Saint Paul’s complaint…
He’s phoning it in now.
If it were not previously obvious that Paul Krugman has simply decided to cease evolving, and fully intends to ride his Nobel Prize into a grassy, well-shaded, spot overlooking the American economist version of an intellectual Forest Lawn, his most recent response to an imagined slight by the WSJ should put all doubts to rest.
The Journal apparently accused Saint Paul of duplicity for his claim in the popular press that unemployment compensation does not reduce labor force participation, while maintaining just the opposite view in his textbooks:
I hear through the grapevine that the usual suspects at the WSJ have put out something along the lines of “Krugman says that unemployment benefits won’t raise unemployment, but in his textbook he says they will, neener neener.” Are they really that stupid? Probably not — but they […] think that you, the reader, are that stupid.
Since you are not stupid, Saint Paul proceeds with his argument that,
Everyone agrees that really generous unemployment benefits, by reducing the incentive to seek jobs, can raise the NAIRU; that is, set limits to how far down you can push unemployment without running into inflation problems.
While unemployment compensation will not necessarily encourage the unemployed to avoid work, really generous unemployment compensation will. Everyone, Saint Paul swears, agrees with this. If you pay people enough to not work, it will begin to affect how much they have to be paid to seek work – leading to inflation. If we make it too comfortable for people who cannot find jobs, we will pay for it in higher prices. So we need to carefully calibrate exactly how much the unemployed receive for having been laid off – too little and they starve, too much and Lloyd Blankfein won’t be able to afford that diamond studded, solid gold, Rolls Royce he has his eye on – the one with seats covered in the most exquisite gossamer of fairy wings.
(And, if we provide decent shelters for battered women, we will only encourage the collapse of marriage. It is typical of Saint Paul that he protests the most squalid assertions of his field only to incorporate the logic of those assertions into his argument.)
However true the reasoning that forcing companies to pay full compensation to those who have been thrown into the streets might lead to the loss of such fear of starvation that workers might even prefer not to work – and, therefore, adopt the attitude of such notables as Paris Hilton, who seems to survive quite nicely without the burden of the daily commute – nevertheless, Saint Paul assures us that we are far from encouraging these sorts of pretensions among the filthy poor:
But in case you haven’t noticed, that’s not the problem constraining job growth in America right now. Wage growth is declining, not rising, and so is overall inflation. A wage-price spiral looks like a distant dream.
Not only are we able to keep the unemployed in such a state of anxiety about their mere survival, with incremental extensions of the unemployment compensation – subject to the periodic political infighting in Washington – there are so many of them that their sheer number threatens to starve even those who remain at work by depressing wages. The problem we face instead is precisely the opposite: who is going to consume all the crap we’re producing in China, now?
What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant.
Thus, Saint Paul cuts through the knot: we are suffering such unemployment, because we have no cash, because we are unemployed!
Well, at least we are getting somewhere: If there is a lack of demand for the things we already produce, then there must also be a lack of demand for productive investment to hire the unemployed to produce more of it. A situation which Saint Paul’s intellectual godfather, Lord John Maynard Keynes, put this way: “investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises.”
And, what was his solution, Paul? Was it to maintain the threat of starvation over the heads of 20 percent of the labor force indefinitely?
Or was it to reduce hours of work?