Man Without Qualities

Monday, August 18, 2003

Krugmandammerung: The Twilight Of Herr Doktorprofessor

The French government says that long French vacations and short French working weeks caused many of the 5,000 heat-related deaths in that country during the recent European/Mediterranean heat wave. The government says that a law enacted by the Socialists limiting France's working week to 35 hours caused many of the French heat-related deaths because that law left medical centers and hospitals short-staffed at the height of the crisis. Many elderly people died at home when family members left on their August holiday.

So it was with great anticipation that I awaited the Paul Krugman's effort on Friday. He occupied most of his week publicly embarrassing himself with his ridiculous claims that the handful of heat-related deaths of US troops in Iraq were caused by deranged Bush Administration privatization policies and ersatz thrift - especially in regards to water distribution. Naturally I hoped that on Friday Herr Doktorprofessor would hold true to his principles and argue just as ridiculously that the 5,000 French heat-wave-related deaths had been caused by deranged Chirac/Raffarin Administration's water privatization policies - especially since fully 85 percent of French customers get their water through privately owned or operated water utilities which have deprived the French people of a publicly-financed Evian water patrimony and are spearheading the global drive to privatize water everywhere! Surely Herr Doktorprofessor will argue that this is a global crisis - and detect a "pattern" involving oligopolistic businessmen that would surely lead back - as only Herr Doktorprofessor can detect - to Bush Administration oilmen! After all, anti-globalizationists are arguing: Water will be to the 21st century what oil was to the last - vast fortunes will be made by controlling it and nations will go to war to preserve access to it.

Alas, it was not to be. Instead, Herr Doktorprofessor retreated from the blazing Iraqi sun to what he terms "Twilight Zone Economics 101." There is some satisfaction here, because Friday's column is nothing less than Herr Doktorprofessor's long-awaited explanation of why all the recent positive economic news is meaningless! And it turns out that Herr Doktorprofessor's entire column can be reduced to one sentence:

I, Herr Doktorprofessor Paul Krugman, think that all the positive news that has been appearing is meaningless because the economy's rate of growth in the near past has been, is now, and in the near future will be, too low to generate a lot of new jobs, meaning, in other words, in terms of what matters most, the economy will continue to deteriorate.

There. Wasn't that easy?

Of course, a lot of people just don't agree with Herr Doktorprofessor - probably including a good many of the people who today bid the stock market to a 14-month high. Those people seem to see a sunny future, not a twilit Krugmanian demi-monde stretching like some wintry Greenland across the economic map.

Herr Doktorprofessor's entire "analysis" of why the economy will in his opinion essentially continue on in the twilight zone is as follows:

So is a real, unambiguous recovery just around the corner? Recent economic reports have had a "good news"-"bad news" feel to them. Businesses are starting to buy some equipment; that's good. But they seem to be engaging in replacement investment, not capacity expansion; that's bad. Consumers are spending; that's good. But rising interest rates seem to have ended the refinancing boom that put cash in consumers' pockets; that's bad. And so on.

But there's a bit more to it than that - as the Wall Street Journal reported recently:

The secret weapon this time: corporate profits, which appear to be solidly on the rise. The 1,336 companies included in the Dow Jones Total Market Index that had posted second-quarter earnings as of Wednesday reported combined net income of $115.87 billion, up from $74.12 billion a year earlier. An overwhelming 92% of economists in the survey said they believe the rise in profits will prompt companies to boost capital spending and investment in the next six months. Such investment will be key to sustaining a meaningful recovery.

And the effects of technology on this cycle's employment picture is also extraordinary, as others have pointed out, including Bruce Bartlett and Arnold Kling and the Federal Reserve Bank of Richmond and the Federal Reserve Bank of San Francisco and Steve Antler - where Mr. Bartlett noted:

The higher productivity going in [to the recent recession] meant that fewer workers were needed coming out of the recession. Now, in the current recession, which ended in the fourth quarter of 2001, we have seen even higher productivity on either side. The latest data show an increase in productivity of 4 percent in the six quarters before and 6.5 percent in the six quarters after. That is why employment growth and hiring levels remain weak. Employers are raising output without adding much new labor. It is important to remember that this is a short-run phenomenon. In the long run, higher productivity increases employment, a fact documented in two new studies from the Federal Reserve Bank of Richmond and the Federal Reserve Bank of San Francisco. But in the meantime, employment growth may still be slow for a couple more months.

Now, nothing requires Herr Doktorprofessor to agree with any of the people cited above. But one might have hoped for a bit more understanding of factors such as rapidly rising corporate profits, viewed by the experts consulted in the Journal article as "key." Don't they warrant more than undifferentiated, nameless absorption into Herr Doktorprofessor's "And so on?" And why is it that Herr Doktorprofessor's analysis of the job market is limited to a brief allusion to population growth - with no mention at all given to the effects of technology?

Looking at the bigger picture, it seems odd that Herr Doktorprofessor's historical overview omits to mention that the late Clintonian era was marked by very large - and often very problematic - capital expenditures on technology. Telecommunications technology projects at that time, for example, were often based on assumptions that internet use would double every three months - where, in fact, use is doubling every year or so. That sector of the economy got considerably ahead of itself. Other large, bad investments were made. Many people have observed that the ensuing "capital expenditure driven recession" was of a type that one should expect to be very long and very severe. Comparisions with Japan were common - although the Man Without Qualities was never charmed by such comparisions, Herr Doktorprofessor, for example, has periodically likened the United States retraction to Japan's. Then there was the matter of 9-11 and it's economic consequences, which somehow warrant no mention in Friday's screed.

Yet, despite everything, the recession was neither long nor severe - and Herr Doktorprofessor can only condemn it's aftermath as mere "twilight" - not black. Sometimes, it seems, even a period of twilight following a capital expenditure technology boom and a terrorist disaster of unprecedented scale must still serve as an indictment of our economic policy. And now many people claim to see the sun.

Not very much time will be sufficient to tell. In the mean time, Herr Doktorprofessor's economics lecture on Friday doesn't inspire confidence as complete or insightful either as history of the near past or as a prediction of the near future. He still doesn't seem to be spending enough time preparing for his classes.

MORE From Don Luskin.

UPDATE: The Wall Street Journal publishes a column by Lance Cpl. John R. Guardiano, a Marine serving in Iraq. Guardiano's experience is contrary to what most of the mainstream media - and especially Herr Doktorprofessor Krugman - present as "fact." Definitely worth the read.

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