Here’s Atrios
As Krugman says, to reduce unemployment significantly you need more than “normal” growth, you need turbo-charged growth.
And here’s Paul with some obviously false, but totally orthodox econo-doctrine:
Here’s the scatterplot of annual growth versus annual changes in the unemployment rate over the past 60 years […]Basically, we’d be lucky if growth at this rate brought unemployment down by half a percentage point per year
This is the kind of dim financial reasoning that caused the collapse in the first place – and the 30 years of devastatingly bad economic policy that led up to it.
Here’s a simple, factual, observation: there is no causal connection between GDP and job growth. If the price of refined gasoline goes up and sales don’t drop, GDP may rise, even though most Americans become poorer and even if business cut employment.
GDP = Consumption + Investment + Government
spending + eXports – iMports)
That’s it. There is nothing about employment tracked there at all. In fact, in an economy that has such gross concentration of wealth and such massive income inequality as ours, the relationship between GDP and employment can easily be backwards. If Wall Street invests $100B in ponzi-scheme real-estate pyramids – GDP goes up. If, on the other hand, the public cuts credit card debt and increases savings rates – the GDP goes down. If a private equity firm invests $1B in a profitable manufacturing company, loads it down with debt, and then pays itself $3B by liquidating the assets of the company, tossing thousands of people out of work, but paying out its partners, this will be a positive contribution to GDP. The contribution to GDP of 10,000 mortgage agents each reaping $1M in transaction fees will be far greater than the contribution of 100,000 construction workers weatherizing homes for $40K/year.
Imagine that the financial industry shrinks from 7% of the GDP back to 3% but we get 3million new manufacturing jobs in green industry. Is that bad? No. Would it require GDP to go up ? No.
So here we are in a weird situation where the spokesman for “progressive” economics is pretty much wedded to the same silly economic analysis that made him a strong advocate of NAFTA 20 years ago.
Quoting you,
“Here’s a simple, factual, observation: there is no causal connection between GDP and job growth.”
in that case, looking at the graphed points, (see the link: http://krugman.blogs.nytimes.com/2009/10/29/growth-and-jobs/ ) I gather that for you, the apparent trend shown is pure coincidence, that is, “no causal connection” between the axes’ data points. Over sixty years, and with such an apparent trend in view, to put that down to mere coincidence is “interesting” to say the least.
going on,
“If a private equity firm invests $1B in a profitable manufacturing company, loads it down with debt, and then pays itself $3B by liquidating the assets of the company, tossing thousands of people out of work, but paying out its partners, this will be a positive contribution to GDP.”
the $1bn investment by the private equity firm counts first as “savings” and only later, provided that there is any, as “investment”,
then, farther along, you write,
“Imagine that the financial industry shrinks from 7% of the GDP back to 3% but we get 3million new manufacturing jobs in green industry. Is that bad? No. Would it require GDP to go up ? No.”
Well, we can say two things for sure, in such a case, whether or not any increase in GDP comes about, the financial industry’s part of GDP would shrink, in any case, while the part of manufacturing as a component of GDP would increase, even if overall, GDP remained constant or decreased. And, while GDP wouldn’t necessarily increase, it might do so as a result of those new manufacturing jobs’ production.
Rather than failing to understand it, I think Krugman has already recognized the essential argument you make—as far as it’s acurate or valid, where he wrote, in his column entitled The Market Mystique of March 26, 2009
http://www.nytimes.com/2009/03/27/opinion/27krugman.html
“”no causal connection” between the axes’ data points. Over sixty years, and with such an apparent trend in view, to put that down to mere coincidence is “interesting” to say the least.”
Correlation is not causality. In general, GDP growth is associated with employment growth, but as Summers pointed out recently during the period 2000-2007, the GDP increase translated into lower salaries for most workers.
Purchase of a manufacturing company is investment, not exchange of financial assets – a category meant to exclude stock and bond trading.
I’m responding to Krugman’s cited post, if you want to debate his collected works, we can start with his continued failure to understand why NAFTA was a disaster.
RE:
“Purchase of a manufacturing company is investment, not exchange of financial assets – a category meant to exclude stock and bond trading.” [my emphasis added]
Look, I can only go by what you wrote, which I cited verbatim:
“If a private equity firm invests $1B in a profitable manufacturing company, loads it down with debt, and then pays itself $3B by liquidating the assets of the company, tossing thousands of people out of work, but paying out its partners, this will be a positive contribution to GDP.” [my emphasis added]
First you described it as an “investment”; now you say it’s a “purchase”. Fine. Just please make up your mind one way or the other.
On this,
“Correlation is not causality. In general, GDP growth is associated with employment growth, but as Summers pointed out recently during the period 2000-2007, the GDP increase translated into lower salaries for most workers.”
that’s fair enough. I agree, other things may account for the correlation and they may be, as you rightly point out, not causal relationships. I also agree that real wages are of essential importance which ought to count for more than the absolute value of GDP. I also share your view of NAFTA as a huge political and economic “mistake” (to put it in the kindest terms) and a disaster for ordinary people.
The distinction between stock purchase and ownership was intended to be implicit in the control exercised. But I could have been clearer.
Thanks.
In return, I’ll admit that, in referring to doing such things as “loading the company up with debt” and then selling it off for big profit, I ought to have recognized that you were talking about outright ownership control (i.e. purchase), rather than stockholder’s share investment. But I overlooked that. My mistake.