A concession, and proof that it really is the dismal science

Matthew Hoy
By Matthew Hoy on December 27, 2002

New York Times columnist Paul Krugman's latest offering is a pessimistic assessment of the economy.

Of note in Krugman's analysis are two things:

First, Krugman, possibly for the first time (it would be nice to have access to Lexis-Nexis), acknowledges that the Bush Tax Cut has benefited the economy -- if only "marginally."

Second, Krugman seems to ignore the latest news on the economy -- a positive one.

But it has been a jobless, joyless recovery. Payrolls have continued to shrink. The number of people who have been unemployed for more than six months ? an indicator of families facing severe distress ? has risen 55 percent over the past year. And thanks to inaction by Congress and the administration, 800,000 of those long-term unemployed will lose their benefits tomorrow.

Falling stocks have also taken their toll; many older workers whose 401(k)'s have imploded can no longer afford retirement. Even as overall employment has fallen, the number of working Americans over 55 has increased 8 percent.

Thursday's news: "New jobless claims fall, but businesses still not hiring quickly." While this does not rise to the "Happy, happy. Joy, joy" news level, you'd think that Krugman would mention it.

Also, people working longer is a good thing. The longer they work, the more money that is paid into Social Security. Of course, it won't help me, I'm too young, but every little bit helps.

The rest of Krugman's piece reiterates his call for peace (no war on Iraq because oil prices would rise), federal bailouts (the federal government should go deeper into hock to bail out the state governments).

Krugman's conclusion:

Are there any possible sources of good news?

Yes, a few. A walkover victory in Iraq could lead to sharply lower oil prices. Technology marches on, so businesses could finally decide that it's time to replace aging equipment, even though they still have plenty of spare capacity. Inventories are low; someday businesses will restock, and in so doing give the economy a boost.

Are you enthused? I'm not. I hope I'm wrong, but this doesn't look like a happy new year.

I'm predicting that Iraq will fall quickly, and the sharply lower oil prices that will result will boost the economy.

Time will tell if Krugman's analysis is correct. Of course, Krugman's analysis is colored by his politics. Bush must fail in order for Krugman's cynical view of conservatives to be vindicated. Of course, I'm a little different. I want Bush to succeed, but I don't insist that people who honestly disagree with me are greedy, selfish and evil.


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December 2002



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