The Unbearable Lightweightness of Being David Brooks

Or, I know columnists have deadlines, but really

In Tuesday’s NYT column, entitled “The Structural Revolution”, David Brooks writes:

[I] … believe the core problems are structural, not cyclical. The recession grew out of and exposed long-term flaws in the economy. Fixing these structural problems should be the order of the day, not papering over them with more debt.

… we structuralists do not believe that the level of government spending is the main factor in determining how fast an economy grows. If that were true, then Greece, Britain and France would have the best economies on earth. (The so-called European austerity is partly mythical.) We believe that the creativity, skill and productivity of the work force matter most, and the openness of the system they inhabit.

I wonder if Mr. Brooks has ever taken a course in macroeconomics. Almost every intermediate macroeconomics textbook I know of uses a Solow growth model to determine long run growth, and a Keynesian type model for the short run, so I don’t understand this simple dichotomization.

I think there should be a rule that anybody who writes about macroeconomics should be forced to read a macroeconomics textbook; even if Mr. Brooks had read Barro’s textbook, at least he’d understand under what he was criticizing was a straw man.

Here is the CBO’s assessment of the structural and cyclical components of GDP and of unemployment.


Figure 1: Log GDP (blue) and log potential GDP (red), bn. Ch.2005$. NBER defined recession dates shaded gray. Source: BEA, 2012Q1 advance release, CBO, Budget and Economic Outlook (January 2012), NBER and author’s calculations.


Figure 2: Unemployment rate (blue), and natural rate of unemployment – long term (green) and natural rate of unemployment – short term (red). Source: BLS vis St. Louis Fed FRED, CBO, Budget and Economic Outlook (January 2012), and NBER.

By these measures, most of the deviations are “cyclical”. There is a structural aspect, of course. The CBO’s measures take into account trends in capital stock, labor force, and multifactor productivity. If that ain’t structural, I don’t know what is.

The CBO’s assessment of the natural rate of unemployment, including the recent measures of short term natural rate, highlights the fact that structural does not necessarily mean long-lived, nor does it necessarily mean immune to measures implemented to address cyclical weakness. These measures include extended unemployment insurance, etc.

In fact, maybe it would be useful to quote from CBO’s Budget and Economic Outlook, released at the end of January 2012 (p.35-36):

Cyclical and Structural Unemployment. In CBO’s view, most of the 3.5 percentage-point rise in the unemployment rate since the onset of the recession can be directly attributed to a cyclical decline in the demand for goods and services, and hence for workers. However, CBO estimates that part of that rise—roughly 1 percentage point—reflects structural factors associated with the recession but not directly linked to the current level of aggregate demand. Those structural factors include a mismatch between the requirements of existing job openings and the characteristics of job seekers, including their skills and locations; the lasting effect of long-term unemployment on individual workers’ ability to find and hold a job; and the effect of extended unemployment insurance benefits on incentives to continue searching for work (as opposed to either accepting a job offer or dropping out of the labor force). Although quantifying the relative importance of these factors is quite difficult, CBO estimates that in late 2011 the rate of unemployment attributable to sources other than the current level of demand for goods and services—the so-called natural rate of unemployment—was about 6 percent, up from about 5 percent before the recession. In CBO’s projections, most of the effect of those structural factors on the unemployment rate fades by 2022.

Roughly half of the 1 percentage-point rise in unemployment that CBO attributes to structural factors reflects mismatches between the skills and locations of available unemployed workers and the needs of employers, CBO estimates. One important source of such mismatches is the decline in demand for construction workers that followed the collapse of the housing market. The effect of mismatches on the unemployment rate is projected to diminish gradually over the next five years—as people acquire new skills and, in some cases, relocate to faster growing regions and as some older workers who lost their jobs during the recession leave the labor force.

About a quarter of the 1 percentage-point increase due to structural factors can be attributed to the effects that extended unemployment insurance benefits have had on the supply of labor. Such benefits induced some unemployed people to search for work less intensively or to reject unsatisfactory job offers. The benefits also encouraged some unemployed people who would otherwise have stopped looking for a job and dropped out of the labor force to stay in it to remain eligible for benefits. If extended unemployment insurance benefits expire on February 29, as scheduled under current law, those effects will dissipate by the summer of 2012.

