Counterparties: Economists’ false choice
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The current debate among a handful of top economists centers on whether the problem with Western economies is cyclical – the result of the economy’s normal ups and downs – or more structural. Ezra Klein calls this divide “Larry Summers vs. the long-termers.” The latter camp includes Raghuram Rajan, who’s out with a new piece in Foreign Affairs. To Rajan, the crisis is a “wake-up call” on our high levels of personal and public debt. The only way to fully reverse a decades-long slump in middle-class incomes, he says, is through longer-term solutions like worker retraining and education reform. In the short term, this effectively means some degree of continued suffering for the unemployed.
One problem with this, to Summers, Krugman and others in the cyclical camp, is that cyclical unemployment quickly becomes structural. Adjusting for demographic trends, Brad DeLong looks over April’s 342,000 labor force dropouts and comes to a depressing conclusion:
…that is a gap of 0.7%-1.1% points of the adult population: people who really ought to be in the labor force right now, but who are not. Are they now part of the “structurally” non-employed who we will never see back at work, barring a high-pressure economy of a kind we see at most once in a generation? Probably.
Looking at the Beveridge Curve, David Kotok finds more reasons to believe in the structural unemployment story. Laura Tyson isn’t as convinced, but worries that technology is making our labor problems worse.
But the structural vs. cyclical debate may not be a binary choice. Klein, like the IMF, suggests things like spending and worker retraining could be immediate and budget cuts could be phased in as the economy recovers. “If ever there was a false choice, this is it,” as Jared Bernstein puts it. – Ryan McCarthy
On to today’s links.
Financial advisers are scrambling to get their clients into Facebook’s IPO – or something like it – WSJ
Facebook’s Zuckerberg takes just five questions at kickoff for Facebook’s $10 billion IPO – Reuters
Facebook Funds: The Biggest Scam Running – Reformed Broker
What Mark Zuckerberg’s hoodie really means for Facebook’s IPO – CNBC