Paul Krugman, a Nobel Prize-winning economist who writes a column for the NY Times, made several points in today’s Daily News op-ed section regarding the rebound in the domestic manufacturing sector.
All of his observations are correct: the declining value of the dollar has spurred manufacturing activity in the United States, but the job gains have been modest. Pay and benefits for the new positions aren’t the greatest. Unemployment is down.
It’s what he didn’t say that concerns me.
Underemployment is one of the most troubling aspects of this recession. A Gallup Poll suggested that 19% of Americans were underemployed, that is working below capacity (i.e, 30 hours or less per week. The rate also includes unemployed persons).
Even as unemployment drops, I believe underemployment will remain stubbornly high. Companies have learned to get by with fewer full-time employees. That’s bad news for demand – and for a robust recovery.
Krugman goes on to belittle attempts at bolstering the dollar. We can certainly have a legitimate argument over when and how to support the value, but Krugman puts too much weight on the role a slumping greenback plays in bolstering manufacturing.
Indeed, the slip in the dollar’s value against other currencies works as a stimulus program for manufacturing, but it is potentially inflationary, too. Almost all domestic manufactured products contain imported components which will increase in price.
There is another danger to allowing the dollar to fall – interest on US Government securities will rise as foreign investors bid the yields up. I believe we have been spared that in part due to lower growth resulting from the recession.
It is foolhardy not to have a strategy in place to gradually support the dollar. The nation’s already billowing debt and deficit will explode if the government is forced to pay more in interest.
I would expect more from a Nobel Prize-winner than to dismiss the long-term importance of a stable currency unit as an important component of our economic health, and to ignore the impact of underemployment.