Posted 8:04 AM by Robert

Faster And Better Than Thought

The Associated Press reports:

The economy grew at a 1.4 percent rate in the final quarter of last year -- twice as fast as the government first estimated. ...

The major factors in the upward revision to fourth quarter GDP were stronger investment by businesses in building up stockpiles of unsold goods and a slight boost to consumer spending, the main force keeping the economy going. ...

Economists believe the economy is picking up momentum in the current quarter, expanding at a rate of 2.5 percent or more.

But to Paul Krugman, the apocalypse is near:

Is there any relief in sight? The conventional wisdom among business forecasters now calls for growth of a bit more than 3 percent over the next year. Growth at that pace is barely enough to keep up with rising productivity and an expanding labor force, not enough to make a serious dent in unemployment.

"Barely enough to keep up with rising productivity?" It seems that Herr Doktorprofessor sees a need for economic growth that exceeds rising productivity. Of course, when the economy is coming out of a recession or otherwise underperforming such a state of affairs is possible in the very short run. But well within sight a point must be reached where only rising productivity and an expanding labor force can sustain an expanding economy. What the heck is he talking about here? [UPDATE: And, by the way, wasn't it just a little while ago that Democrats were telling us that the real problem with the economy was that workers just didn't have enough time to spend with their families and personal lives? Why don't we hear about that issue now from the likes of Messrs. Krugman, DeLong and Daschle? Unemployment is painful for those who wish to be employed - and things like calling it "free time" the way, say, Europeans label their statute-imposed work week limitations, doesn't make the problem go away. Couldn't we at least be treated to something along the lines of "workers have even less time now, because they must now work even longer and harder to make ends meet now that there is less employment!" Just asking.]

And rising productivity - thought by the naive be a good thing - is actually seen by this sophisticated economist as a bad or threatening thing, something that we must "keep up with," like a weight problem. Apparently (resort to "apparently" is needed here because Herr Doktorprofessor provides no explanation), the current theory around the Princeton economics department is that rising productivity is luddite in its effect, and every up tick in productivity means that many more human workers displaced. Other, sillier, people might think that up ticks in productivity create more efficiency and wealth - and more jobs - pretty fast. Those jobs are clearly "in sight" to any but the intentionally myopic, although they may not come well before the next election - which is probably all Herr Doktorprofessor cares about now, anyway.

And what to make of "enough to make a serious dent in unemployment?" According to the Bureau of Labor Statistics:

Payroll employment rose by 143,000 in January, and the unemployment rate decreased to 5.7 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment in retail trade and construction increased after seasonal adjustment, but most other major industries were little changed.

What is a "serious dent" in an unemployment rate of just 5.7%? Surely Herr Doktorprofessor would not view a mere reduction in this rate to, say, 4.7% as a "major dent." He seems to see a need for something a lot more "major" than that. The Man Without Qualities is no fan of the Phillips Curve, but recent experience shows that an unemployment rate of less than 4%, say, has some pretty strange effects, effects which are scarcely without their problematic aspects, although not necessarily bad. For example, who says it's necessarily bad that that a new college graduate with a computer programming degree gets hired into a first job at more than the combined income of her parents? Who says it's bad that the florist shop help have to be paid way, way more than minimum wage, won't give customers the time of day and take off early to go rock climbing, or that real estate prices in the magic valley or belt or alley de jour appreciate at 25% a month? Those are decisions for the market to make. Contrary to the dogma of the Phillip's Curve worshiper cult, I can see no need to avoid such low unemployment rates, if that's what an otherwise healthy economy produces. But it is a little hard to see the political or economic imperative for driving the economy into a state that produces such effects - even if one resorts to expressing the issue in percentage-of-percentage terms (as in describing a rise in unemployment from 4% to 6% as "a 50% rise in unemployment" - a type of phrasing which seems increasingly popular on the left - although that rhetoric didn't work for them in the 2002 elections - or even describing the growth in the GDP last quarter as "twice as fast as the government first estimated").

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