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Monday, October 8, 2012

Paul Krugman, "Truth About Jobs": Truth Interpreted Liberally

"In a time of universal deceit, telling the truth is a revolutionary act."

- George Orwell

Regrettably, there is nothing "revolutionary" about Paul Krugman's New York Times op-ed entitled "Truth About Jobs" (http://www.nytimes.com/2012/10/08/opinion/krugman-truth-about-jobs.html?_r=0).

In his latest opinion piece, Krugman derides the response of the right to Friday's government-issued unemployment figures showing that the US unemployment rate remarkably dropped from 8.1 percent in August to 7.8 percent in September, following the decline from 8.3 percent in July to 8.1 percent in August. In particular, Krugman sniggers at the response of Jack Welch, former chairman and CEO of General Electric, to these numbers:

"Leading the charge of what were quickly dubbed the 'B.L.S. truthers' was none other than Jack Welch, the former chairman of General Electric, who posted an assertion on Twitter that the books had been cooked to help President Obama’s re-election campaign. His claim was quickly picked up by right-wing pundits and media personalities.

It was nonsense, of course."

"Nonsense, of course"? Listen to Jack Welch and decide for yourself (http://video.foxnews.com/v/1880778306001/fmr-ge-ceo-jack-welch-questions-jobs-numbers-in-tweet/):

"I have no idea where this number came from, but if you look at it, we added 600,000 jobs in the government sector in August and September, and that's the largest number we've had since the study has been done over a two-month period, 600,000 jobs. In September, the household employment, which we normally don't use, added 780,000 jobs. That's the highest since 1983.

I've been reviewing businesses all week - some dozen businesses. No one is stronger than they were in the third quarter than they were in the second quarter.

We've been told, Eric, that you need 150,000 to 200,000 to stay even, to hold flat.

Well, in the last two months we've gone from 8.3 to 8.1 by changing the participation rate assumption. Now we're going from 8.1 to 7.8 by changing the household numbers assumptions.

Look, I don't know what the right number is, but I'll tell you, these numbers don't smell right when you think about where the economy is right now."

So is Jack Welch a nutter? I don't think so.

And Jack Welch is far from being alone. Regarding the accuracy of the government's recently released unemployment figures, Jim Pethokoukis (http://www.aei-ideas.org/2012/10/economist-unemployment-drop-implausible-a-statistical-quirk/) quotes two economists from RDQ Economics, John Ryding and Conrad DeQuadros:

"This report is a tale of two labor markets. The establishment survey (payrolls) painted a picture of moderately growing employment over the last three months but at a marginally slower pace than over the last year. At this pace of job creation, the unemployment rate should be barely drifting lower given underlying demographic trends. In contrast, the household survey painted a picture of a sharply falling unemployment rate—down 1.2% points over the last 12 months. Such a rapid decline in the unemployment rate would be consistent with 4%–5% real economic growth historically but much of the decline is accounted for by people dropping out of the labor force (over the last year the employment-population ratio has risen to only 58.7% from 58.4%). We believe part of the drop in the unemployment rate over the last two months is a statistical quirk (the household data show an increase in employment of 873,000 in September, which is completely implausible and likely a result of sampling volatility). Moreover, declining labor force participation over the last year (resulting in 1.1 million people disappearing from the labor force) accounts for much of the rest of the decline. With this report, the ISMs, and vehicle sales, the September economy is off to a better-than-expected start but nowhere near as good as suggested by the decline in the unemployment rate."

Of course, Krugman acknowledges "that you shouldn’t put much weight on any one month’s report," and admits that all is far from rosy, but insists that a golden tomorrow lies ahead:

"None of this should be taken to imply that the situation is good, or to deny that we should be doing better — a shortfall largely due to the scorched-earth tactics of Republicans, who have blocked any and all efforts to accelerate the pace of recovery. (If the American Jobs Act, proposed by the Obama administration last year, had been passed, the unemployment rate would probably be below 7 percent.) The U.S. economy is still far short of where it should be, and the job market has a long way to go before it makes up the ground lost in the Great Recession. But the employment data do suggest an economy that is slowly healing, an economy in which declining consumer debt burdens and a housing revival have finally put us on the road back to full employment."

Ah, yes, the American Jobs Act, whose anticipated cost was $447 billion. In an earlier opinion piece (http://www.nytimes.com/2012/09/10/opinion/krugman-obstruct-and-exploit.html), Krugman told us that this act would have added 1.3 million jobs by the end of 2012. So divide $447 billion by 1.3 million jobs, and what do you get? Taxpayers would have been saddled with a cost of $344,000 per job in order to drive unemployment below seven percent. Does this make sense to you?

But I stray from the issue of whether the government's most recently issued unemployment figures were accurate. In fact, there exists an entirely neutral arbiter to judge the veracity of these numbers. If this surprising data was correct, we should have seen a very positive response in the US financial markets on Friday. Instead, the Dow Jones Industrial Average added only 0.2%, Nasdaq fell 0.4%, and the S&P 500 ended unchanged.

Sorry, but the US economy, which will ultimately improve somewhat regardless of the outcome in November ("after winter comes the spring"), remains rotten, and if you don't believe me, ask your family and friends to tell you the truth. Given their first-hand knowledge of the economy, they will presumably be far less partisan in their analysis than Krugman.

The Obama administration recently sought to convince us that the murderous attack on the US consulate in Benghazi was "spontaneous," knowing that such was not the case. Should we now place faith in the latest government-issued unemployment figures?

This is indeed "a time of universal deceit."

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