Monday, March 08, 2010

Krugman's Universe as "Bitter, Partisan Columnist"

"From Paul Krugman's recent NY Times column:
Today, Democrats and Republicans live in different universes, both intellectually and morally. Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment.

But that’s not how Republicans see it. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position: unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

In Mr. Kyl’s view, then, what we really need to worry about right now — with more than five unemployed workers for every job opening, and long-term unemployment at its highest level since the Great Depression — is whether we’re reducing the incentive of the unemployed to find jobs. To me, that’s a bizarre point of view — but then, I don’t live in Mr. Kyl’s universe. And the difference between the two universes isn’t just intellectual, it’s also moral.
From Paul Krugman's textbook (page 210):
Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries.
HT: James Taranto in the Wall Street Journal via Don Boudreaux

24 Comments:

At 3/08/2010 9:38 AM, Anonymous DrTorch said...

So Krugman's lying, one way or another. Imagine my surprise.

 
At 3/08/2010 9:49 AM, Blogger James Fraasch said...

That's funny right there.

Only question would have to be the context of Krugman textbook. Was he suggestion that "others" held that view or was he espousing the view as his own.

Thanks for the post!

James

 
At 3/08/2010 10:30 AM, Anonymous Anonymous said...

The point that extending unemployment benefits reduces the incentive to find a job is obvious. Not mentioned in the post is that Sen Bunning was only trying to get the senate to honor its recently passed Pay-Go legislation; meaning, if you propose spending money, you must identify the source (increased revenue [taxes] or reduced spending on something previously funded). The fact that the senate is unwilling to take $10B out of the previously funded $3.5T federal budget clearly demonstrates the senate's hypocrisy. Nuff said, Bunning wins the argument; too bad a senator running for re-election was not a co-sponsor.

 
At 3/08/2010 11:21 AM, Anonymous Kevin said...

Krugman is a partisan dolt.

 
At 3/08/2010 1:09 PM, Blogger Jason said...

The point that extending unemployment benefits reduces the incentive to find a job with the benefit rate in the US is ludicrous. This argument does unfortunately show how out of touch so-called conservatives are right now.

As a Stanford MBA who has been on unemployment, I can tell you uur benefits are not large enough. I was on benefits at the highest level after being laid off on Sept. 11. Almost a half of my business school class (Class of 2000) was laid off and it took many of us a year to find another job. And believe me, the benefits were not enough to sustain us (I had to borrow money to pay the rent,) and I took the first job I was offered after 10 months of looking full time.

European jobless benefits can run as high as 100% of the lost salaries. At that level you could see why there's a disincentive to look for work. At less than 50% of lost salary, most people are not covered. Remember people the amount of incentives matter.

Krugman explains this pretty well on his blog.

 
At 3/08/2010 2:19 PM, Blogger OA said...

Gee Jason, that's so sad your benefits weren't enough to sustain you. How does that extrapolate to those without Stanford MBAs, who tend to live a more meager lifestyle and who also aren't subject to the cap on weekly unemployment benefits?

If you think you and your Stanford Bussiness School classmates counted as representative unemployed, who really is out of touch?

 
At 3/08/2010 2:31 PM, Anonymous Anonymous said...

What about the distinction between normal times and times "when the economy is deeply depressed." The context in his column is different than the one in his text.

 
At 3/08/2010 3:20 PM, Blogger Methinks said...

Jason,

So, you want the government to rob me so that you can casually look for a job that you like? What if I don't have enough even though I work? It's amazing how you leftists love thievery.

In those 10 months you could have walked into any restaurant and gotten a job waiting tables to pay your bills while you looked for a job you liked. It may not have been enough to cover your the expenses for the life to which you had become accustomed, but at least you would have come by it honestly.

All cutting unemployment benefits does is force a more honest scenario after a ridiculously long period of time on unemployment.

 
At 3/08/2010 4:14 PM, Anonymous Anonymous said...

As a Stanford MBA who has been on unemployment, I can tell you uur benefits are not large enough ... Almost a half of my business school class (Class of 2000) was laid off and it took many of us a year to find another job.


Apply yourself, be willing to move and don't be picky. There's work out there:

The former financial analyst found himself with a $150,000 debt from completing a degree in economics.

Unable to get a job and without a roof over his head a Mr Seddiqui was even sent to therapy by his parents to help him get a job.