The remaining roughly one-quarter of a percentage point reflects the difficulties that the long-term unemployed (people who have gone without a job for at least six months) face in finding work. Such workers may encounter difficulties resulting from the stigma attached to long-term unemployment—that is, employers’ perception that the long-term unemployed would be low quality workers—and from the erosion of their skills while they are unemployed. As a result, some workers who have been unemployed for a long time, especially those displaced from a long-tenured job, are likely to have trouble landing another stable job. Consequently, they could remain unemployed for an extended period; moreover, even after they are reemployed, many will remain more vulnerable than before to additional future spells of unemployment. As a factor boosting unemployment, such difficulties for the long-term unemployed will, in
CBO’s view, increase in importance over the next two years (as some people who are currently out of work stay out of work longer) and then persist for several more years, before gradually diminishing but not completely disappearing by 2022.

Emphasis added — MDC. This means a majority of the increase in unemployment is not “structural” in the sense that Mr. Brooks uses the term.

(By the way, I know there will be a bunch of commenters who claim the CBO’s approach is flawed – usually without understanding how those measures are constructed – but I find it telling that alternative approaches say using DSGEs and assuming monopolistic competition – obtain similar measures of the natural rate [1].)

Experts concur that most of the unemployment we see is cyclical in nature, and even a large component of the increase in “structural” unemployment is policy-driven. From the summary of the SF Fed’s recent conference on unemployment, by Neumark and Valletta:

The recent San Francisco Federal Reserve Bank conference on workforce skills examined labor market changes that may have accelerated during the Great Recession. These changes may have increased mismatches between employer needs and worker skills. In general, we find that this doesn’t appear to be the case. Estimates of the extent of skill mismatches in recent years indicate that it has been limited and is likely to dissipate. Moreover, the conference’s research presentations and a panel of workforce development specialists did not identify a noticeable increase in mismatches in recent years. Thus, concerns about growing skill mismatches may be overblown. On the other hand, successful integration of low-skilled workers into the workforce represents a continuing problem. Conference participants offered useful ideas on how to meet this challenge, stressing the roles of community colleges and well-designed training programs.

The conference website is here. But I think it might be too much to ask Mr. Brooks to read more broadly, given his predisposition to spout data-free assertions. See for instance this post on Mr. Brooks’ earlier column on long term unemployment. From Mr. Brooks’ column:

There are probably more idle men now than at any time since the Great Depression, and this time the problem is mostly structural, not cyclical. These men will find it hard to attract spouses. Many will pick up habits that have a corrosive cultural influence on those around them. The country will not benefit from their potential abilities.

This is a big problem. It can’t be addressed through the sort of short-term Keynesian stimulus some on the left are still fantasizing about. It can’t be solved by simply reducing the size of government, as some on the right imagine.

And as I wrote before:

While surely there is a structural component, Brooks is making the common mistake of equating long term unemployment with structural unemployment. As discussed in this post, the two are related, but the bulk of the current unemployment is cyclical in nature.

My final observation: in the neoclassical synthesis, potential output is a function of the capital stock, the labor stock, and multifactor productivity, i.e., YPot = AF(K,L), where A is MFP, K is capital, L is labor. K is the sum of private and public capital. Augmentation of public capital is primarily due to investment in infrastructure. I believe many critics of the ARRA pointed to investment in infrastructure as a problem, while many (including in the Administration) have asked for more investment in infrastructure. This makes me think that a lot of those of us who Mr. Brooks calls “cyclicalists” have indeed been thinking long and hard about structural factors.

As I’ve asked before, would it kill columnists who write about macro to read a textbook (even a neoclassically oriented one like Barro, although I use Blanchard in my intermediate macro courses).

48 thoughts on “The Unbearable Lightweightness of Being David Brooks

  1. AS

    Professor Chinn,
    For those of us who have not read Professor Barro’s text, can you give us some analysis of his comments that appear in the 5-10-12 edition of the WSJ?

