01
Aug
2015
Krugman Then Vs. Now, Bask
This guy Dave Smith at EconLog posted the following citation:
==> Krugman, Paul (1994), ‘Past and Prospective Causes of High Unemployment’, Federal Reserve Bank of Kansas City, Economic Review, Fourth Quarter, 23-43.
That looks like it could be the gift that keeps on giving. However, when I tried to get it, I could only find the article summary online. I tried emailing the KC Fed but haven’t heard back. Can any of you sleuths find it? The website made it look like you could download the whole issue, but I couldn’t get it to work.
I believe this would be it: https://www.kansascityfed.org/PUBLICAT/SYMPOS/1994/s94krugm.pdf
Thanks Darien.
“For the most part, this paper restates that conventional wisdom.”
-Yup, Old Krugman is not New Krugman.
I don’t like how Krugman reasons from a price level change in his discussion of the Phillips curve. Reasoning from a nominal wage change would have been more acceptable, as nominal wages are closer to the labor market. Shortages of goods may have a detrimental effect on the unemployment rate, but shortages of labor always have a beneficial impact on the unemployment rate. This is why using nominal wages instead of nominal prices is better for the Phillips curve.
Phillips curve:
https://research.stlouisfed.org/fred2/graph/?g=1yc7
Change dates to see different times.
Here’s the nominal wage Phillips curve in comparison:
https://research.stlouisfed.org/fred2/graph/?g=1ycc
Doesn’t that look much neater? It’s the best I’ve found.
Other key quotes:
“One reason for a rise in unemployment rates might be an increase in the generosity and cost of the welfare state. It is hard to believe, however, that this is the key factor.”
“There is a strong tendency on the part of policy- makers to presume that the economic problem must be one-dimensional-that growth and job creation are both aspects of some underlying quality, typically labeled with words such as “competitiveness.” The available evidence suggests, however, that the unemployment problem has a life of its own, and is not simply part of a generalized deterioration in economic performance.”
“At this point we have made two main points. First, the rise in unemployment rates in the OECD primarily represents a rise in the natural rate of unemployment. Second, a likely explanation for this rise is the collision between welfare state policies that attempt to equalize economic outcomes and market forces that are pushing toward greater inequality.”
“It is conceivable that Europe has been pushed out of some desirable industries, that “the role we have come to play in the new international division of labor has not been an optimum one,” but this should show up as a slower growth of productivity; yet European productivity growth has continued at respectable rates, and in any case productivity and unemployment seem to be unrelated.”
“That is, the data strongly indicate that if the relative demand for skilled workers has risen, it is because of some common factor that affects all sectors, not because of forces like international trade that change the sectoral mix.”
“Lawyers make much more compared with janitors than they did fifteen years ago; but the best- paid lawyers also make much more compared with the average lawyer. Again, this is hard to reconcile with a simple story in which new computers require people who know how to use them.”
“For this paper, I will perhaps err in the opposite direction, and take it as a maintained hypothesis that the European unemployment problem and the U.S. inequality problem are two sides of the same coin, and ask a narrowly focused question: what can be done about the apparent tendency of markets to produce increasingly unequal outcomes, or to produce persistent high unemployment if this tendency toward inequality is repressed?”
“First, it is unclear how much of the spread in the earnings distribution is actually tied to formal education; the fractal quality of the increased dispersion suggests that deeper forces are at work, which may continue to yield increasingly unequal outcomes even if formal education levels are made more uniform.”
“It is, however, hard to escape the feeling that those who place their faith in education and training as the major solution to the problems of jobs and wages are engaging in wishful thinking, driven by an unwillingness to face up to the harshness of the tradeoffs involved.”
“Five years ago, one might have said yes, and pointed to the Swedish example; at this point, the apparent unraveling of that model makes it difficult to argue for implementation of Swedish-style labor market policies. Nonetheless, unless Eurosclerosis goes into spontaneous remission it is likely that there will eventually be a call for a return to policies that subsidize employment.”
“The unemployment problem of the advanced nations has no painless solutions, and we should not expect effective action to solve that problem until or unless it becomes a true crisis.”
Golly! You mean Krugman has been reluctant to help you out? That’s hardly sporting, I’m a little shocked.
I downloaded it, I can email you it if you like.
https://www.kansascityfed.org/~/media/files/publicat/econrev/econrevarchive/1994/4q94krug.pdf
How about this for back then? Doesn’t seem like he’s pro-living/minimum wage.
http://www.pkarchive.org/cranks/LivingWage.html
“In short, what the living wage is really about is not living standards, or even economics, but morality. Its advocates are basically opposed to the idea that wages are a market price–determined by supply and demand, the same as the price of apples or coal. And it is for that reason, rather than the practical details, that the broader political movement of which the demand for a living wage is the leading edge is ultimately doomed to failure: For the amorality of the market economy is part of its essence, and cannot be legislated away.”