Wednesday, January 14, 2015

A tale of two Krugmans

"If the economic news has been better lately, it’s probably in part because of the fact that federal, state and local governments have finally stopped cutting. And spending cuts have, in particular, cost a lot of jobs." ~ Paul Krugman, January 11, 2015

"Since Obama took office, we’ve gained 6.7 million private-sector jobs, compared with just 3.1 million at the same point under Bush. But under Bush we’d added 1.2 million public sector jobs, while under Obama we’ve cut 600,000." ~ Paul Krugman, December 28, 2014

Wait, what?

So the spending cuts have "cost a lot of jobs", but there's been 6.1 million new jobs total under Obama (6.7-.6) versus 4.3 million under Bush (3.1+1.2)? That's around 42% more total jobs (1.8 / 4.3) from Obama than Bush, but spending cuts have "cost a lot of jobs"?

Does PK think that if public sector jobs had been 1.8 million higher than actual under Obama that private sector job growth would have been unchanged?

The graph of private sector jobs vs. real government spending is kind of interesting:

From 2008 to the end of the sample, the correlation between the two series is -0.75!

Now sure, the government could be reacting to the job movements by increasing spending when jobs are falling and then tapering off when jobs are increasing. That makes sense, it's called counter-cyclical policy and it's generally what we want.

But PK is railing against the tapering of government spending (austerity) saying it "cost a lot of jobs", even though, as he pointed out, job growth under Obama is quite a bit higher than under Bush (and lord knows Bush didn't cut spending) and that private jobs grew strongly during our era of austerity.

Now one can always construct the convenient "counterfactual" that job losses would have been worse without the stimulus and job gains would have been stronger without austerity, but it requires some pretty difficult mental gymnastics. If $700 billion in stimulus over 9 quarters didn't notably stem job losses, how can $325 billion of austerity over 14 quarters notably hurt job growth? Or putting it the opposite way, if the small amount of austerity killed jobs, how could the much larger amount of stimulus not notably stem job losses?

It's pretty tough to have it both ways, but PK is sure giving it his best shot.


Thomas W said...

The job growth comparisons (faster growth under Obama than Bush) seem more a case of return to the mean (the recession at the start of Obama's presidency was much deeper than the one early in Bush's presidency), so one would expect faster job growth afterwards. Interesting in your graph is that job growth from 2010 on has been fairly steady as opposed to the numerous reports about a jobless recovery).

I don't give your private employment vs government expenditures correlation much weight as a general rule though unless it's extended over a much wider time frame. All too many macroeconomic "rules" seem to only apply over selected time frames.

Angus said...

Thomas, I agree and don't give it much weight either. Just looking at the period that PK is railing about. No reason to think it is ubiquitous.

Anonymous said...

Krugman is talking about 2 kinds of jobs: private sector jobs which have increased and public sector jobs that have decreased.

Krugman is mostly pointing out how conventional wisdom about Obama is wrong. Obama hasn't hurt the private sector with endless red tape and socialist policies; the private sector has been creating jobs faster with Obama in charge than any Republican President.

The difference is that, contrary to conventional wisdom, Government got smaller under Obama, while it got bigger for the Republicans.

Obama put more faith in the private sector, and he allowed the government to get smaller. Republicans had less faith in the private sector and increased the size of government to improve the economy. People who believe in the free market ought to be a lot happier with Obama, than Reagan or any Bush.

Anonymous said...

What I find interesting is that as the stimulus winds down, the rate of job growth stays exactly the same. Do Keynesians have a rationale for that in their model? I guess it's possible the % of GDP could be staying about the same.