Paul Krugman:
Mishmash Not: Props to Eddie Lazear; he’s a loyal Republican who’s been saying a lot of things I consider totally wrong lately, but his paper for Jackson Hole (pdf) is a professional, well-done piece that offers little aid and comfort to his political allies. Lazear’s question is whether a large part of the rise in unemployment is “structural”, that is, reflecting supply factors…. The Keynesian view is… it’s demand…. On the other side you have either supply-side views a la Mulligan claiming that taxes and benefits are discouraging people from working, or more or less Austrianish views that it’s about maladaption of the structure of production that left too many workers and too much capital stuck in the wrong industries.
Lazear goes through the data, and finds overwhelming evidence of inadequate demand, little if any evidence of structural problems.
I was especially struck by his data on “mismatch”…. In the early stages of the Lesser Depression some data seemed to suggest a sharp rise in mismatch…. Now Lazear informs us that sure enough, mismatch was cyclical, and has in fact come way down even though unemployment remains high…. [T]he vast suffering still going on is gratuitous — that we could end this quickly with appropriate monetary and fiscal policies. Unfortunately, between the GOP and the Very Serious People (who love, just love, the idea that it’s structural), it won’t happen any time soon.
And banking and mortgage policies! Don't forget the balance-sheet recession aspect!