But one day Dan decided he would prove that there were jobs out there and he was going to try as many as possible in just one year.

US man gets 50 jobs in 50 states in 50 weeks, UK Telegraph

 
At 3/08/2010 4:52 PM, Anonymous Anonymous said...

In general I do not defend Krugman. I find his economic analysis is all too often colored by an anti Bush/Republican view and to some extent I do “live in Mr. Kyl’s universe” although I did not support his amnesty for illegal aliens. The New York Times column and Krugman’s book are NOT inconsistent. American unemployment benefits, even today, are nowhere near as generous as those in Europe. Moreover this is a highly unusual time in the US.

I too would defend Bunning for trying to get this paid for. By getting 53 Senators to vote against paying for their spending I believe that in the long run this is a conservative win. Still Bunning could have been more articulate. Appearances count.

Unemployment benefits, as we use them here, both help people and promote productivity. It is not in the best interest of the nation for those who have accumulated skills to take a job that requires less skill. Resources used to give someone job skills are wasted if the person ends up taking a job that does not require those skills.

Had Jason gotten a job in a restaurant he would have both under used his skills and deprived a person without his skills of a job. That job would have made it harder to look for a job. Right or wrong most employers would have viewed that restaurant job as a negative. Jason did the right thing for himself and the country.

 
At 3/08/2010 5:16 PM, Blogger juandos said...

Who was the stupid that cranked out this idea of, 'unemployment benefits' in the first place?

More progressive, liberal nuttiness...

 
At 3/08/2010 5:23 PM, Blogger bob wright said...

Jason, I guess one anecdote is as good as another.

So let me tell you about the guy I spoke to in the restaurant the other day who told me he wasn't going to look for another job until two to three weeks before his unemployment benefits ran out.

He was more than content to sit home and do nothing while collecting his unemployment.

And with unemployment benefits lasting something like two years now, he plans on sitting around for a very long time.

 
At 3/08/2010 5:28 PM, Blogger PeakTrader said...

Also, Obama hasn't been bipartisan or constructive:

March 8, 2010

President Obama spoke about health care reform today, and hit Republicans for only talking now about controlling costs, when they "had ten years." "They're obsessed," he said, "with the sport of politics."

"I got all my Republican colleagues out there saying 'No, no, no, we want to focus on things like costs.' You had 10 years. What happened? What were you doing?"

My comment: The last time Republicans controlled 60% of the Senate was 1921-23.

 
At 3/08/2010 5:42 PM, Blogger Eric said...

By the end of world war II, most of European and Asian countries were in ruin and could barely get by let along conducting productive economical activities. Had the US not provide support to European and Asian countries, the economic development would have been setback by decades.

 
At 3/08/2010 5:57 PM, Blogger Michael said...

The editorial addresses a transient event associated with unusually large unemployment, vs the textbook talking about european policies that persist in equilibrium during good times. I guess the good news is that Krugman isn't making enough real mistakes so "catches" such as this one that speak more to the mistakes of the readers than the writer get reported.

 
At 3/08/2010 8:37 PM, Blogger W.E. Heasley said...

Krugman is a progressive. Plus he has become an increasing non-credible source going back ten or more years.

In the macro sense, somehow winning the Nobel Prize in economics (which was a very questionable choice of recipients) has enabled Krugman to step outside his discipline of economics and become an “intellectual” with views on every topic known to man. Somehow and someway he perceives his “self bestowed” intellectual status as making his views credible. That is, his credibility on subjects outside economics is based on his status as an intellectual with no other basis existing for his credibility.

However, even in the field of economics he has become nothing more than a debater who puts forth gatekeeper information to make his debate points. The following is a classic gatekeeper informational point from his recent article:

“Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment.”
 
What “text book” does that happen to be? Most economic textbooks discuss six months of unemployment insurance as a social safety net. With the new extension of unemployment benefits, that Krugman approves of, coupled with prior extensions already in place, unemployment compensation now extends for nearly two years. Don’t know of any textbook that discusses the theory of two years of unemployment benefits as a social safety net.

Also note the discussion of “cost” is consciously absent. Hence Krugman doesn’t even bother discussing “the study of scarce resources to competing ends”. Further, what theory is he pointing to that “….it also reduces unemployment”. Huh? Extending unemployment benefits to nearly two years reduces unemployment?

