Paul Krugman: Fear Economy

Paul Krugman

Paul Krugman

Once again the master explains in a few paragraphs one of the most basic problems confronting our society. I will never understand why a supposedly liberal or progressive president has not sought out the views of this man or others like him such as Bill Black or economist Richard Wolff or Joseph Stiglitz.

Here are some excerpts from Friday’s NYT column recognizing that as of today 1.4 million Americans will be cut off from long term unemployment insurance. Republicans are pushing hard to up that number. Always remember one of the basic tenets of labor: the more people in the labor pool, the cheaper labor is. Thus the reason that Republicans wouldn’t care if children were in the labor pool or if Social Security ended and older Americans were in the labor pool also.

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“So employment is a power relationship, and high unemployment has greatly weakened workers’ already weak position in that relationship.

We can actually quantify that weakness by looking at the quits rate — the percentage of workers voluntarily leaving their jobs (as opposed to being fired) each month. Obviously, there are many reasons a worker might want to leave his or her job. Quitting is, however, a risk; unless a worker already has a new job lined up, he or she doesn’t know how long it will take to find a new job, and how that job will compare with the old one.

And the risk of quitting is much greater when unemployment is high, and there are many more people seeking jobs than there are job openings. As a result, you would expect to see the quits rate rise during booms, fall during slumps — and, indeed, it does. Quits plunged during the 2007-9 recession, and they have only partially rebounded, reflecting the weakness and inadequacy of our economic recovery.

Is there any evidence that this is happening? And how. The economic recovery has, as I said, been weak and inadequate, but all the burden of that weakness is being borne by workers. Corporate profits plunged during the financial crisis, but quickly bounced back, and they continued to soar. Indeed, at this point, after-tax profits are more than 60 percent higher than they were in 2007, before the recession began. We don’t know how much of this profit surge can be explained by the fear factor — the ability to squeeze workers who know that they have no place to go. But it must be at least part of the explanation. In fact, it’s possible (although by no means certain) that corporate interests are actually doing better in a somewhat depressed economy than they would if we had full employment.”

Krugman’s full piece is well worth the read as usual.

Remember also that many of the pieces to put labor into a fear economy were in place long before the Republican recession. Policies that eviscerated labor unions and sent American jobs overseas in the tens of millions. So, no, this is not an accidental outgrowth of the recession but a planned situation.

We will need strong leadership to quit playing into corporate hands.

About Dave Bradley

retired in West Liberty
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