Why Krugman keeps beating a dead horse, as he does here this morning, is beyond me. The man is a little slow, he's wedded to a one-good, sticky-price, sticky-wage view of the world, or maybe he just hates Narayana Kocherlakota? You tell me.
First, it would be nice if discussion of this issue did not revolve around the idea that there are two kinds of unemployment: "structural" and "demand-deficiency" unemployment. Unemployment is unemployment. It's the estimate of the number of people in the economy who are actively searching for work, according to the Bureau of Labor Statistics. Unemployment necessarily involves a friction. If I am unemployed and know that my quest for work on a particular day is going to be fruitless, I will not search. The reason I search is that I expect to eventually come up with something, but it may take some time. Thus, by definition, unemployment (and vacancies, on the other side of the market) is always about mismatch - firms and workers are trying to make good matches, and that takes time.
Now, some people, including Narayana Kocherlakota and yours truly have argued that there is something anomalous going on in the current recession (also see Dave Andolfatto's post). The unemployment rate is unusually high, and we can find good reasons for that in the data, that have to do with the sectoral reallocation of labor, both across sectors of the economy, and across geographical areas. Long-term shifts from manufacturing to services, combined with the housing boom and bust, have acted to make the unemployment rate higher, as have the facts that the long-term shifts and the housing market boom and bust affected different states disproportionately.
However, blind Paul asserts this:
But don’t bother asking for evidence that justifies this bleak view. There isn’t any. On the contrary, all the facts suggest that high unemployment in America is the result of inadequate demand — full stop.Then, he tries to discredit people who are thinking about sectoral reallocation as an important phenomenon.
Now, the Minneapolis Fed is known for its conservative outlook, and claims that unemployment is mainly structural do tend to come from the right of the political spectrum.Ah, so those guys are probably just Republican hacks. No need to pay any attention to them. Now, I once worked at the Minneapolis Fed and have had plenty of interaction with the Bank over the years. Some of those people are Republicans, and some are Democrats. One thing I am sure of though, is that you would be thrown out of the seminar room for presenting ideologically-driven research. That place is all about the economics. No chicken models allowed.
Further, here's the Kocherlakota-hating Krugman at work in a blog piece called My Problem with Narayana Kocherlakota.
He has too many characters in his name! I mean, folks, the regular column has to fit into a limited physical space — and every time I mention the president of the Minneapolis Fed, there goes a large chunk of scarce journalistic real estate.Now, Krugman may have thought of this as good fun, but it certainly looks racist to me. Apparently Narayana should have a nice American name, maybe something like "Paul Krugman." My name has a lot of characters too, but I'm sure Krugman wouldn't be complaining if he had to type it out repeatedly.
I want a new rule: people who weigh in on policy debates should henceforth all have names like Ng or Ip. Yes, you can call me Kn if necessary.
Or can we just drop all the vowels?
Krugman claims that
Well, I’d respectfully suggest that Mr. Clinton [who also thinks sectoral reallocation is important, apparently] talk to researchers at the Roosevelt Institute and the Economic Policy Institute, both of which have recently released important reports completely debunking claims of a surge in structural unemployment.I looked up the Economic Policy Institute reference, here, and this is what Lawrence Mishel has to say:
A better explanation for high unemployment is that there are simply not enough jobs to go around. The economy is operating far below its potential output because of a shortfall in demand caused by an extreme loss of financial and housing wealth, and the reduced consumption that resulted.Hmmm. Very helpful. Not enough jobs to go around. Sectoral reallocation thoroughly debunked.
As usual, Krugman also harkens back to the Great Depression.
I’ve been looking at what self-proclaimed experts were saying about unemployment during the Great Depression; it was almost identical to what Very Serious People are saying now.We've seen this "Very Serious People" reference before. These are apparently those know-it-alls who think they have economics down, but unfortunately fall far short relative to the Truly Wise One. It's pathetic when Mr. Nobel Prize resorts to anti-intellectual Tea-Party rhetoric.
Well, I think that Paul Krugman is a Very Unserious Person. Paul, get off the pot and show us where this demand-deficiency unemployment is coming from. According to you, the right model is IS-LM. In that framework, the demand deficiency is due to sticky prices, but I'll give you sticky wages too, if you want. How does that explain what is going on in the economy currently? Where are the sticky wages and prices? Are unemployed construction workers in Nevada unemployed because the prices of houses in Nevada are sticky, because their nominal wages are sticky, or what? Did firms go out of business during the recession because they could not bear to lower their prices? The IS-LM I was taught did not have sub-prime mortgages and financial crises in it. Maybe Krugman was taught a different IS-LM? Can we employ workers in Nevada by creating government jobs in Washington, D.C.? I'm all ears.