  2. Menzie Chinn

    AS: You miss the point of me arguing that Brooks should read a textbook. Formal learning of the theories — be they RBC or Neoclassical synthesis or New Keynesian — is helpful in organizing thoughts. For instance, John Taylor’s theoretical work is “New Keynesian”. There is an organizing framework and hence a way to distinguish structural from cyclical. Barro’s preferred model is New Classical; there is essentially to cyclical component. That’s fine (albeit divorced from reality). But the textbook includes a chapter on IS-LM, so one can at least understand the ideas, even if Barro himself is skeptical.

    So…learn the theories before writing about them — that’s all I ask.

    As for Barro’s column, well there it is as data-sound as his earlier Business Week column, where he completely forgot about population controls (!!!). Reference to actual German government spending growth rates, as opposed to deficits, would have been useful.

  3. Dan Mulligan

    Thank you, thank you for reading Brooks for me. I can’t seem to ever get past his first paragraph without increasing my blood pressure.
    Completely unrestrained by facts.

  4. Richard A.

    But suppose David Brooks doesn’t even understand basic algebra–he’ll have a hard time understanding a macroeconomics textbook.

  5. Ricardo

    Menzie wrote:
    “Experts concur that most of the unemployment we see is cyclical in nature…”/b>
    Menzie and I agree that David Brooks is a light weight and usually doesn’t know what he is talking about, but the phrase above made me roll my eyes. Do experts actually believe that an unemployment rate over 8% is just a cyclical blip? This must be a pretty long cycle!
    But my friend David Goldman analyzes the more important employment numbers.
    The big news in Friday’s employment report was not the miserable 115,000 jobs the economy added in April, but the disappearance of 340,000 workers from the labor force. We haven’t seen unemployment on this scale since the Great Depression. Indeed, since Obama took office, the labor force participation rate has fallen from 66% to 63% as almost 5 million American adults stopped looking for work. About a fifth of working-age Americans aren’t working — and a fifth of all personal income is transfer payments. These numbers are astonishing and without precedent. If they continue, America will go bankrupt. Obama’s hope for re-election lies in dependency. No one could run for re-election as dogcatcher with this record — except for the cynical presumption that Americans have become so dependent on the state that they have lost hope of working again, and will vote for more state dependency.
    If you’re not scared, you haven’t read the numbers. Here they are, courtesy of the St. Louis Fed’s excellent free data base.
    Not since the 1970s has the overall labor force participation rate been this low. As women began entering the labor force in large numbers, the overall participation rose. Truly alarming, though, is the labor force participation rate for men. This stabilized in the mid-70% range during the 1990s and 2000s, but has just fallen below the 70% mark for the first time in history. Again, the number means that 3 out of 10 working-age American men who are not in prison or the armed forces are not counted in the labor force. They are not looking for work to begin with.
    For Americans with only a high school diploma, the results are even more dismal: fewer than 3 out of 5 Americans with only a high school education are counted in the labor force.

    For Americans without a high school diploma, the labor force participation rate is only 45%. Fewer than half are counted in the labor force, that is. The official unemployment rate for the least-educated cohort is 12.5%. That means that fewer than 2 out of 5 adult Americans without a H.S. diploma not in the military or prison actually have a job.
    And for African-Americans, the labor force participation rate is only 60%.
    The official unemployment rate is 8.1%. Include so-called discouraged workers, and it jumps to 15%. And if we include so-called long-term discouraged workers, the part of the adult working-age population that simply has disappeared from the labor force, it jumps to 22%, according to the website Shadow Government Statistics.
    America is becoming a nation of dependents. If more than a fifth of adult Americans aren’t working, what are they living on? The answer: they are living off transfer payments. A fifth of Americans aren’t working, and a fifth of personal income is transfer payments. The math is simple.

  6. AS

    Dear Professor Chinn,
    I didn’t miss the point. I agree with you about trying to write about something prior to learning about something. I guess, I was being tangential, but am always interested in your expert opinion and analysis.

