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Saturday, January 15, 2011

"A Refusal to Take Yes for an Answer"

Dear Raghu Rajan:

It is not much of a correction to say I was wrong to assert that structural unemployment for the US is around 3 percent, but now that I've looked again it's around 3 percent. You did correct the misstatement of Erik Hurst's work, but you refuse to correct the faulty misinterpretations that followed from the error. Instead, you have thrown together a few figures, issued a "caution that there are large errors" and reasserted the 3% figure (okay, 2.5 percent this time, but you do say "Perhaps my misstated conclusion from Erik’s work of “up to 3 percentage points” is not terribly off the mark"). Apparently you already know the answer, the unemployment problem is structural not cyclical -- it's not an aggregate demand problem -- and it's simply a matter of using highly unreliable extrapolations to justify the truth you believe is out there.

This is from a slightly different context, but "all the efforts to insist that it can’t be aggregate demand amount to a refusal to take yes for an answer." There are many, many estimates of the degree to which structural unemployment is a problem, e.g. this one from the SF Fed, that do not come to the conclusion you arrive at. This work points a finger at a large cyclical (AD) problem. But instead of citing numbers that have been thoroughly vetted, which I assume you must know about, you rely instead upon your own rough calculations surrounded by warnings about their accuracy, and then say you hope that Hurst's future work will end up supporting what you think must be true ("Erik has promised to come up with careful estimates that should be much more accurate"). That sure does seem like "a refusal to take yes for an answer." Why present your "guesstimates" when better work is available? (To be fair there are a range of estimates, but my reading is that overall they point strongly to the cyclical issue. In any case, citing back of the envelope calculations that support preconceptions while competely ignoring real work that does not is not the way those who are the first to claim economics should be more scientific ought to proceed.)

This wouldn't be of much importance if the error simply reflected upon your own reputation. But there are millions of people who still need new jobs, and to the extent that the refusal to acknowledge the demand side of the problem holds back efforts to help these people find jobs, the consequences for them are far from trivial.

    Posted by on Saturday, January 15, 2011 at 09:45 AM in Economics, Unemployment | Permalink  Comments (45)


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