Friday, February 17, 2012

Krugman Comes Through

If you follow Krugman’s blog, you know that he hasn’t had time to blog for a couple of days. But he still had the time to work on a problem I talked about the other day. To refresh your memory...

Spinning Machine

”In all the information -- this blizzard of bull chips -- I can’t find out what the unemployment rate would be if these 625,000 Americans had kept their jobs. And make no mistake about it, we could have kept them employed. As a matter of fact, it would probably have been cheaper to keep them employed. It certainly would have been more humane.

Class project -- Find out what our national unemployment rate would be if 625,000 people were still employed. The first one with the answer gets an honorable mention.”

In response to that Buffet Fan and The Angry Bureaucrat came up with some figures and I merged them to come up with 8% unemployment if we had keep our local and State workers employed.

Krugman, of course, came up with a better way to make the point.

Reversing Local Austerity

”So here’s my chart. It shows employment by state and local governments, which has fallen around half a million, with the majority of the cuts coming from education. Moreover, the baseline should not be zero; it should be normal growth, say along with population growth. So I’ve indicated what would have happened to state and local employment if it had grown at its usual rate of 1% a year:”

You will, of course, need to go to the piece to see the chart.

”This suggests to me that we could put well over a million people to work directly, and probably around 3 million once you take other effects into account, without any need to come up with new projects; just transfer enough money to state and local governments to let them return to doing the essential business of government, like educating our children.”

I hope you see the difference in calculations. I was thinking (and framing the argument) in terms of maintaining the status quo. Krugman is factoring in normal growth. The chart demonstrates what we tend to forget -- the Great Depression has been going on a long time. Even one or two percent starts adding up to big numbers over that much time.

Final point. Krugman can do this stuff when he’s pressed for time. I can think about it all day -- for several days -- and still not get it (completely) right.

Don Brown
February 17, 2012

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