When Paul Krugman isn’t being a partisan hack, he still knows how to ask some good questions:
Those with a downbeat view of the jobs picture argue that the low reported unemployment rate is a statistical illusion, that there are millions of Americans who would be looking for jobs if more jobs were available. Those with an upbeat view argue that labor force participation has fallen for reasons that have nothing to do with job availability – for example, young adults, recognizing the importance of education, may have chosen to stay in school longer.
That’s where Dr. Bradbury’s study comes in. She shows that the upbeat view doesn’t hold up in the face of a careful examination of the numbers. In fact, because older Americans, especially older women, are more likely to work than in the past, labor force participation should have risen, not fallen, over the past four years. As a result, she suggests that there may be “considerable slack in the U.S. labor market”: there are at least 1.6 million and possibly as many as 5.1 million people who aren’t counted as unemployed but would take jobs if they were available.
There’s both good news and bad news in that assessment. The good news is that the economy probably has plenty of room to expand before inflation becomes a problem (which implies that the Fed’s decision to start raising interest rates was premature).
I haven’t read Dr Bradbury’s study, so I don’t know if she’s factored for the self-employed. More and more folks are working from home, and don’t always show up as part of the Department of Labor’s employment statistics. Surely, they account for some of the “slack.” If Bradbury’s lower figure is correct, then I’d guess that some large fraction of her slack figure is employed, just not in a way measured by the DoL. If Bradbury’s bigger number is closer to the truth, then it’s difficult not to conclude that our economy is not yet robust enough to employ everyone who wants to work.
And that brings us to Krugman’s conclusion:
The bad news is that it’s hard to see where further expansion will come from. We’ve already had four years of extremely loose fiscal and monetary policy. Tax cuts have pushed the federal budget deep into the red. Low interest rates have helped generate a housing bubble that has lifted real estate prices to ludicrous heights in major parts of the country.
If all that wasn’t enough to give us a full economic recovery, what will?
Let’s not nitpick here. Yes, it’s true that tax cuts aren’t the only thing to blame for all of Washington’s red ink, as Krugman insinuates. There’s also our spendthrift Republican Congress, and a President who has never once taken a good, hard look at his veto pen. Yet the fact remains that Washington has run up an awful lot of debt. And that all that Federal spending ought to be pushing up aggregate demand enough to stimulate job growth.
The problem, of course, is that it’s almost impossible to measure the true size of the labor force. The DoL’s methods are antiquated, but Bradbury’s work gives us only a snapshot of a fast-moving picture.
So what’s really going on? Has the Fed moved too quickly? Should Washington provide even more stimulus, and drive us even deeper into debt? Are the self-employed really taking up enough of the slack?
See – I can ask good questions, too. Problem is, nobody knows the answer. What should impress you, however, is that even Paul Krugman implicitly admitted that he doesn’t know, either.
And after spending three-plus years picking on Krugman, it’s my duty to let you know when he gets one right.