Friday, November 13, 2009

Krugman: All the Wrong Lessons

In today's column, Paul Krugman doubles down on his support for Depression policies. He points out that Germany has had a much milder recession than the U.S. with regards to employment. And he suggests that we have something to learn from the Germans.

Smart - though he's three months behind Global Review, which suggested the same thing in August. But he wants to imitate the wrong things. Here's his logic:
Consider, for a moment, a tale of two countries. Both have suffered a severe recession and lost jobs as a result — but not on the same scale. In Country A, employment has fallen more than 5 percent, and the unemployment rate has more than doubled. In Country B, employment has fallen only half a percent, and unemployment is only slightly higher than it was before the crisis. Don't you think Country A might have something to learn from Country B?
He also points out that Germany came into the Great Recession with strong employment protection legislation, which has been amped up even more. He attributes Germany's low unemployment rate to this legislation. But he leaves out three key facts:
  • the entire recession has been more mild in Germany than in the U.S., not only the jobs picture
  • Germany refused to do a big stimulus package, which Krugman eviscerated them for here and here
  • despite the recession, Americans earn 34% more than Germans
Thus, who should be imitating whom? The data suggests that America is doing things right in the long run, hence our big advantage in earnings. But Germany is doing things right in the short run, hence their relatively mild losses during the recession.

That logic leads one to the following conclusions:
  • Germany should imitate the U.S.'s more free, less protective labor laws
  • the U.S. should imitate Germany's response to the recession: no stimulus package, just a boost to assistance for marginal workers
  • Krugman should find a different career
And as far as implementing that assistance for marginal workers, wouldn't it have been easier to find the money for that if we hadn't spent it on a trillion dollar stimulus package that hasn't worked at all? Krugman even admits that the trillion dollar stimulus hasn't worked, and wishes for a bigger one. After all, it can't be that his 1930's economic theory is wrong!


BPF said...

how'd u switch from "Depression policies" to "socialist policies" (or vice-versa)?

Chops said...

You mean in terms of editing the entry? I did some extra editing when I cross-posted to Watchblog.

I switched "socialist" to "depression" since I didn't want to start a silly debate about whether or not government intervention is socialist. It is, but the real point is that it doesn't work. A thorn by any other name would prick as sharp.

Mike said...