"Krugman-Actually, Not Bad."

I wanted to blog this today but Tim Worstall beat me to it and does a much better job than I would:

Krugman’s column today actually isn’t all that bad. He’s absolutely spot on, in fact, in his contention that something has changed in the US economy.

Some background: the unemployment rate is only one of several numbers economists use to assess the jobs picture. When the economy is generating an abundance of jobs, economists expect to see strong growth in the payrolls reported by employers and in the number of people who say they have jobs, together with a rise in the length of the average workweek. They also expect to see wage gains well in excess of inflation, as employers compete to attract workers.

In fact, we see none of these things. As Berkeley's J. Bradford DeLong writes on his influential economics blog, "We have four of five indicators telling us that the state of the job market is not that good and only one - the unemployment rate - reading green."

The DeLong post is here. I dropped a comment into a related thread  which asks, to me, what is the interesting question. OK, we have obvious evidence here of a structural change in the US economy. If you were to ask someone like Richard Layard you’d get things like NAIRU has shifted (or the Phillips Curve, your choice). Very interesting. Now, what we need to do is go and ask why has it shifted and is that shift a good or a bad thing?

As Krugman points out, it may well actualy be a good thing:

There's both good news and bad news in that assessment. The good news is that the economy probably has plenty of room to expand before inflation becomes a problem (which implies that the Fed's decision to start raising interest rates was premature).

Until we work out the why we just won’t know will we, good thing or bad thing? Maybe it is just the Republithugs oppressing the workers. Maybe it is that the structural reforms of the 90s (welfare reform, for one) are actually wroking as advertised....in shifting NAIRU. As, again, Layard, one of their proponents, insisted they would.