Alan Reynolds

In the '70s, the late Arthur Okun devised the "misery index" -- simply adding together the inflation rate and the unemployment rate. It still remains a handy device for summarizing the overall economic discomfort of American citizens.

From 1970 to 1979, the misery index averaged 13.4 percent, ranging from a low of 8.8 percent in 1972 to a high of 17.6 percent in 1975. From 1980 to 1989, the misery index averaged 12.8 percent, but it fell dramatically from 20.6 percent in 1980 to 8.9 percent by 1986. From 1990 to 1999, the index maintained an average 8.8 percent, while briefly hitting a record low of 6.1 percent in 1998. The misery index subsequently rose to 7.6 percent in the recession of 2001 but has been heading down since then.

This March, the unemployment rate was 5.8 percent. Inflation over the past three months was at an annual rate of 0.8 percent, if you leave out energy (which we must because oil prices have fallen). That puts the misery index at 6.6 percent -- very close to a record low. Yet that cheerful fact seems to makes some people more miserable, particularly New York Times columnist Paul Krugman.

In his 1994 book Peddling Prosperity, Krugman acknowledged that "without any question, the negative effects of taxes are significant." Yet he went ahead and questioned those effects on the basis of a single statistic -- productivity. "Today's conservatives," wrote Krugman, "must defend their position against their own dismal productivity record." By that standard, Krugman ought to be hugely impressed with President Bush: Productivity soared 4.8 percent last year -- the biggest increase ever. Yet today's liberals do not have to defend their position against a conservative president's unprecedented productivity record. They can just change the subject.

The problem, if you want to call it that, is that when output per hour worked grows by 4.8 percent a year, the economy could grow by 4.8 percent without adding any jobs. If your sole objective is to raise productivity -- which was Krugman's 1994 goal -- then you should hope to maximize output and minimize employment. If your sole objective is to raise employment, which is Krugman's newest goal, then it would make sense to lower productivity by maximizing employment and minimizing output. One way to do that is by overtaxing productive workers to subsidize leaf-raking, as we did in the 1930s.

Alan Reynolds

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