Friday, June 17, 2005

A couple of things I posted at Kudlow's Money Politics

I'm really tired after a 17-hour day of running around Manhattan in early morning hours, then working until dark. It's one of those days where I wanted to blog about something, but I can't remember it right now.

For tonight, I'll repost a couple of comments that I made on Larry Kudlow's Money Politic$ blog. I was really annoyed at these two liberals who have a form of economics, but deny the common sense thereof.
Well, well, well. The Krugmanites are coming out of the woodwork.

That's an appropriate term to call you, IMPT and KTS, because you have no understanding of what you talk about.

First, you're ignorant, or just plain lazy to do research on your groundless accusations. Larry has not shied away from criticizing Bush's tariffs. For example:

Steel tariffs were a big policy miscue, but fortunately they were rolled back. Now trade liberalization, a growth-generating policy, is back on track.

Second, you're following in the footsteps of your discredited, ever-pessimistic hero, Paul Krugman. (One of the entries that Don Luskin linked to there is by yours truly, and Econopundit liked it enough to link to it as well. You'd both do well to read it, .)

Since at least 2002, Krugman has propagated the myth that "unemployment went down because people stopped looking for work." He used it even before unemployment's last peak in 2003. Krugman was effectively saying, "Unemployment should have gone up even more, but people are dropping out of the labor force."

Krugman was wrong then, and his statement remains wrong today, by both measures of how many people are employed.

Civilian labor force participation rate

Employment-population ratio

These are straight from the Bureau of Labor Statistics. What they show is that, for the last several months, unemployment is falling, but the labor force participation rate by both measures is also going up. Employment is actually improving better than the unemployment rate alone indicates.

The later 1990s had unsustainably high employment; it was bound to fall sooner or later. Many entered the labor force who previously had no intention of ever working. However, Clinton and the media not hyped up all the new tech jobs, and these new workers wanted to get a piece. Those jobs proved transient, and many were counted as newly unemployed.

There were housewives, retirees (like my mother's ex-boyfriend) and others who re-entered the labor force. A lot of college students, myself included, dropped out to take advantage of the high-paying jobs. Lots of us were laid off, but had the unsustainably hot economy not lured us out of school, we'd never have been counted as unemployed. We didn't immediately leave "job seeker" status because we had optimism about finding replacement jobs. After my dotcom layoff, I spent two years doing IT contract work before I returned to college.

Austrian economics correctly identifies recessions not as a bad thing, but a necessary correction of an overheated market. That's exactly what happened starting in 2000. A 67%+ labor force participation rate is too high to continue forever.

So now who's spinning? It's not Larry, nor I.
(second comment)
And by the way, to you Chicken Littles who think the dollar will crash, think again.

Do you think China, Japan, South Korea and Europe, with all their dollar-denominated investments, will let the dollar lose a lot of value? Of course not; they'd be idiots to. Ninety percent of U.S. debt is denominated in dollars. We don't have a lot of debt that we must repay with yen, yuan, won or euros.

I wrote this back in March: Why China won't let the dollar slide too far

Walter Williams wrote this recently, with the same points I did about why the dollar won't crash: Our trade deficit

I'm in good company, having used the grocer analogy myself. The only thing that matters is that you can afford the groceries you want, whether by income or borrowing. It doesn't matter, in the short term, if you have a trade balance with that trading partner -- or even all of your trading partners.

It's key to remember that China runs a very small trade surplus overall. Sure, China has a huge trade surplus with us, but that allows it to buy goods and services (especially raw materials) from other countries. China gets all these dollars by selling us high-quality yet inexpensive textiles and plastics. China then uses the dollars to buy crude oil, or it converts them easily into yen, euros, etc., to buy goods and services from its other trading partners.

When China, Japan and Europe have unspent dollars, they like to invest them in U.S. Treasury bonds (which funds our federal budget deficit). Or they invest in U.S. companies, permitting American consumers to save less and spend more. This means we enjoy a higher standard of living today, at the cost of losing ownership in our own companies. Even so, it does not matter what nationalities "own" a company, so long as the company exists in our country and provides jobs. Do American auto workers complain about "having to work" for Japanese-owned auto companies here in the U.S.?


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