: we could all live a life of leisure, with plenty of money for the things we needed, and we'd never, ever have to work.

But someone had to do the work, so we invented machines for what we could, and used the cheapest labor we can find.

As soon as expensive IT workers can be axed, they will be, too. Along with all other unnecessary working professionals who think they have some bizarre right to autonomy.

[wisteria]

33. Manufacturing jobs has been disapearing for years. The middle class is employed in more fields than

just manufacturing. And, perhaps now is the time to learn some new job skills for those who hold those types of jobs.

[high density]

7. Companies are creating their own demise

They are eagerly butchering their own revenue stream by offshoring jobs. Now we're all going down with these short-sighted "what have you done for me this quarter?" decisions. Tech & dot com kept it propped up for a decade. Mortgage bubble kept it up another few years. Now it seems we're screwed because no US company wants to pay US workers a decent wage, yet they want us to spend an infinite amount of money.

[ProSense]

8. "Still, a month is just a month, right? " No, the pessimists were not right

people have been predicting gloom for years to come. This report, despite the uptick in losses, does not prove the pessimist right.

“We’re still losing jobs,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “It’s nothing like we had in the freefall of last winter, but we’re not about to turn around. We’re still looking at a really weak economy.”

The report intensified pressures on the Obama administration to show progress for the $787 million spending bill it championed last year to stimulate the economy. In recent months, the administration has emphasized initiatives aimed at encouraging jobs, while cognizant that concerns about the federal deficit limit its ability to pursue further spending.

“It certainly isn’t the best report, because we continue to lose jobs,” the Labor secretary Hilda L. Solis, said. “But last year at this time we were losing over 700,000 jobs a month. The recovery act continues to help.”

Some economists fixed on a potentially positive trend tucked within the data: For a fifth consecutive month, temporary help services expanded, adding 47,000 positions in December. The increase burnished the notion that companies are recognizing fresh opportunities and are inclined to add labor, even as they hold off on hiring full-time workers.

“We’re going in the right direction,” said Michael T. Darda, chief economist at MKM Partners, a research and trading firm in Greenwich, Conn. “If we just have a little bit of patience, we’ll start see monthly increases of 200,000 to 300,000 jobs within six months.”

link

[Oregone]

12. Krugman is only correct when he is shilling for health care reform. He knows dick about economics

Right?

[JVS]

30. Which is why he got a nobel prize in Health Care, and not one in economics!

[levander]

36. I love how Krugman backs the HCR bill, despite economic concerns...

He completely shelves his economics knowledge in favor of politics. With comments like, "we'll be fixing it for years to come." Hell, if their starting point is this bad, what's to make us think they'll come back and fix it?

[Romulox]

38. Paul Krugman is a "say anything" kind of guy. Now he is a populist firebrand.

Yesterday he was a "free trade" shill.

I think he's mostly about attracting attention to himself.

[Kurt_and_Hunter]

15. Failure beyond fail

It is almost a rhetorical question...

The WH said that unemployment would top out at 8%.

The pessimists (an analytic position, not a personality trait) said it would crack 10%.

You might want to deal with what people actually said rather than simply redefining the relative positions to suit yourself.

[ProSense]

19. Spin beyond spin

The WH acknowledged early in the year that things were worse than they realized. The reality is, the economy is improving despite this claim by Krugman: "Sad to say, each successive bad jobs report adds to the evidence that the pessimists were right."

Each "successive bad report"? The report shows dramatic improvement.

[harkadog]

29. You are spinning like a top

A loss of 85k jobs is an improvement over an alleged November gain of 4k?

[Jeff In Milwaukee]

27. It depends on what you consider pessimism....

There are people on this board who are cheerleading for failure. They WANT the economy to go further into the tank and stay there. Any piece of economic good news is met with derision.

That's not pessimism - it's fucking stupid.

Pessimism, as I think Krugman is defining it, is the belief that the economy is NOT going to experience a vigorous recovery. Used to be that the deeper the recession, the stronger the recovery. What Krugman is suggesting is that recovery is going to be a MUCH slower process than what we're used to. I don't think he's suggesting that the economy isn't going to recover.

Optimism = 8% GDP Growth in 2010!
Pessimism = 3% GDP Growth in 2010.
Nihilism = More Recession! Woot!!

[depakid]

41. You apparently haven't been reading Krugman very often

He's said that there's a substantial http://krugman.blogs.nytimes.com/2009/12/01/double-dip-warning/">risk of a double dip recession in 2010 (based in part on the half measure stimulus' http://www.nytimes.com/2009/01/09/opinion/09krugman.html"> failure to plug enough of the output gap.

So rather than a "V" America may well see a wide "W."

And that's ceterus perebus.

Once petroleum prices start spiking again, all bets are off.

[alterfurz]

10. Dilbert: The naysayers were right.

Dogbert: They usually are.

