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Monday, January 28, 2013

The Unemployment Problem is Cyclical

John Taylor argues, indirectly, that the unemployment problem is mostly cyclical, not structural:
... I like to tell the story about what Senator Hubert Humphrey said when President Ford’s Council of Economic Advisers, where I worked with Alan Greenspan, reported to the Joint Economic Committee (JEC) that it was raising the definition of the normal unemployment rate from 4.0% to 4.9%.  Humphrey, who chaired the JEC, was outraged and told us in the JEC hearing that “if the country was suffering a plague and you economists were doctors your solution would be to raise the definition of normal body temperature above 98.6 degrees”   
So I am worried when people stop talking about today’s very high unemployment rates as if they were normal. ...

He goes on to try to blame Obama for the slow recovery of labor markets ("It is not a good sign that the inaugural address was silent on the subject..."), as though the Republicans -- his party -- and its obstructionist ways has nothing to do with the fact that Obama couldn't get his jobs program passed, or any further stimulus measures put in place. But it's nice to see Taylor acknowledge that the problem is cyclical not structural, and that fiscal policy can make a difference (Obama can hardly be blamed for the Fed's actions, so when he complains that Obama isn't talking about this problem, he must have fiscal policy in mind -- probably tax cuts for the wealthy rather than, say, spending on infrastructure, but it's a start.)

    Posted by on Monday, January 28, 2013 at 10:13 AM in Economics, Fiscal Policy, Politics, Unemployment | Permalink  Comments (39)


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