Saturday, September 25, 2010

No Need To Fix That Bridge?

Economics and Politics - Paul Krugman Blog -

“An important new report from EPI on why you shouldn’t believe the hype about structural unemployment.
Why is this so important? Claims that there has been a huge jump in structural unemployment — that is, unemployment that can’t be cured by increasing aggregate demand — are playing a large role in the argument that we should basically do nothing in the face of a terrible economy. No need for the Fed to do more; no need for more fiscal stimulus — hey, it’s all about defective labor markets, and we should work on structural reform, one of these days. And don’t expect improvement for years to come. Structural unemployment is invoked by Fed presidents who want to raise rates, not cut them, by economists who want austerity now now now, and in general by almost everyone in the pain caucus.”
The question is, why on earth would you believe that structural unemployment is our main problem right now?

Basic textbook macro tells you how to distinguish between slumps brought on by supply shocks and those brought on by demand shocks: look at inflation. If you have stagflation, rising unemployment combined with accelerating inflation, that’s the signature of a supply shock; if you have unemployment with disinflation, that’s the signature of a demand shock. And guess what we see?
Now, you might second-guess this basic observation if there were strong direct evidence of some kind of labor mismatch — layoffs in some industries combined with labor shortages in others; high unemployment for some types of labor combined with tight markets and soaring wages for others; high unemployment in some regions but exceptionally good hiring in others. But as EPI documents, none of these things are, in fact, visible.
Is it possible that there has been some rise in structural unemployment that’s swamped by a much larger rise in cyclical unemployment? Yes, conceivably. And let’s talk about that when unemployment gets below, say, 7 percent — which at current rates of progress will happen, well, never.

I really don’t think there’s any way to make sense of the fuss about structural unemployment unless you posit that a lot of influential people are looking for reasons not to act.
So, why don't Republican'ts see the need to fix our bridges?
Why won't they repair our roads and upgrade our rail system?
Why aren't they able to call investment in future tech anything but waste?

Widespread claims that our unemployment crisis is structural are not only inaccurate, but they imply that macroeconomic tools such as fiscal policy (spending or tax cuts) or monetary policy can not address our unemployment crisis. Surprisingly, perhaps amazingly, there’s no systematic empirical evidence for such assertions. Policy makers should understand that the problem faced by the unemployed is a simple scarcity of jobs, a feature of the labor market facing every group of workers regardless of education, sector, occupation or location.
Don't worry about the bridge collapsing, the current (the market) will carry us all to where we need to be. And if some of us drown, it was our individual responsibility to know how to swim. Or, at least, to have our own life jackets, to build our own boats. Bridges, or anything else that's beyond individual effort, or requires collective action, shouldn't be. Not if they expand government. Never, if they require us to pay for our share. Let business build bridges, and charge whatever tolls the river ( I mean the market) will bear.
The claim of extensive structural unemployment presumes that millions of workers are now inadequately prepared for available jobs even though they were fruitfully employed just a few months or years ago. Let’s look at that line of thinking from a few different angles:

Productivity, Technology Investment: Productivity did grow a pretty spectacular 6.3% from early 2009 to early 2010, but that was the extent of productivity growth since the recession started in late 2007. Net investment in business equipment and software in 2009 (the latest data) was actually negative, for the first time since World War II. This alleged structural transformation of production processes that left four to five percent of the labor force inadequate for the available jobs was clearly not associated with new equipment or new technological processes.
Location: If all of the country’s unemployed workers were to relocate to states with low unemployment, there would still not be enough jobs to go around. There are only 11 states -- with a total adult population of about 17 million -- where the unemployment rate in June was less than 7.0%. If all the unemployed moved to those states they would nearly double the labor force there.

Construction: It is true that construction has suffered in this downturn, losing nearly two million jobs, or 25% of all private-sector jobs lost. But this is not what is fueling the unemployment problem. Figure A shows that in the second quarter of 2010, unemployed construction workers comprised 12.4% of the unemployed and 12.5% of the long-term unemployed: They are no more likely to be long-term unemployed than those displaced from other sectors. Even before the recession, in 2007, unemployed construction workers were 10.6% of all unemployed and 11.0% of the long-term unemployed.

Debunking the theory of structural unemployment
Republican'ts want control of government, but they think a government big enough to do anything is too big.
They claim to believe in defense, but they won't even pay for wars they supposedly support. They borrow. They privatize. They spend like thieves with a stolen credit card. All the while bemoaning a debt your children will have to pay if you let them get away with this.
Their solution to everything is to borrow, privatize and blame. They offer tax cuts that are really cash advances on that stolen credit card. Like thieves, they plan to be out of reach when the bill comes due, with interest and penalties.
They and their friends are having a great party while America tightens its belt and gets hungry. When we're hungry enough, they're going to offer us the bones and gristle and maybe a few smashed up beans left in the bottom of the pot we payed for, leftover from the feast we paid for. If we'll just sign away our birthright, we get a mess of pottage/
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con·cept: No Need To Fix That Bridge?