The Raleigh Experiment
Published January 12, 2014
by Paul Krugman, New York Times, January 11, 2014.
North Carolina is an interesting place these days, and I mean that in the worst possible way. It’s a southern state, but one with a major technology complex, growing foreign investment, and what seemed until recently to be a moderating, increasingly sophisticated political culture. But then came the Republican wave of 2010, and NC was taken over by right-wing radicals, who have — among other things — taken the nation’s hardest line in cutting benefits to the unemployed.
So how’s it going? Not well. Others have taken this issue on before me, notably Evan Soltas here and here, but I wanted to put up my own version for future reference.
The idea behind cutting benefits is that we are “paying people to be unemployed”, and that tough love will force them to go out and create jobs. It’s never explained exactly how greater desperation on the part of the unemployed will, in fact, lead to higher overall employment. Still, you could imagine that an individual state might gain some competitive advantage against other states by cutting wages. What you actually see in North Carolina, however, is nothing — employment growth tracked the national average both before and after the benefit cuts:
The unemployment rate did fall — but this was due to a large drop in the labor force, as the number of people looking for work fell. Why? Well, a likely explanation is that some of the unemployed continued to search for work, and were therefore counted in the labor force, despite low prospects of finding a job in a depressed economy, because such search is a requirement for those collecting benefits. Take away the benefits, and they drop out. Now, labor force participation has fallen nationally as well as in North Carolina, and the state’s labor force began dropping before the benefit cuts, so that the case for claiming that reduced benefits actually reduced job search isn’t ironclad. Still, it’s worth emphasizing just how extraordinary the changes have been. North Carolina’s labor force drop has been much larger than the national change:
And it has also been unprecedented in historical terms. There’s been nothing like the recent North Carolina decline — taking place at a time of modest recovery, not recession — in the state’s previous history:
Again, if there were anything to the theory that cutting unemployment benefits encourages job search and somehow translates into higher employment even in a slump, harsh policies should work better at the state than at the national level. But there is no sign at all that North Carolina’s harshness has done anything except make the lives of the unemployed even more miserable.
January 12, 2014 at 3:11 pm
Richard Bunce says:
Maybe when UI benefits ended they left the State for greener pastures... maybe they started a new business which will not be picked up in the employment statistics for months if not years or even ever... maybe they started (or resumed or just kept on) selling drugs or some other illegal criminal venture... Mr. Krugman can now add Carpetbagger to his list of dubious accomplishments.
January 14, 2014 at 10:36 am
Rip Arrowood says:
Carpetbagger...?
McCrory
Rucho
Berger
Apodaca
Wos
Tillis
There's plenty of room in this bucket....need more?
January 14, 2014 at 11:52 am
Richard Bunce says:
At least they moved here and stood for election by the citizens of NC... Special K just lobbing dead pigs over the State border from an undisclosed location in the northeast.
January 14, 2014 at 4:45 pm
Rip Arrowood says:
Apparently you are a little fuzzy on the definition of carpetbagger...http://www.merriam-webster.com/dictionary/carpetbagger
January 15, 2014 at 2:39 pm
Richard Bunce says:
Number 1 is the definition I was thinking of... Number 2 is so prevalent as to be irrelevant.
January 12, 2014 at 6:18 pm
Tom Hauck says:
I heard Professor Michael Munger of Duke University and a former candidate for Governor on the Libertarian Ticket, explain the these handouts from the government are like dipping a leaky bucket in the deep end of pool, running down to the shallow end, as the water is leaking out on the way, and pouring what is left in the shallow end. It does not create jobs and there is no overall benefit to society.
When do those who cannot find work and are not receiving unemployment benefits apply for government provided welfare?
January 14, 2014 at 11:56 am
Richard Bunce says:
Yes, the inevitable results of their thinking must be for 100% of US citizens to be on the Federal payroll and that all purchasing would be done through the Federal government and the purchased products and services allocated to the population fairly including making good on past transgressions real and perceived... government spending being the most productive and all.
January 12, 2014 at 7:13 pm
Norm Kelly says:
So is Paul a lib? Don't know much about Paul, so this is a serious question.
What makes me ask is his description of the state when it was under 100 years of DemocRAT control. Paul describes our state as 'a moderating, increasingly sophisticated political culture'. Sounds like a lib describing his fellow libs to me.
Libs describe themselves as 'sophisticated'. Libs tend to describe themselves as 'moderate'. Then comes the description of Republicans. Republicans are described as 'right-wing radicals' and hard-liners. No matter how far left some politician goes, they will continue to be described as 'moderate'? No matter how much of a socialist the politician is, will the left continue to describe them as 'sophisticated'? Yet, get a Republican who wants to follow the Constitution, they are immediately 'radical', 'unpatriotic' and various other uplifting adjectives. Try to get the budget balanced, in a semi-balanced way, and Republicans are described as 'hard liners'.
The state borrowed 2BILLION DOLLARS from the feds to continue to pay unemployment benefits. The Demons did this to us. What was Gov Bev's plan, or any DemocRATs plan, for paying back the fed loan? They HAD NONE! How is this 'sophisticated'? How intelligent is it to borrow money with no idea how or when it would be paid back? This is not 'sophisticated' or 'moderate'. I try to write my posts so that I don't get edited or kicked out. But to define this behavior as anything but stupid would be to minimize how bad the idea was.
'an individual state might gain some competitive advantage against other states by cutting wages'. Paul, unemployment benefits are NOT wages. The difference between 'wages' and unemployment benefits is that one is WORKED for the other is GIVEN. One contributes to society and the economy. The other only contributes in the minds of socialists like Obama. The state did NOT cut wages when it ended a program that we could no longer afford.
The rest of your argument is hard to get to when your post starts out so radically wrong.
Paul describes the recovery in terms favorable to the socialists as well. 'at a time of modest recovery'. This is modest recovery? If the White House were occupied by a Republican and the economy was performing this horribly, the left would be going nuts. (i would have said 'apoplectic' but i don't know how to spell it!) There is no way the left would describe this economy under a Republican as 'recovering'. The vast majority of jobs being created are part time. Lefties would point this out, point out how horrible it is for families, how it's trapping more & more people in poverty. And on and on and on...
Since it's one of theirs in the White House, regardless of how bad it really is, it's described as a 'modest recovery, not a recession'. Hogwash!
I give up on the rest of this post. It's not worth the waste of my time it would take to get through the rest of it.
January 14, 2014 at 12:02 pm
Richard Bunce says:
Special K won a prestigious economics prize a few years ago on international trade and such. He now believes himself to be an oracle dispensing enlightenment from his Princetonian Temple.
January 16, 2014 at 4:39 pm
Rip Arrowood says:
Both apply to the people I listed above.
