(Click on the logo to return to the main blog.)

Paul Krugman... Dishonesty or Incompetence?
01/02/2004

There's a reason that people's view of the current state of our economy depends largely on from whom they get their information. People who get their information from Paul Krugman (such as Providence Journal blogger Sheila Lennon, who passed the gloom on to her readers) recently learned this:

It was a merry Christmas for Sharper Image and Neiman Marcus, which reported big sales increases over last year's holiday season. It was considerably less cheery at Wal-Mart and other low-priced chains. We don't know the final sales figures yet, but it's clear that high-end stores did very well, while stores catering to middle- and low-income families achieved only modest gains.

Based on these reports, you may be tempted to speculate that the economic recovery is an exclusive party, and most people weren't invited. You'd be right.

In short, the rich have more money to blow on trinkets, while working class families have less money to bring to their stores, right? Not according to Sharper Image CEO Jeff Forgan:

In an interview with Reuters, CFO Jeff Forgan attributed the boom to the introduction of more practical, lower priced products and the resulting shift of the average buyer's household income from over $150,000 to between $50,000 and $100,000.

For years, the retailer was best known for lavish products -- most notably its electronic massage chairs -- one might walk into the store to try out, but would be unlikely to purchase. Nowadays, you'll find Sharper Image's more affordably priced ionic air filters in apartments across America.

Sharper Image has just dipped into the edge of the pool from which Wal-Mart sips. Hasn't Krugman noticed more of that sort of person at the Sharper Image that he frequents? Sharper Image has begun advertising on basic cable, don'cha know, and I'm not talking just PBS, here, but Fox News, even. And has Krugman ever been in a Wal-Mart?

Speaking of that low-brow retailer, its glum news was that total "U.S. comparative sales are currently tracking nearer the low end of the 3 to 5 percent range for the December period." I'll be honest with you: having only spent a few minutes wading through numbers, and even though I deal with this sort of language as part of my job every day, I'm not positive about what this means. I think it means that Wal-Mart expects this December's revenue to have only come in around 3 or 4% higher than the same month last year.

If that is the case, extrapolating 3% to the whole fiscal quarter, Wal-Mart's quarter ending January 31 will have seen revenue of $73,733,580,000. For you Krugman fans, that's $73.7 billion. For the same quarter last year, the figure was $71.6 billion. What, you might ask, was the comparable figure last year for Sharper Image? $0.2 billion. Neiman Marcus? $0.9 billion. In other words, with its year-on-year increase of $2.1 billion, Wal-Mart's worst-case revenue increase alone would have been enough to offset the economic loss if Neiman Marcus and six Sharper Image–sized companies had taken the holiday quarter off entirely. Put another way, Wal-Mart's "modest gains" are the economic equivalent of 190% sales growth of Sharper Image and Neiman Marcus combined.

So much for Krugman's closing rhetorical question: "Can an economy thrive on sales of luxury goods alone?"

Of course, one can cut these numbers to support just about any argument, if the will to bend the truth is there. One needn't risk giving that impression, however, because the easiest rebuttal to Mr. Krugman is just to say that job growth lags corporate growth. Those who benefit most directly from corporate revenue increases will be the first to show signs of a recovery, which means stockholders, who don't have to wait for raises or new employment from a company to see their profit. And, indeed, Krugman complains that "a recovery that boosts profits but not wages delivers the bulk of its benefits to a small, affluent minority." You can't get to the latter without the former coming first.

What this all boils down to is that Mr. Krugman, in his continuing (and vain) attempt to talk down the economy, is merely trying to point out why the stage of this recovery that we are currently experiencing would be a cause for concern if it weren't just a stage of the recovery. It's similar to the trend of Paul Krugman's silly and deceptive market analysis, which would be cause for concern if it weren't just a stage in his continuing loss of credibility.

Posted by Justin Katz @ 07:49 PM EST