Krugman On Jobs

http://www.nytimes.com/2011/05/30/opinion/30krugman.html?emc=eta1

http://www.nytimes.com/2011/06/02/business/02markets.html?emc=eta1

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"There are no problems we cannot solve together, and very few that we can solve by ourselves." (Lyndon Johnson)

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This morning's drop in the Dow has been attributed to today's ADP Employer Services report that the private sector created 38,000 jobs in May, a number substantially below the 175,000 jobs that had been expected by most economists. This is the lowest number since Semptember, 2010.

This makes Paul Krugman's May 29 NY Times post even more timely. He made the point that a strange thing has happened on both sides of the Atlantic: a consensus has emerged among the movers and shakers that nothing can or should be done about jobs.

Krugman quotes the O.E.C.D. (Organization for Economic Cooperation and Development), a think tank which reflects the prevailing opinion of Europe's policy elite, as calling on countries to "go structural" which is code for focusing on long term reforms because there is nothing that can be done for current unemployment. I'm sure Spain, with its current 21% unemployment rate, was heartened by that news.

In the U.S., Krugman doesn't see anybody talking seriously about job creation. He sees the Republicans leaning on their "... ritual calls for tax cuts and deregulation." This, of course, translates in "Republicanese" to jobs because it frees up investment. We're waiting for that to work.

Krugman needs us to realize that private debt is the problem. Since that's the case, there are things we can do. He advocates W.P.A.-type programs for infrastructure investment by putting the unemployed to work repairing roads, etc. He advocates a serious program of mortgage modification, reducing the debts of troubled homeowners. The point is that he advocates "something." And, it should be remembered that when the original worldwide financial crisis hit in December, 2007, both Krugman and Warren Buffet advocated much more spending in the U.S. than the federal government ended up doing with the various bailout programs.

Krugman sees policy makers sinking into a condition of "Learned Helplessness" on the jobs issue: "... the more they fail to do anything about the problem, the more they convince themselves that there's nothing they can do."

According to Nigel Gault, an economist at IHS Global Insight, the GDP growth rate for the U.S. will be less than 3% in the coming quarters, which is better than the first quarter's 1.8% growth rate, but too slow to make a meaningful dent in unemployment. Gault's projections are similar to those of JPMorgan Chase and others. This pattern raises the overall question of long term U.S. GDP growth.

These forecasts are below the official Fed forecasts of 3.1% to 3.3% economic growth in 2011 and 3.5% to 4.5% in 2012. Average private forecast growth rates: 2.9% in 2011 and 3.1% in 2012.

My thought: we need to brace for a long term GDP growth rate that is less than what we're used to and vote out of office anybody that thinks "tax cuts" will solve all our problems. We need to spend more on our aging infrastructure (especially roads and bridges) but stop short of building empty cities as China has. I don't favor either political party but I do favor people who make sense (like Buffet and Krugman). I think that Ben Bernanke learned the lessons of his PhD on the Great Depression and I respect his perspectives. When I see reports that Top 500 companies are spending their pent up capital again, I'll be more optimistic about jobs.

In the meantime, we're drifting.