Krugman does it again

Actually this post was written a few hours before this one that I commented on before:

First Michael Boskin, now John Taylor: there seems be an epidemic of politically conservative economists who used to be technically competent repeating the obviously wrong falsehood that Reagan ushered in an era of “unprecedented” growth.

No matter what measure you use, it just ain’t so — and I thought every macroeconomist in America knew it wasn’t so. Here’s one measure that the BLS happens to have put in a convenient chart, so that I’m not choosing the dates, they are:

This shows what everyone was supposed to know: we had an awesome performance in the generation following the war (despite very high tax rates on the rich and a very strong union movement); we had a long period of poor productivity performance that spanned the Ford, Carter, Reagan, and Bush I administrations; we then had a revival during the Clinton administration, but even so not up to postwar standards. By the way, I don’t give Clinton credit for that revival; it was about learning to use technology. But in any case, there is no hint of a Reagan miracle in the data.

So what on earth is going on with people like Boskin and Taylor? It’s not hard to guess; but as Dan Quayle said, a mind is a terrible thing to lose.

Krugman says he´s not choosing the dates. That´s because they were quite convenient to his objective of “deconstructing” Reagan! But really, you shouldn´t bundle together the 1970´s with the 1980´s.

Unfortunately at present the BLS has only yearly MFP data beginning in 1987. But I remembered that in the late 1990´s I had fiddled with the MFP data that covered the period to 1996. This is what comes out:

Very low MFP growth from 1966 to 1973 and negative growth from then to 1981. But during the Reagan years things change dramatically and those changes were hidden by the date’s choice made by the BLS that Krugman presents.

And we can use the stock market as a “consistency check” on those MFP data. The graph below shows that during the “Great Inflation” and oil shocks period, the stock market was flat (falling significantly in real terms).  Ditto for MFP growth. All that changes on the way to the “Great Moderation”.

HT: Rafael

9 thoughts on “Krugman does it again

  1. Krugman blogs every day; several posts. He is always intelligent, but sometimes lets partisan politics get the best of himself, in my layman’s opinion.

    I will say this: GOP economists, who advised Japan to go into QE, and who gushed about the success of QE in Japan (such as John Taylor in a 2006 paper), now mysteriously say no QE for the USA and that we are facing dire inflation.

    I sense that Krugman, for all his faults, is sincere in his policy advice, and his heart is in the right place.

    I wonder about the John Taylors of the world. Many elements of the right appear to want to defeat Obama at all costs, even if it means putting a torpedo into the economy and then blaming the liberals. It is ugly time out there.

  2. Benjamin: You are correct. Things are ugly! I used to enjoy Krugman, but he has become so partisan that he´s lost credibility. And he knew better about the power of MP even in a LT situation, but he disavowed that and kept pushing for FS. Everybody is sort of disavowing their earlier “beliefs” (that goes for Bernanke and also John Taylor), mostly for political reasons. Very sad.

  3. Unfortunately, Obama decided to anticipate the electoral campaign in the midst of a non-recovery. It’s no surprise the GOP and congressists become more ideological.

  4. Your MFP graph seems to prove Krugman right.

    Eyeballing the numbers from the graph, I see an increase of 2.0%/yr from ’80 to ’88 (though Reagan would be ’81 to ’89 and get a lower number). I see an increase of 2.6%/yr from ’48 to ’55 and 2.9%/yr from ’61 to ’65. There is nothing unprecedented about 2.0%/yr, and even that rate started before Reagan.

  5. Richard. You are not looking closely!. I´m not discussing the post war to 65 “boom”, but the fact that Krugman exagerates when he says that there was no productivity improvement during the Reagan years. The stock market graph has a close correspondence with the behavior of productivity. Also, it is not “fair” to compare a period of catch-up growth 1947-65, that follows a decade of Great Depression and then years of war, with a period of “steady state” growth after 1981

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