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Job News: Reactions and Overreactions

Hmm. I see that some people are accusing me of overreacting to one bad month of job news. Um, no. What has actually been happening is that conventional wisdom overreacted to four months of good(ish) news, and the March numbers were a useful corrective.

Look at my current favorite measure of the labor market, the employment-population ratio of prime-age Americans — employment rather than unemployment so as to avoid distortion by people dropping out, prime-age to avoid demographic issues as the population ages. Here it is:

What has been happening lately is that conventional wisdom, including among people with influence over policy, has taken that little uptick at the right as evidence that it’s time to sound the all-clear, time to call off efforts to boost the economy and worry about inflation instead. This was a terrible misjudgment: we’ve barely made a dent in the employment decline that followed the financial crisis, and are still a very long way from full recovery..

And you can’t even count on the trend continuing to be favorable — which was the message of last month’s numbers.

I was for more stimulus before those numbers came out; I’m still for more stimulus now. The only difference is that it might be a bit easier today than two days ago to argue against unjustified complacency.

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Paul Krugman

Paul Krugman is professor of Economics and International Affairs at Princeton University and a regular columnist for The New York Times. Krugman was the 2008 recipient of the Nobel Prize in Economics. He is the author of numerous books, including The Conscience of A Liberal, The Return of Depression Economics, and his most recent, End This Depression Now!.

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