[jefferson_dem]

11. Investors are also "bearishly" gloomy on the jobs report.

The Dow is down...20 points to 10587. :)

[Nicholas D Wolfwood]

13. I take it that November doesn't quite fit into his neat little paradigm.

For a guy that makes a living on screaming "I WAS RIGHT", he seems to be jumping the gun a bit.

[Cali_Democrat]

16. Krugman is definitely right here

The stimulus was not enough and it looks like the jobless recovery will go on for a long time. We need to create 150,000 a month just to keep up with population growth.

Considering the millions of jobs we've lost since the recession started, it looks like it will take years just to get back to where we were.

Perhaps we should stop spending trillions on pointless wars and "national security." I think the money would be better spent fixing this economy.

[dmallind]

20. But not the typical DU pessimist

What we have is a situation where anything that says a recovery is starting to happen = cheerleading insane optimism

Anything that says there will never be a recovery and this is the norm from here on out is mainstream.

And to be pessimistic here you have to talk about eating rats within the next ten years.

What Krugman refers to is pessimism about the pace of the recovery. I am by that definition a pessimist because I don't exspect full employment again within two years. I do not however expect to be eating rats any time soon.

The recovery will happen. There are plenty of signs it is happening - slowly. That's pessimistic. Talking about a return to an agrarian society is doomer nonsense.

[Kurt_and_Hunter]

21. Yes, he is referring to a particular model

One year ago the debate was "L-shaped" recovery versus "V-shaped" recovery.

Our national policy followed the V-shaped expectation which was silly at the time and has been refuted by history.

That does not mean that we are not in better shape than we were, or that we will not be in even better shape at some point in the future.

Of course we are in a recovery. Anyone denying that statement categorically is loony. It's just that it is more L-shaped than V-shaped which calls for different policies.

[Vinnie From Indy]

22. Rats on the menu are a long way off. We will have to work our way to that point

I figure that rats will come right after the family pets.

There is some truth to your observations about the extreme positions taken here. But, I also think that you are dismissing too hastily the argument that what we are experiencing now in our economy is something different than has come before. As far as I can determine, the United States has only lost jobs at this percentage one other time in our history - The Great Depression. What makes this situation so novel is that this generation will have to compete for jobs in a world that has never been better prepared to compete for jobs. In addition, even after the Great Depression, the largest consuming market in the world was the United States. That is rapdily coming to an end for this generation as well. Our consumer market is only a small fraction of the consumers in emerging markets like China and India. Business no longer needs nor wants high wage American workers and soon they will no longer rely on us as their primary market. No, what we are seeing in America today is a historic paradigm shift. We are learning that corporations have no allegiance to any government or people beyond using our military might to protect their pots of gold.

[Kurt_and_Hunter]

23. And my grand-children will be wide-eyed with awe and envy... "They still had rats?"

[JVS]

31. Opposite of the Yorkshiremen

http://www.youtube.com/watch?v=Xe1a1wHxTyo

[mzmolly]

24. I do think Krugman was right, but I don't consider him a pessimist.

;)

[Jeff In Milwaukee]

25. It's how he uses the term "pessimist"

The old model was that the economy was like one of those inflatable punching bags with the weight on the bottom. You knock it down, it bounces right back up. You knock it down HARD and it comes back FAST. The harder the hit (the deeper the recession), the more furiously it bounces back.

The new model that we've seen in the last couple of recoveries is that it's a slower, more drawn out process. The pessimist view is that the economny won't come "roaring back" in the next year. That's not to say that the economy is going to get worse or that it won't improve. Having been knocked down, the economy is likely going to take its time in recovering.

Maybe the terms should be "Optimist" for the old school and "Realist" for the new model.

[mzmolly]

26. Thanks for the info. I do prefer realist in this case.

It seems we should listen to those who knew what was going to happen, before it did, vs. those who created the problem in the first place.

:hi:

[Jeff In Milwaukee]

28. Krugman Once Wrote....

"Things that can't go on forever, won't."

They should have given him the Nobel Prize right then and there. Best piece of advice (economically or otherwise) that I've ever received.

[wisteria]

32. I use to like Krugman but.....

he has been on an ego trip since his nobel prize. He knows the President said clearly months ago that jobs would not show any improvement until 2010 and into 2011. Jobs are always the last thing to come back after a recession.

[David Zephyr]

39. And the White House pissed away a full year on new job creation.

And Americans are getting pissed.

Sadly, it will be more liberal Democrats in the House who will take the fall for Obama's failure to start on day on to create new jobs.

[Kurt_and_Hunter]

40. Agree, though most losses will probably be moderates

Liberals tend to be from liberal districts. I'd expect the biggest Dem loses to be among moderates.

I agree with what you say, just noting that the Democratic Party in congress will probably be smaller and more liberal after 2010.

(Just as the pug party has become more extreme as all the swing-pugs got knocked off, like in the northeast.)

[Vidar]

42. K&R.