Krugman: The Long Road Ahead

[ProSense]

The Long Road Ahead

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The figure above illustrates Okun’s Law — the relationship between growth and unemployment. (Gah — I’ve tried to remove the connecting lines, to no avail.) The horizontal axis shows annual growth rates of real GDP; the vertical axis shows the year-to-year change in the unemployment rate. Two things are clear. First, the economy has to grow around 2 1/2 percent per year just to keep unemployment from rising. Second, growth above that level leads to a less than one-for-one fall in unemployment (because hours per worker rise, more people enter the work force, etc.). Roughly, it takes two point-years of extra growth to reduce the unemployment rate by one point.

So, suppose that US growth is accelerating. Even so, it will take years of high growth to get us back to anything resembling full employment. Put it this way: suppose that from here on out we average 4.5 percent growth, which is way above any forecast I’ve seen. Even at that rate, unemployment would be close to 8 percent at the end of 2012, and wouldn’t get below 6 percent until midway through Sarah Palin’s first term.

My 2011 predictions

[DCBob]

1. I thought Krugman was drum beating we were in the "midst of depression" just few months ago..

Is he now finally admitting we have economic growth?

BTW, what a terrible graph. It makes no sense whatsover.

[northernlights]

11. Krugman didn't say we were in a depression...he said we were in danger of a depression

Two different things. And with the anemic economic growth, we continue to be at high risk. Just one "black swan" event could be quite serious.

[DCBob]

12. Krugman: "slashing spending in the midst of a depression"..

"It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating."

"We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense."

http://www.nytimes.com/2010/06/28/opinion/28krugman.html

Krugman and many other high profile columists are under pressue to make headlines and attract eyeballs so they tend to make extreme statements like this. Its unfortunate but that the reality of big media.

[northernlights]

13. ok, missed that one.

Summer term I was in school 8-noon and at work 3-9, and caring for the farm in between.

However, I'm not sure that the current growth means that we're in recovery either. The direction is never straight up or straight down. Life is always more of one step forward, two steps back...or two steps forward, one step back.

It's hard to say for sure that anemic growth that isn't sufficient to change unemployment levels is recovery or a step forward before another big decline.

And there are plenty of reasons to suspect it's the latter rather than the former.

What does a graph of "The Long Depression" compared to the severe Great Depression look like?

[DCBob]

14. That's true.. the "recovery" may not last and we could still be heading for a big meltdown..

but the point is Krugman and other "doom and gloomers" were making comments suggesting an economic collapse was imminent and a depression was just around the corner unless we made big changes. They were wrong.

[northernlights]

15. they were wrong this week...

next week they could be right.

The fact is we just don't know. I suspect they are more right than wrong. The world's economy is fundamentally unsound. It cannot be sustained without major repairs. I don't see those repairs happening.

I worked for over 20 years in a $14B hitech corporation, starting in 1983 or so, when they had their first hiring freezes. The entire time I was there, rumours would periodically circulate that they were about to be sold (usually to AT&T). And then they would seem to recover and the rumours would subside.

And then, just when they seemed to be on the road to lasting recovery, on my way to a photoshoot I heard on the radio that they'd just been bought by Compaq Computer. All the seeming fixes over the years were really just kicking the can down a little further down the road. The last round of "fixes" had been hiding the real numbers, by tucking profitable groups (mine) under unprofitable but politically important groups (server group) to make them appear profitable. It was a shotgun wedding, as was the last company re-structuring, forced on them by a wall street scumbag (forget his name) who went around gathering groups of large stockowners and forcing merger deals to crank stock prices while dumping employees on the streets.

Kicking the can down the road is what's been going on in the US for some time now. You can do that for a while, but sooner or later, reality bites. And the larger the organization, the longer it can hang on by kicking the can down the road. I never would have expected it to take as many years to topple DEC as it did. And it's all the moreso with an economy the size of ours. However, the PTB have been engaging in massive crimes for a long, long time and have managed to kick the can a little further down the road, but the fact is nobody knows how far they've kicked it. And no matter how far they've kicked it, we're sufficiently vulnerable at this point that just one black swan will take it down. Of that I have no doubt.

As long as Wall Street is protected from consequences for its crimes,in fact is rewarded for its crimes, war criminals are protected from and rewarded for their crimes, we will continue stumbling along with a fundamentally unsustainable economy.

[DCBob]

16. They have been wrong for over a year and will likely be wrong for years to come...

There is no doubt our economy and the world economy is unsustainable and will eventually collapse unless we make some major changes but that has been true for many decades. To blame the current administration for any of this is absurd. Their actions these past two years have been to keep the economy from collapsing any further.. you can call it "kicking the can down the road" but they keep the worst case scenario from happening. It may happen eventually but why let it happen now if we can avoid it? This buys us some time and maybe we can eventually figure out how to solve it. It may be inevitable but I would like to think we are capable of coming up with some solutions. Fingers crossed.

[northernlights]

17. I disagree

but then my situation is that I'm one of the people who has fallen through the trapdoor economy. For me, total collapse is imminent. I'm starting to look for homes for my animals now. I've been hanging on by my nails for them, but I can't any longer.

I have been defrauded and robbed of everything from my life savings to having my identity stolen, nonstop for the last 10 years. The last string of lies and robbery was by the University of Maine. I was my last attempt and it's just another disaster. I now have student debt and am finishing a program that I detest. I don't think I can make it through, hate it, hate the field, hate the training. I'd rather be dead then go back there tomorrow. I can't sell my house. I am done.

I'm trying to take it one day at a time, until I have rehomed everybody, but it is a likely that I will be gone by next fall when the money runs out. But those bastards won't get my house in lieu. They've robbed me of everything. Well I'll fucking burn it to the ground before I check out. They can try collecting from a corpse and a fucking burned out hole in the ground.

[DCBob]

18. Wow, sorry to hear all that. Its more personal for you which makes it much worse of course.

My situation is not great either but still hanging on for now. My company went bankrupt last spring and I have been working as a consultant at less that half what I was making before. I also got divorced and let the ex have the house so I am in a small apartment. I am surviving but not sure what's going to happen down the road. Anyway, take care. Hope things work out for you somehow and also for me.

[MannyGoldstein]

2. GDP grew 9% yearly in FDR's first term

Just imagine how much faster it could have grown if an adult was president.

[ProSense]

3. Was an "adult" in charge

when GDP fell eight points and then another eight points into negative territory in the late 1930s?

[MannyGoldstein]

4. Actually, that's precisely when FDR became an 'adult'

He decided to balance the federal budget.

Of course, the same attempt will work out differently this time, no?

[ProSense]

5. So he wasn't an adult before?

"He decided to balance the federal budget."

That's what you consider being an adult?

[MannyGoldstein]

6. That's the current 'Third Way' narrative

No?

[ProSense]

7. Again:

"He decided to balance the federal budget."

That's what you consider being an adult?

[MannyGoldstein]

8. During a middle class depression?

Of course not. I was being sarcastic.

Sadly, the third way democrats are serious about balancing the budget while the middle class is suffering mightily.

[ProSense]

9. "Of course not. I was being sarcastic."

So you brought up being an "adult," and then you opted to respond with sarcasm rather than address the question?

[OHdem10]

10. When they are talking about JOBS and UNEMPLOYMENT

Mark Zander, Moody's, Krugman, Rhoubini have always
said we would not see real change in unemployment
until 2014-2016.

The Economy is recovering and the people who have jobs
are probably ok.(Just work harder) We have the millions
unemployed . We must let them become "the left-behind"
of our Economy.