Call It Krugmanfreude. Not everyone is overjoyed with 7.2 percent GDP.

Schadenfreude — that's that word for taking pleasure in the other guy's failure. But what's the word for that feeling you get when you've been hoping for the other guy to fail, but he ends up succeeding . . . spectacularly? A schadenfreudian slip? How about Krugmanfreude?

The latter was the suggestion of ex officio Krugman Truth Squad member John Davidson. It's the perfect word for what America's most dangerous liberal pundit, Paul Krugman — and the whole Democratic party, for that matter — must be feeling right now as they face the reality of last Thursday's announcement that gross domestic product grew at a stunning 7.2 percent annual rate in the third quarter. That's the fastest rate in almost twenty years.

Krugman has used every possible form of hyperbole to damn President Bush's economic policies: "train wreck," "banana republic irresponsibility," "obviously ... heading us in the direction of fiscal catastrophe," and so on. So this great economic news really is a world of Krugmanfreude, and Krugman isn't taking it all that well.

Last Friday, Krugman still managed to churn out his regular New York Times column. He did the best he could with it. As ex officio Krugman Truth Squad member Lindsay Osbon put it, "The hard part about eating crow is making it look like it tastes good." Here's Krugman smiling while he chews:

... it's possible that we really have reached a turning point. If so, does it validate the Bush economic program? Well, no. Stimulating the economy in the short run is supposed to be easy, as long as you don't worry about how much debt you run up in the process.

New Krugman Truth Squad member, NRO contributor Jerry Bowyer (author of The Bush Boom), told me by e-mail, "My favorite part is when he said that it’s easy to get a short term stimulus. This from the crowd that said the Bush stimulus plan had no short term stimulus effect." KTS stalwart Matthew Hoy, on his blog HoyStory.com, nailed Krugman's attempt to snatch defeat for President Bush from the jaws of prosperity:

Bush can do nothing right when it comes to the economy — nothing. If the economy remains in the doldrums, then it's because of Bush's tax cut ... If the economy improves, then it only does so in spite of Bush's tax cut and other economic policies — and even then it doesn't matter because the government's running a deficit ... there's no way you can win. Here's the best shot Krugman can take at Bush at this point: ... it would be quite a trick to run the biggest budget deficit in the history of the planet, and still end a presidential term with fewer jobs than when you started. And despite yesterday's good news, that's a trick President Bush still seems likely to pull off. Not bad, under the circumstances. I'm sure all of that will be repeated endlessly by Democratic politicos in the media echo chamber. But there's not a single idea in those 47 words that isn't based on economic trickery. Let's take it apart, concept by concept.

First, are we running "the biggest budget deficit in the history of the planet"? Krugman Truth Squad stalwart Tom Maguire had the answer for that on his Just One Minute blog. He wrote,

Imagine, if you will, that George Bush had announced yesterday that, under his stewardship, the US economy had grown more than in any previous quarter in history ... in nominal, no adjustment for inflation or anything else terms, this is our biggest quarterly increase ever. And no one cares. Because the correct growth measure is as a percent of GDP. And if Bush said otherwise, we would all agree he was being duplicitous, or stupid. Or maybe we wouldn't. ... when Prof. Krugman describes the "biggest budget deficit in the history of the planet" he can only be speaking in nominal terms. Indeed. As a percentage of GDP, even using the worst-case "on-budget" budget deficit to make things look as bad as possible, the Office of Management and Budget's 2004 estimate of 4.3 percent is smaller than in sixteen other years (and not much larger than it was in the comparable year of Bill Clinton's first term in office). If we use the "total" budget deficit, then even in dollar terms — when adjusted for inflation — there have been larger deficits in seven of the last twenty years. And the planet endures.

Let's talk about whether Bush will "end a presidential term with fewer jobs than when [he] started." As Robert Musil pointed out on his Man Without Qualities blog, it's all a matter of which jobs statistics you look at. Naturally, Krugman chooses to look at the worst. He focuses on the "payroll" survey produced by the Department of Labor, which shows 2.6 million jobs lost since Bush took office. But the DOL's alternate jobs statistics — the "household" survey that is used to compute the unemployment rate — shows that the economy is down only 273,000 jobs. That small job deficit can be cured with even the most modest recovery over the next year.

