The Great Debate© – Structure of Excuses

The Great Debate© is presented by to expand our understanding of various topics of interest.  In a NYT Op-ed article, Nobel Laureate Professor Paul Krugman argues that there are no structural problems with employment – and that the problem is lack of demand. Steven Hansen counters.   We present Professor Krugman’s opinion in its entirety, then the response of Steven Hansen.

Structure of Excuses


What can be done about mass unemployment? All the wise heads agree: there are no quick or easy answers. There is work to be done, but workers aren’t ready to do it — they’re in the wrong places, or they have the wrong skills. Our problems are “structural,” and will take many years to solve.

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. Saying that there are no easy answers sounds wise, but it’s actually foolish: our unemployment crisis could be cured very quickly if we had the intellectual clarity and political will to act.

In other words, structural unemployment is a fake problem, which mainly serves as an excuse for not pursuing real solutions.

Who are these wise heads I’m talking about? The most widely quoted figure is Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, who has attracted a lot of attention by insisting that dealing with high unemployment isn’t a Fed responsibility: “Firms have jobs, but can’t find appropriate workers. The workers want to work, but can’t find appropriate jobs,” he asserts, concluding that “It is hard to see how the Fed can do much to cure this problem.”

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. But some people on the other side of the aisle say similar things. For example, former President Bill Clinton recently told an interviewer that unemployment remained high because “people don’t have the job skills for the jobs that are open.”

Well, I’d respectfully suggest that Mr. Clinton 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.

After all, what should we be seeing if statements like those of Mr. Kocherlakota or Mr. Clinton were true? The answer is, there should be significant labor shortages somewhere in America — major industries that are trying to expand but are having trouble hiring, major classes of workers who find their skills in great demand, major parts of the country with low unemployment even as the rest of the nation suffers.

None of these things exist. Job openings have plunged in every major sector, while the number of workers forced into part-time employment in almost all industries has soared. Unemployment has surged in every major occupational category. Only three states, with a combined population not much larger than that of Brooklyn, have unemployment rates below 5 percent.

Oh, and where are these firms that “can’t find appropriate workers”? The National Federation of Independent Business has been surveying small businesses for many years, asking them to name their most important problem; the percentage citing problems with labor quality is now at an all-time low, reflecting the reality that these days even highly skilled workers are desperate for employment.

So all the evidence contradicts the claim that we’re mainly suffering from structural unemployment. Why, then, has this claim become so popular?

Part of the answer is that this is what always happens during periods of high unemployment — in part because pundits and analysts believe that declaring the problem deeply rooted, with no easy answers, makes them sound serious.

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. Unemployment cannot be brought down rapidly, declared one 1935 analysis, because the work force is “unadaptable and untrained. It cannot respond to the opportunities which industry may offer.” A few years later, a large defense buildup finally provided a fiscal stimulus adequate to the economy’s needs — and suddenly industry was eager to employ those “unadaptable and untrained” workers.

But now, as then, powerful forces are ideologically opposed to the whole idea of government action on a sufficient scale to jump-start the economy. And that, fundamentally, is why claims that we face huge structural problems have been proliferating: they offer a reason to do nothing about the mass unemployment that is crippling our economy and our society.

So what you need to know is that there is no evidence whatsoever to back these claims. We aren’t suffering from a shortage of needed skills; we’re suffering from a lack of policy resolve. As I said, structural unemployment isn’t a real problem, it’s an excuse — a reason not to act on America’s problems at a time when action is desperately needed.

Here are the Facts

by Steven Hansen

Dr. Krugman stepped into my world.  I yield to his understanding of money flows and economic dynamics.  Demand is down.  No question if demand was at pre-December 2007 levels there would be more jobs.  I ask Dr. Krugman to prove it would be the same amount of jobs.

The facts show there would be fewer jobs if demand returned to previous levels.  Using a very simple metric of container counts going through the Ports of Los Angeles / Long Beach, you can see that containers coming into the USA are almost at pre-recession levels.  Most consumer goods come into the USA inside of containers.

Does it seem that the demand for foreign manufactured consumer goods has fallen?  Do you believe consumer demand will increase the demand more for USA or foreign products?

Dr. Krugman, yes demand is a problem – we are demanding foreign products while demand for USA products overseas is falling.  There is a structural reason why there is not a demand for USA manufactured products.

The most jobs lost during the Great Recession will not return during this recovery.  We have structural defects which make our goods uncompetitive.  Good places to start looking for structural problems are minimum wage, political policy for green enterprises (which favor China), labor laws, regulatory load which constrains new competition coming into the market, and business tax laws (which tax USA products and not those being imported).

The biggest structural problem is a level playing field.

The second structural problem is that China is executing the Singapore government / business model.  Here, the government becomes the leader of capitalistic activities – shaping, molding, assisting – doing whatever it takes to build the golden goose.  Business is not evil but an extension of government policy.  The government exists to support business who is expected to support the citizens.

