Why does Paul Krugman lie about the economy? For the same reason that many liberal politicians do: If they told the truth, they’d never be elected into office. But when they lie, their chances of victory are greatly improved.
Here’s the truth about what has happened to the American economy over the last year:
Since the stock market bottom one year ago last Friday, the S&P 500 has grown $2.96 trillion in market value. Corporate earnings are now at an all-time record high. Gross domestic product has grown somewhere between 5 and 6 percent. Household wealth is at an all-time record high. Interest rates are the lowest in modern history. Inflation measured by the Consumer Price Index is non-existent. Jobs have grown between 122,000 (according to the Department of Labor’s “establishment survey”) and 983,000 (according to the “household survey”), and the unemployment rate has fallen from 5.9 to 5.6 percent.
These impressive economic statistics are largely the result of growth policies enacted by the Bush administration.
The liberal response? Ignore all this good news and invent a jobs crisis. Convince Americans that they shouldn’t be fooled by the fact they have jobs. Say that the jobs they have are just temporary illusions. Let Americans know that at any moment their jobs will be “outsourced” to India.
And the lies are working. In a post-9/11 world, fear is never very far beneath the surface. Appeals to insecurity can be very effective — especially when they can be linked to isolationist urges. Despite all the evidence of economic health around us, last Thursday’s Wall Street Journal reported a poll showing that only 45 percent of Americans approve of President Bush’s handling of the economy, down from 49 percent one year ago. Overall, Bush is virtually tied in the polls with John Kerry, a candidate whose economic policy (to the extent it can be discerned) seems to center on a rollback of Bush’s tax cuts — the very tax cuts that set the economic recovery in motion in the first place.
Of course, Paul Krugman — America’s most dangerous liberal pundit — has been doing his ample share of the lying. In his Friday column for the New York Times there are a couple of howlers.
First, Krugman lies to make his case for a jobs crisis — even though the unemployment rate is 5.6 percent. Bear in mind that 5.6 percent is nothing unusual. It is precisely the long-term average since the statistic was first compiled in 1948. It is lower that it was, on average, during President Clinton’s first term, and precisely the same as it was at this point of Clinton’s first term. If there is anything unusual about 5.6 percent, it’s that it is dangerously close to the 5.5 percent level that Krugman himself once claimed was indicative of excessive employment pointing to inflation.
Krugman says in Friday’s column:
But wait — hasn’t the unemployment rate fallen since last summer? Yes, but that’s entirely the result of people dropping out of the labor force.
Krugman is referring to the fact that the unemployment rate is the fraction of the labor force that is unemployed. He’s claiming that the unemployment rate has fallen not because there have been new jobs created, but “entirely” because the labor force has gotten smaller.
The truth is that both have happened. The unemployment rate is calculated by the Department of Labor’s “household survey,” which shows clearly that jobs have increased at the same time as the labor force has shrunk. Krugman is not clear exactly what he means by “since last summer,” but no matter which summer month we take as the starting point, jobs have increased and the labor force has shrunk. It’s a flat-out bald-faced lie to claim that the drop in the unemployment rate is “entirely the result of people dropping out of the labor force.”
Will the Times print a correction? Don’t hold your breath.
Krugman’s second lie concerns the content of President Bush’s economic policy. Berating the administration because its tax cuts, “mainly for those at the top … failed to deliver the promised jobs,” he harks back to policy suggestions he made in an October 2002 Times column:
… I called for extended unemployment benefits, temporary aid to state and local governments, and rebates for low- and middle-income workers. Maybe this more or less textbook response to a depressed economy wouldn’t have worked. But we’ll never know, because the administration rejected all such proposals.
Krugman Truth Squad members Bruce Bartlett and Jon Henke (of the Q-and-O blog) nailed this one before the ink was dry. Not only has the administration not “rejected all such proposals,” it has signed “all such proposals” into law. Here’s Henke:
Extend Unemployment benefits: Bush did that … Temporary aid to state and local governments: The Jobs and Growth Tax Relief Reconciliation Act of 2003 increased that by $20 billion … Rebates for low- and middle-income workers: The Jobs and Growth Act of 2003 included rebates for child tax credits. Granted, these policies may not have been implemented precisely as Paul Krugman would have liked (i.e., by a Democrat)…but they were implemented.
Will the Times print a correction? Don’t hold your breath.
But here’s the more important question: When will voters start rebelling against lies like this? So far these lies are making it possible for the Democrats to resurrect Bill Clinton’s old strategy: “It’s the economy, stupid!” If the electorate falls for it this time, though, it’ll be a case of something else entirely: “It’s not the economy, we’re just stupid.”
– Donald Luskin is chief investment officer of Trend Macrolytics LLC, an independent economics and investment-research firm. He welcomes your comments at don@trendmacro.com.