April 22, 2005, 8:55 a.m.
Mr. Bubble
Paul Krugman’s love affair with the late ’90s.

By Jerry Bowyer

Monday’s column by Paul Krugman, “A Whiff of Stagflation,” stretches the truth even by Krugmanian standards. In an attempt to find yet another club with which to beat up the Bush administration, Krugman conjures the boogeyman of stagflation.

Ignore, if you must, the fact that the real stagflation of the 1970s was caused by the policy prescriptions of Keynesians just like Krugman. Ignore, also, that when Ronald Reagan and Paul Volcker ended that stagflation through supply-side policies, Krugman actually predicted a “reacceleration of inflation” rather than its demise. Ignore, somehow, that Krugman was quite recently warning us about the exact opposite threat — deflation. Ignore, even, the fact that Krugman simply fabricated facts this week when he tried to prove that our economy is stagnating by claiming that the current unemployment rate is so low because people have given up looking for work.

Ignore all of that and you’re still left with the fact that Krugman thinks that the distortion bubble of the final Clinton years is the standard against which all future recoveries must be measured.

You see, in order for Krugman to convince you that stagflation is headed our way, he has to prove the “stag” part. He has to show you that despite all evidence to the contrary, the economy is stagnant. That’s pretty tough to do with a growth rate of 4.4 percent. So, he instead plays the old saw that even though unemployment is historically low, we still don’t have as many jobs as in the latter Clinton reign.

Although BuzzCharts does not believe that the entire Clinton economy was a bubble, the last year or two clearly were. The jobs explosion was not financed with new profit, as it was in the past. It was paid for with old savings. Dotcoms were spending down pension-plan money mediated through venture-capital firms, and they weren’t creating new profit through each employee hired. Corporate profits per payroll job in 1998 were $14,928.90. Corporate profits per payroll job in 2004 were $21,593.51.

The point of good economic policy isn’t just to rack up new jobs; it’s to create jobs that are backed up with enough profit so that they don’t shatter every time the economy hits an economic speed bump. By this standard the Bush boom beats the bubble of the late ’90s.

— Jerry Bowyer is the author of The Bush Boom and an economic advisor to Independence Portfolio Partners. He can be reached through www.BowyerMedia.com.