Portugal is failing on the Krugman economic model 

A few weeks ago, New York Times columnist and economist Paul Krugman wrote a very bold column claiming that education is not the way to restore (or perhaps better, preserve) America's Middle Class and provide economic opportunities for a greater share of the American population.

Krugman made this counterintuitive claim despite very clear evidence to the contrary. The numbers from the Bureau of Labor Statistics demonstrate that education is correlated with higher much incomes for those who attain it, and that the economic advantage for those who obtain college degrees have not only persisted but actually grown substantially over time, even as the percentage of Americans attaining college degrees has doubled. Education is, in fact, creating a larger middle-to-upper class than previously existed.

I concluded at the time that Krugman was making stuff up. And he was -- the only evidence he cited for his bold claims was an anecdotal article in the Times about how computers are now performing the most menial research tasks in the legal profession. (Well, duh.) He concluded from this that American white-collar jobs are in serious danger. He extrapolated backward from his faulty conclusion to claim (again, falsely) that the economic value of a college education has been diminishing for "decades," a statement that the numbers easily disprove.

Krugman's overall point -- not in so many words -- was that instead of focusing on education, we should be passing single-payer health care and restoring the political power of labor unions. Here is an excerpt that I think captures his point well:

[I]f we want a society of broadly shared prosperity, education isn’t the answer — we’ll have to go about building that society directly. We need to restore the bargaining power that labor has lost over the last 30 years, so that ordinary workers as well as superstars have the power to bargain for good wages. We need to guarantee the essentials, above all health care, to every citizen.

When I read about the situation in Portugal -- a nation where only 29 percent of the adult population finishes high school -- I think of Krugman and the sort of economy he was advocating in that ridiculous column.

For one reason or another, wages in Portugal are too high to prevent the jobs from disappearing across the border. Perhaps it is because they have "restored the bargaining power of labor," but that hardly matters -- the result is the same as what Krugman seems to think is the solution here. Portugal's unskilled textile jobs have fled to East Asia, and its skiled jobs are going to Eastern Europe -- in both cases because of the wage differential. Portugal's unemployment rate is over 11 percent, and that is based on the Eurostat system, which only counts people as unemployed if they actually apply for benefits.

Meanwhile, because Portugese are less educated than Mexicans or Turks, potential lenders doubt that Portugal will ever have the economic dynamism to produce enough government revenue to pay off its large debt -- the result of a decade of massive deficit spending. The result is what we're seeing now. Portugal's bond rating has just been slashed, and future borrowing will be at very high interest rates. Draconian budget cuts and tax increases -- the very kind that Krugman railed against last week in another column -- are completely unavoidable at this point. The Portugese do not have the luxury we do, of discussing cuts as a prophylactic measure. They are expected to default as soon as June unless they either adopt desperate fiscal austerity measures immediately (they just rejected them in Parliament) or else receive a bailout from the European Union.

That's Krugonomics at work. It's failing in Portugal. At least President Obama -- who believes in the same failed stimulus policies that Krugman advocates, and is actively harming the economy by coddling organized labor and attempting to heighten state control of health care -- still believes in the proven power of education.

About The Author

David Freddoso

David Freddoso came to the Washington Examiner in June 2009, after serving for nearly two years as a Capitol Hill-based staff reporter for National Review Online. Before writing his New York Times bestselling book, The Case Against Barack Obama, he spent three years assisting Robert Novak, the legendary Washington... more
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