Then Krugman goes on to say: ‘But that’s not how Republicans see it. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.” ‘

The Krugman adds this jewel: “In Mr. Kyl’s view, then, what we really need to worry about right now — with more than five unemployed workers for every job opening, and long-term unemployment at its highest level since the Great Depression — is whether we’re reducing the incentive of the unemployed to find jobs. To me, that’s a bizarre point of view — but then, I don’t live in Mr. Kyl’s universe.”

Krugman has merely dumped, within his argument, one of the basic studies within economics. That is, one of the basic underpinnings of the discipline of economics is the study of incentives. Two years of unemployment compensation is not a disincentive? Where is the incentive in two years of unemployment compensation?

Nobel prize winner in economics?

Where is that discussion that unemployment benefits may be coupled with other social safety net benefits creating a new effective rate of disincentive?

Nobel prize winner in economics?

However, the cat comes out of the bag when Krugman makes this statement: “And the difference between the two universes isn’t just intellectual, it’s also moral.”

The Thomas Sowell flashing red light, waving red flag, warning sirens go off. Krugman’s entire column is nothing more than the anointed/intelligentsia, verbal virtuosity, “the way things ought to be” argument put forth by progressives for over 100 years. Its not an empirical argument, it merely an argument with no arguments.
 

 
At 3/08/2010 9:38 PM, Anonymous CompEng said...

Properly understood, Krugman's two quotations are not actually contradictory because they refer to different prevailing circumstances. That does not mean he is correct.

However, give the man his due: he is quite bright, only very, very liberal (and prone to trading on past economic credentials to make political commentary). But Liberalism is not by definition stupidity, although straining reality to fit one's wishes can produce similar results to that of stupidity.

 
At 3/08/2010 9:53 PM, Blogger misterjosh said...

From what I hear, Krugman earned his Nobel. The problem is that he has strayed from his area of expertise (foreign trade I believe).

 
At 3/09/2010 3:12 AM, Blogger sethstorm said...


And with unemployment benefits lasting something like two years now, he plans on sitting around for a very long time.

Well, it is a rational choice to fight wage compression. Consider it their only meaningful way to counter, given that negotiations do not favor them when finding work.

 
At 3/09/2010 4:16 AM, Blogger PeakTrader said...

Keynes said we're all dead in the long-run. The problem is the long-run eventually shows up. I think, it's beginning to show up in a big way.

 
At 3/09/2010 9:01 AM, Blogger Frozen in the North said...

Unemployment benefits have two nefarious impact: (1) first, and this is widely recognized, it increases the level of unemployment, simply because some people view the difference in wealth between unemployment and "job" jobs as marginal, therefore are perfectly happy being unemployed; (2) Unemployment benefits increase minimum wages at which people are willing to take a job, and has an impact on the entire wage structure.

On the other hand, it is only natural for people to have a sense of entitlement when they hear anecdotal evidence that "welfare is alive and well in corporate board rooms". How many of us have heard of the lousy CEO, who have literally destroyed the company they run being paid-off handsomely. At an other level, the current catastrophic supply of labor 5 applicants for every job available, cannot be wished away with economic theory. Abject poverty has consequences for our security, as a society and as individuals.

 
At 3/09/2010 12:49 PM, Blogger sethstorm said...


Keynes said we're all dead in the long-run. The problem is the long-run eventually shows up. I think, it's beginning to show up in a big way.

Probably the only thing from Keynes that isn't under dispute.

 
At 3/09/2010 9:27 PM, Anonymous uBig fatPig said...

"
benefits were not enough to sustain us (I had to borrow
"
~~Jason~

Not only, but also :
Job-Seeker Bootstrap mentality is little help when suddenly there are 6 unemployed for each unfilled slot.

Are the employed actually working, actually working enough to create profit enough for companies to invest profits into rehiring? Are the unemployed slacking off? Have they become less efficient at doing nothing? Or is the culprit a fat employee couch snoozing?

U. B. Judge

U. B. Freud

 
At 3/10/2010 1:17 AM, Blogger Marko said...

I am an out of work attorney, and I recently applied for a part time attorney job. Only 10 other people applied. This is interesting, since full time attorney positions in the DC area are getting around 1000 applicants or more. I propose that the difference is due to unemployment. I must admit that I have to weigh the utility of working part time versus the unemployment I am getting, even though unemployment is a small percentage of my 'normal' pay.

To you doubters, ask an economist what "at the margin" means.

 

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