You cannot compete against a corporate nation when your policy is to protect the citizens from evil business.

Welcome to my world.

3 replies on “The Great Debate© – Structure of Excuses”

  1. 1) I like the chart and the points you made Steven.
    2) Krugman’s article is a bit better in form of netting out and closer to the truth than previous works of his but still doesn’t lay the truth bare. Example:
    “The most widely quoted figure is Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, who has attracted a lot of attention by insisting that dealing with high unemployment isn’t a Fed responsibility: “Firms have jobs, but can’t find appropriate workers. The workers want to work, but can’t find appropriate jobs,” he asserts, concluding that “It is hard to see how the Fed can do much to cure this problem.”
    There is nothing infactual about Narayana Kocherlakota’s statement. Ben Bernanke stated at Jackson hole fiscal policy is required, monetary policy alone cannot solve the problem (supporting your point of view Steven). Ben Bernanke realizes he is a banker. Why Senator Shelby was grilling Ben Bernanke in a public spectacle made Senator Shelby look foolish.
    3) The bare bones truth is
    a) That monetary stimulus was relied on far too long and fiscal policy lacked far too behind for 40 years. Got a problem? Call Burns/Volker/Greenspan/Bernanke. Nixon was lazy and the trend only accelerated from there.
    b) Bankers will do what they do best and capital recognizes no physical boundries, it goes to where it is best served. That means periods of detente are needed for national governments to fix domestic problems.
    c) The banking cartel is now fully in control of the United States. The encourgaing signals come from Ben Bernanke that now seems to fully get it, if you want to run the world and continue profitable global growth, fiscal policy MUST be part of the equation. Monetary union without political union spells disaster. An entire population that can only afford food and water make lousy customers with all the hassles of management to boot.
    d) If we are merely talking about parallels between the GD and now as the substance for Krugmans beliefs of boom/bust cycle and long-term unemployment, debt overhang at 40% means a reversion to the mean, pre-FIRE economy and in some stats, the U.S. is already there.

    Your train of thought that the U.S., by policy choice not allowing itself to compete is compelling.

  2. Why so much argument? Both sides have some data to express, the only thing that matters is “what are our response actions?”

    Yes, structural integrity is a part of the competitive landscape. Beer & pizza alone do not constitute adequate aggregate demand profiles. Yet Yankees are not totally lost. Given extra money in their pockets, they’ll create value in innovative hobbies. Just scan through YouTube to find random engineers at outrageously impressive hobbies.

    Yes, adequate aggregate demand is part of the competitive landscape. The USSR proved conclusively that even large numbers of PhDs/Engineers are not competitive if means for expressing aggregate demand are systematically depressed. The best way to unleash creativity is to leave extra time/currency to citizens and see what they come up with.

    What’s the problem with putting 2+2 together?

    1) put adequate “option” power in more hands (typically expressed as spending power), and see what people come up with (a kick-ass middle class?)
    2) put adequate selection pressure in place, so whatever favors aggregate gain is strongly selected (no, beer & pizza do NOT constitute an adequate middle class)

    This is not rocket science. Both are necessary but not sufficient requirements. It’s minimally a 2-stage co-optimization. Simple arithmetic. We’ve done this – fitfully – for 200+ years. No need for either panic or fisticuffs.

    It’s hard not to partly agree with one of RagingBull’s points, banking lobbies do seem to have gone overboard in pushing policy approach #2 above, to the extent that our innovation faucet is nearly closed. To recover, we can simply return to expressing our past strength, give entrepreneurs enough room to operate AND see if open expression of democratic innovation out-innovates MITI and the CCCP.

    Do we need to return to making all of what foreigners are now capable of making? Of course not. Should we be moving on to creation of far more, insanely great things that no one else can yet do? OF COURSE! Where is the real conflict?

    NO, we don’t have to go overboard in either direction – no one really wants that. What they do want is to know when we stray outside adaptive tolerance limits for this dynamic equilibrium between 1&2 above.

    Yankees used to be able to coordinate and cooperate – and mover forward faster than other nations. If our present political parties cannot, then the US electorate needs to close them down and get back to Ben Franklin’s style of productive compromise. Do we want to be right (about irrelevant, isolated points), or be successful?

  3. Roger, we have lost vertical integration in manufacturing (the ability to produce a product without foreign components). so my response is 2 * 0 = 0. i know this is not a issue on economic websites, but the implementers in manufacturing are concerned. every item we no longer produce gives away jobs and KNOWLEDGE that takes R&D / time to re-establish.

    the golden goose is goods production. no a single trend shows any sector building in the USA at a faster rate then it is growing overseas. even in terms of gross money spent on R&D, the winning hand is foreign. in no area is America’s “productive” capacity expanding.

    the demand siders are as deficient as the supply siders. if supply is foreign and demand is domestic – the net result is less demand and a death spiral. this demand argument fails where the tire meets the road – and only works for people who spend their time reading computer printouts.

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