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January 03, 2010Drive-by Economics
Perhaps realizing that he hadn't filled his monthly quota for columns bemoaning Chinese monetary policy and mercantilism, Paul Krugman published yet another one on New Years Eve - just under the December wire! The details of Krugman's latest New York Times column need not be discussed in this blog post, as it's pretty much identical to its October and November brethren, and I've already said my peace on those. But Krugman's December China currency column still warrants mention here because in it he reaches a new low when covering a subject over which his expertise should be unquestioned - international trade. In the middle of his column, Krugman unleashes this doozy (emphasis mine):
Meanwhile, that [Chinese] trade surplus drains much-needed demand away from a depressed world economy. My back-of-the-envelope calculations suggest that for the next couple of years Chinese mercantilism may end up reducing U.S. employment by around 1.4 million jobs.
Maybe because people ignored his October and November hysteria on China's currency policies, Krugman felt the need to amp it up a notch by putting a zany job-loss number in the middle of his monthly China regurgitation. Maybe Americans just don't get too agitated by warnings of "global imbalances," and - let's face it - everybody knows that "jobs" are 2010's super-sexy-it-word. I dunno. But what I do know is that not a single word before of after the passage above explains how Krugman came to this eye-popping "back-of-the-envelope" statistic. Indeed, we don't even know if he was using one of those small envelopes that come with grocery-store floral bouquets, or one of those huge envelopes that we lawyers use to serve confidential 500-page documents to our adversaries (hey, maybe it was the envelope in which his Nobel Prize Certificate was mailed). Krugman never says. Instead, he just spits out the stat and then keeps rambling on about China's mercantilism, the obvious wisdom of Keynesian economics, etc.
My only guess is that Krugman derived the "1.4 million" number using the flawed, completely debunked method - founded by the union-sponsored protectionists at the Economic Policy Institute - that mindlessly translates bilateral trade deficit figures into "lost job" numbers (down to the ridiculous decimal point!). That would be a really bush-league move, even for Krugman, but who knows? It's certainly simplistic enough for an envelope-doodle. But the fact that only Krugman knows how he came up with his new "statistic" exposes it as absolutely, completely worthless for public consumption or discussion.
Yet there it is, and I'm left wondering how many times I'm now going to have to hear (and rebut) this fake number - "1.4 million 'Merican jobs!" - over the next few months as politicians and career protectionists demagogue away on the evils of China's trade and currency policies. Unfortunately, once these stats - especially those originating from a Nobel Laureate and liberal icon like Krugman - are irresponsibly strewn across the interwebs, they never, ever go away, regardless of their actual veracity. (Indeed, those EPI numbers have been proven worthless for years now, and yet politicians still campaign on them. Good ol' Public Choice Theory!)
And considering how important and delicate the issue of US-China trade relations will be for 2010 and beyond, Krugman's nonchalant insertion of this fake statistic onto the pages of the New York Times and lord-only-knows-how-many other websites and blogs is the height of journalistic - and economic - malpractice.
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