But even if we use the tougher "payroll" statistics that Krugman insists upon (as though they were the only statistics), it may be a lot easier than Krugman wants to admit for Bush to end his first term with a net jobs gain. On what theoretical or empirical grounds can Princeton economist Paul Krugman say this "likely" won't happen? (For the record, Krugman has softened on this point. Last month he told MSNBC's Buchanan & Press that a first-term jobs decline is "a near lock now unless there’s a miracle."

The facts don't support Krugman on this; he must simply be sticking to his anti-scientific partisan conviction that everything Bush does is wrong. But if you step away from partisan prejudice and look at the simple facts — and pull statistics from the DOL's website — it's clear that what Krugman calls a "miracle" is, in fact, quite typical. In fact, in 57 percent of the 12-month periods starting after 1948, jobs grew at a rate equivalent to today's economy adding 2.6 million jobs.

If it were pure luck, history would suggest that Bush has better than a 50/50 chance over the next 12 months to pull it off — and Bush actually has 15 months. A "lock"? Krugmanfreude.

What are other more serious and less-politicized economists saying about the prospects for jobs? What do the world-class econometric models say — the ones that look at dozens of real-world factors and are not straightjacketed by Krugman's political orthodoxy? Krugman Truth Squad member Steve Antler — an economics professor at Roosevelt University — noted on his EconoPundit blog that the well-respected econometric model of Ray C. Fair, fellow at the International Center for Finance at Yale, is showing that

1. Job loss actually zeros out this quarter. By New Year's Day, 600,000 new jobs will have been generated by the recovery.

2. By September of 2004, a total of 3.6 million new jobs will have been generated.

3. By the election, those willing to round 4.458 up to 5 will be able to claim the policies of the Bush administration have "generated" 5 million new jobs.

When it happens, Krugman will be in an even greater world of Krugmanfreude — beyond anything he can imagine today. But he'll probably still be calling it a "miracle." After all, that's what people always call things they don't understand.

At least Krugman will have one consolation: four more years of his favorite subject matter.

In his November 3rd column in the National Review, Donald Luskin addresses Paul Krugman's New York Times column of October 31st titled "A Big Quarter". After describing what he believes to be Krugman's obvious displeasure with the estimated 7.2 percent GDP growth in the most recent quarter, Luskin states:

Here's the best shot Krugman can take at Bush at this point:

... it would be quite a trick to run the biggest budget deficit in the history of the planet, and still end a presidential term with fewer jobs than when you started. And despite yesterday's good news, that's a trick President Bush still seems likely to pull off.

Not bad, under the circumstances. I'm sure all of that will be repeated endlessly by Democratic politicos in the media echo chamber. But there's not a single idea in those 47 words that isn't based on economic trickery. Let's take it apart, concept by concept.

First, are we running "the biggest budget deficit in the history of the planet"?

After quoting another "Krugman Truth Squad" member, Luskin continues:

Indeed. As a percentage of GDP, even using the worst-case "on-budget" budget deficit to make things look as bad as possible, the Office of Management and Budget's 2004 estimate of 4.3 percent is smaller than in sixteen other years (and not much larger than it was in the comparable year of Bill Clinton's first term in office). If we use the "total" budget deficit, then even in dollar terms — when adjusted for inflation — there have been larger deficits in seven of the last twenty years. And the planet endures.

First of all, Luskin's description of the "on-budget" deficit as "worst-case" seems to imply that it is for some sort of worst-case scenario. In fact, it's simply the OMB's estimate for the deficit without including the Social Security surplus. Unless Luskin believes that the Social Security trust fund will never redeem the government bonds that it is receiving for that surplus, this is not the "worst-case". Even if he does believe this, the "on-budget" deficit still includes the surpluses of Medicare and other trust funds.

Secondly, the 2004 Budget that Luskin sources came out last February and the estimates for the deficit are significantly higher now. The Congressional Budget Office's current budget projections was published on August 26, 2003 and can be found at http://www.cbo.gov/showdoc.cfm?index=1944&sequence=0. It estimates the 2004 on-budget deficit to be 5.7 percent of GDP (100 * 644 billion / 11245 billion). Except for an on-budget deficit of 6.0% in 1983, this will be the largest deficit since 7.6% in 1946, at the end of the Second World War. The CBO "total" budget estimate of $480 billion is $413 billion (480 billion / 1.1611) in constant 1996 dollars. That is the highest deficit since the deficit of $424 billion in 1943, in the middle of the Second World War.

