May 14, 2012


Paul Krugman's Dismissal of Structural Causes for U.S. Employment Problem Is Misguided: The Nobel laureate insists our unemployment problems are part of a chronic cycle and require government action--and says arguing the issue is structural is an excuse for doing nothing. Zachary Karabell on why that stance is misguided. (Zachary Karabell, 5/14/12, Daily Beast)

For four years, the United States has been grappling with high unemployment and underemployment. While there has been noticeable improvement since the plunge in late 2008-2009, and while there is no longer a crisis of job losses, there is nonetheless a chronic employment problem in the United States.

Why this is the case has been the source of a heated and increasingly imperative debate: is the issue cyclical or structural? Is the problem the result of a particular recession and crisis that began in late 2007 and intensified in 2008-2009, or is it instead a long-term shift in the nature of our economy?

This debate has become increasingly heated, especially because those who claim the problem is cyclical have a tendency to describe those who see the problem as structural as partisan tools of a right-wing agenda that preaches slashing government spending, reducing debt, and balancing budgets in the name of long-term austerity and balance. [...]

The only correlate to the current transition occurred more than a century ago as agriculture became more mechanized, which led to the massive displacement of farmers and helped cause the Great Depression. That began a process that saw tens of millions displaced from farms to the point that fewer than 2 million farmers today produce far more food than 30 million did in1900. Today, the same transition has been occurring in manufacturing, a process that began in the 1970s and which the Internet/stock market bubble of the 1990s and then the housing bubbled of the mid-2000s only partly obscured.

The main difference between the two eras is that for thirty years we artificially boosted employment for social reasons--white men hired women and blacks--even as that domestic technological revolution and foreign economic liberalization were removing any justification for the jobs of the hirers, never mind the hired.  It's not that Mr. Krugman is necessarily wrong about employment being a cycle, just that we're at the top of it, not the bottom, and not even back down to the equilibrium point yet.  

Posted by at May 14, 2012 5:56 AM
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