Wednesday, January 07, 2004

An current economic overview,

NOTE: This post was originally a commentary on a thread on Daniel Drezner's weblog. The content was good enough to clip and copy it onto my own weblog. Writing is hard, why do it twice if you've done it well the first time around? Gotta love Copy and Paste.

Let's try to take a step back and get a big picture view on all sides shall we? I think we can all agree that formal unemployment underestimates the number of people that are ready and willing to work but have no opportunity. The "real" unemployment however isn't nominally as bad as it was in the 90's, and that wasn't as bad as in the 80's. For those out of work however, they often have been out of work for a very long time.

This is because the economy is undergoing a precipitous structural change. Despite the upbeatness of Catherine Mann's economic article cited by Dan Drezner in his blog, a growth of a few paltry percentage points in IT that doesn't even match inflation much less smoking hot GDP isn't cause for relief. It is the statistical sign of foreign outsourcing of formerly domestic jobs. The fields hardest hit are the ones with still a backlog of current or up-and-coming trained personnel but the greatest globalization transfer impact.

The economic recovery is not robust, with labor not just wobbly in manufacturing but flat in service as well. Whatever jobs are replacing some (but not all) of those lost to globalization are often lower benefit, pay, and status service oriented jobs. This is supported by how wages have not risen even as productivity has, as well as the slow jobs growth number compared to extremely hot GDP.

Krugman et al. are in fact over-reaching, and therefore damaging their credibility by this. Their likely motivation is that they feel that GWB is mismanaging the current economic modernization, and more importantly preparing the USA for a castatrophic economic shock in the long term. However, the economic shock will not be felt for many years and it is frustrating in order to try to make long term impact arguments on most people who don't know that much about the economy and have an extremely short window of forward planning. Even Wall Street doesn't look much more than a few months ahead of time.

Out of understandable frustration, Krugman et al. have tried to tar GWB for what anyone rational would call a cyclical recession and structral economic modernization. This has bit them in the ass, because of heavy Central Bank, Federal, and Treasury stimulus the economy has come back - but by all the numbers is still not steady on its feet much less running full speed.


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