The Clinton administration is at war with itself on
the hottest economic issue of the day.
By Paul Krugman
(1058 words, plus
The Clinton administration
isn't particularly mendacious on economic matters--in fact, economic analysis
and reporting under Clinton have been unusually scrupulous. But the president
has changed his mind about economic policy so often that now his officials
sound insincere even when they speak the plain truth.
And so I feel
a bit sorry for Joseph Stiglitz, the eminent economist who chairs Clinton's
Council of Economic Advisers. In April, Stiglitz released a report on the
state of the American worker, more or less confirming what most independent
economists had already concluded: Workers are not doing as badly as recent
headlines might suggest. In particular, the impact of corporate downsizing
has been greatly exaggerated.
report was, to all appearances, a sincere attempt to produce a realistic
picture of the American labor market. Yet it was treated by nearly all
commentators as a purely political document--an election-year effort to
accentuate the positive.
But the commentators had reason for
their skepticism. After all, other members of the administration--especially
Labor Secretary Robert Reich--have been insistently pushing a very different
view. In the world according to Reich, even well-paid American workers
have now joined the "anxious classes." They are liable any day
to find themselves downsized out of the middle class. And even if they
keep their jobs, the fear of being fired has forced them to accept stagnant
or declining wages while productivity and profits soar.
much of what Reich says, this story is clear, compelling, brilliantly packaged,
and mostly wrong. Stiglitz, by contrast, is telling the complicated truth
rather than an emotionally satisfying fiction.
To understand why Reich is wrong (about
this and most other things), think about the strange case of the missing
children. During the early 1980s, sensationalist journalism, combining
true-crime stories with garbled statistics, convinced much of the public
that America is a nation where vast numbers of children are snatched from
their happy families by mysterious strangers every year. TV shows about
"stranger abductions" are a media staple to this day. In reality,
however, such crimes are rare: about 300 per year in a nation of 260 million.
It's not that abductions never happen.
They do, and they are terrible things. Nor is the point that the kids are
all right: For hundreds of thousands of American children, life is sheer
hell. Almost always, however, the people who victimize children are not
strangers. For every child kidnapped by a stranger, at least a thousand
are sexually abused by family members. But stranger abductions made good
copy, and therefore became a public concern out of all proportion to their
downsizing is neither as terrible nor as rare as stranger abduction, but
the two phenomena share some characteristics. Like stranger abductions,
downsizing is a camera-ready tragedy, perfect for media exploitation, that
is only a minor part of the real problem.
Stiglitz's report is full of dense
statistical analysis making this point, but here's a quick do-it-yourself
version. A February Newsweek cover story entitled "Corporate
Killers" listed just about every large layoff by a major corporation
over the last five years. The number of jobs eliminated by each company
appeared in large type next to a photo of the CEO responsible. The article
implied that it was describing a national catastrophe. But if you add up
all the numbers, the total comes to 370,000. That is less than one worker
in 300--a tiny blip in the number of workers who lose or change jobs every
year, even in the healthiest economy. And the great majority of downsized
workers do find new jobs. Although most end up making less in their new
jobs than they did before, only a fraction experience the much-publicized
plunge from comfortable middle class to working poor. No wonder Stiglitz
found that the destruction of good jobs by greedy corporations is just
not an important part of what is happening to the American worker.
The point is that Reich's style of
economics--which relies on anecdotes rather than statistics, slogans rather
than serious analysis--cannot do justice to the diversity and sheer size
of this vast nation. In America anything that can happen, does: Strangers
kidnap children; mathematicians become terrorists; executives find themselves
flipping hamburgers. The important question is not whether these stories
are true; it is whether they are typical. How do they fit into the big
the big picture looks like this: Both the number of "good jobs"
and the pay that goes with those jobs are steadily rising. The workers
who have the skill, talent, and luck to get these jobs generally do very
well. Only a relative handful of "good job" holders (which is
to say only a few hundred thousand a year) experience serious reverses.
America's middle class may be anxious, but objectively, it is doing fine.
The people who are really doing badly
are those who do not have good jobs and never did. Those with lousy jobs
have seen their already-low wages slowly but steadily sink. In other words,
the main victims of (to use another of Reich's phrases) the "new economy"
are not the few thousand managers who have become hamburger flippers but
the tens of millions of hamburger flippers, janitors, and so on whose real
wages have been declining 1or 2 percent per year for the last two decades.
Does this distinction matter? It does
if you are trying to set any sort of policy priorities. Should we, as some
in the administration want, focus our attention on preserving the jobs
of well-paid employees at big corporations? Should we pressure those companies
to stop announcing layoffs? Should we use the tax system to penalize companies
that fire workers and reward those that do not? Or, instead, should we
fight tooth and nail to preserve and extend programs like the Earned Income
Tax Credit that help the working poor? It is disingenuous to say we should
do both: Money is scarce and so is political capital. If we focus on small
problems that make headlines, we will ignore bigger problems that don't.
So let's give Joe Stiglitz some credit.
No doubt his political masters allowed him to downsize the issue of downsizing
at least partly because they believed that good news re-elects presidents.
Sometimes, however, an economic analysis that is politically convenient
also happens to be the honest truth.
You can link to and read the Stiglitz
report which is now on the Web.
Paul Krugman is a professor of economics at Stanford
whose books include The Age of Diminished Expectations and Peddling
Prosperity. His column, "The Dismal Scientist," will appear
monthly in SLATE.
Illustrations by Robert Neubecker