Of course, the whole discussion of deficits is, to quote Luskin, "economic trickery". What rational individual would claim that, due to the fact that they borrowed less last year than they have in some prior years, things are going well? A rational individual would look at their total debt as a percentage of their current and future expected income and compare that to their current and future expected expenses. The CBO estimate of our 2004 Gross Federal Debt is $7.528 trillion. Dividing by the estimated 2004 GDP of $11.245 trillion gives a gross debt of 66.9% of GDP. According to the 2004 Budget, that is well up from the recent low of 57.6% of GDP reached in 2001. In fact, it is even well above the 64.4% of GDP reached in 1992 when the debt was such a large issue in the Presidential election. Now, however, we are 12 years closer to retirement of the Baby Boomers. The projected effect of their retirement on the public debt can be seen at http://home.netcom.com/~rdavis2/pro2004.html.

Next, Luskin turns to the issue of jobs:

Let's talk about whether Bush will "end a presidential term with fewer jobs than when [he] started." As Krugman Truth Squad member Robert Musil pointed out on his Man Without Qualities blog, it's all a matter of which jobs statistics you look at. Naturally, Krugman chooses to look at the worst. He focuses on the "payroll" survey produced by the Department of Labor, which shows 2.6 million jobs lost since Bush took office. But the DOL's alternate jobs statistics — the "household" survey that is used to compute the unemployment rate — shows that the economy is down only 273,000 jobs. That small job deficit can be cured with even the most modest recovery over the next year.

Perhaps, Krugman could have mentioned that the BLS's two alternate job surveys are in disagreement. However, Luskin would likewise have done well to mention that the payroll survey seems to be considered the more accurate, at least in recent statements by the CBO (Congressional Budget Office) and the BLS itself. The following excerpt is from a at recent CBO document:

Assessing the current state of labor markets is more difficult than usual because the two employment surveys used in such analyses present conflicting stories about the recent growth of employment. (The two measures--the establishment, or payroll, survey and the household survey--are both published by the Bureau of Labor Statistics [BLS].) The household survey, which is based on interviews with individuals in their homes, implies that employment has recovered modestly since the recession reached its trough in November 2001. In contrast, the establishment survey, which is based on payroll data reported by firms, indicates that there are about 1 million fewer jobs in mid-2003 than there were at the trough. That disparity between the two stories holds up even after adjusting for some of the obvious differences in the surveys (the population adjustment that BLS made in the household survey in January 2003 and whether they count self-employed people or multiple jobholders). The two surveys usually provide slightly different pictures of employment growth during recoveries, but the difference is larger than usual this time. Moreover, this is the first instance in which one survey indicates employment growth while the other suggests contraction.

The establishment survey better reflects the state of labor markets, the Congressional Budget Office believes, not only because other indicators also imply rather weak labor-market conditions but because large revisions or misreporting appears less likely for the establishment than for the household data. Data on tax withholding conform better to the establishment survey's results than to the household survey's; in addition, both the share of employed people who are working part-time for economic reasons and the still low labor force participation rate indicate weaker labor markets than those existing at the trough. Three other measures suggest the same conclusion: during the first half of the year, the unemployment rate rose, both initial and continuing claims for unemployment insurance remained elevated, and the help-wanted index fell.

And the following excerpt is from a recent statement to Congress's Joint Economic Committee by Kathleen Utgoff, commissioner of labor statistics:

Before closing, I would like to comment on employment trends as measured by the payroll and household surveys, an issue that has been receiving some attention recently. Since November 2001, the NBER-designated trough of the most recent business cycle, payroll employment has fallen while nonagricultural wage and salary employment from the household survey has been essentially flat. Some observers have speculated that the household survey provides a better indication of the trend in employment at and around turning points in the business cycle. It is our judgment that the payroll survey provides more reliable information on the current trend in wage and salary employment. The payroll survey has a larger sample than the household survey-- 400,000 business establishments covering about one-third of total nonfarm payroll employment. Moreover, the payroll survey estimates are regularly anchored to the comprehensive count of nonfarm payroll employment derived from the unemployment insurance tax records.

Luskin goes on to cite a model that suggests that the economy will add nearly 5 million jobs by the next election. He concludes:

When it happens, Krugman will be in an even greater world of Krugmanfreude — beyond anything he can imagine today. But he'll probably still be calling it a "miracle." After all, that's what people always call things they don't understand.

What will Luskin call it if Bush fails to create 5 million jobs? Probably nothing. Accuracy seems to be a value to which he only feels that Krugman must aspire.

The latest version of this article can be found at http://home.netcom.com/~rdavis2/luskin4.html.

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