  7. Menzie Chinn

    AS: Apologies for the misinterpretation. I think Professor Barro’s views are consistent with a RBC view of the world, and hence most of his textbook. The data he chooses are selective (and hence his lauding of German fiscal austerity when government spending increased dubious). And of course, even if output rose in response to increased government spending, it would be a “bad” thing, since government spending is by definition waste.

  8. dwb

    great blogging.
    first, if it were only Brooks it’d be different. But then we also have Lacker and Bullard who #have# taken macro. can you give retroactive F’s?
    second, one can always find skills mismatches and geographic differentials. when demand is high companies help pay for training or are more tolerant of inexperiencef wprkers (“ojt”). i am struggling to see #more# than the usual amount. for example, unemployment and labor force particiption among those just graduating college is very high (low, respectively). surely thats a pure measure of cyclical unemployment, because college grads have lots of skills. similarly, among 55+ that group is where you might except to need the most retraining if they change careers. the data tells the opposite story i believe.
    sigh, as Noah Smith observed, i am not sure more facts and charts will help.

  9. CBBB

    Well, even people who supposedly have read macro books don’t seem to know any better. Take a peak over at Marginal Revolution – Tyler Cowen has become a one-man cheerleading section for Brooks of late.

  10. kharris

    I’m afraid the discussion here misunderstands the discussion that Brooks is having. Brooks is having a discussion with a bunch of people (some of whom may be imaginary) who have abstracted a certain sort of information from real economic discussion. They use the language we use, but their discussion is intentionally not tethered to the conventional meanings of economic terms. When Brooks says “structural”, he means “blah, blah, not Keynes, blah, blah, sound informed, blah, blah”. Neophytes to the discussion Brooks is part of may feel the urge to wink at first, but soon learn to suppress that urge. The whole point to being part of this discussion is to be overheard by those who do not know about the urge to wink, who think Brooks and his buddies are using the terms in the commonly understood manner, only with greater insight than mere scholars. They are the target audience for overhearing, those who can be fooled into thinking the discussion is making honest use of economic terms.
    Brooks allows us to overhear that discussion in his column. That’s the purpose of his column. Well, for him, the purpose is to be paid for writing it and to gain the status and opportunity that writing such a column provides. But the reason he is paid to write it is so that educated but gullible people overhear the discussion of their “betters”, of “insiders”. Those gullible people are expected to be highly vulnerable to absorbing the views they overhear through Brooks, because there are powerful social incentives at work. They, like Brooks, want very badly to think approved thoughts, things that serve as shibboleths among “insiders”. Then cognitive dissonance sets in, because the approved thoughts can never fit with the facts. The whole point it to shut down access to to fact and logic. It works because cognitive dissonance makes fact and logic too painful to tolerate.

  11. tj

    I tend to agree. I think what makes it difficult to differentiate cyclical from structural in Brook’s mind is the increase in the use of permanent layoffs (BLS definition) over the last 20 years.
    Historically, workers on ‘permanent’ layoff returned to the same firm when demand picked up. However, the duration of below average labor demand coming out of the Great Recession gives the appearance of a structural problem – the permanent layoffs are taking longer to return to employment.
    At the same time, we have a president who fulfilling his promise to fundamentally change America. Given another 4 years, there will be a large number of workers in the fossil fuel industry who are fundamentally displaced.

  12. JLR

    I cannot understand why serious economists give press to Brooks. That being said, I cringe whenever I read that a consensus of experts agree. Experts gain their fame and value by disagreeing. (Otherwise there would be no need for experts since we would have “revealed truth”).
    When lots of experts agree, I look for alternative explanations (until I find I am wrong).

  13. Robert

    Menzie: “As I’ve asked before, would it kill columnists who write about macro to read a textbook (even a neoclassically oriented one like Barro, although I use Blanchard in my intermediate macro courses).”
    And the same argument applies to reading posts by Menzie since his are no more objective than those written by Krugman, a guy who hasn’t read a macro text in 20 years.

  14. Imelda Blahnik

    kharris, I wish there was a “like” button next to your comment.
    Note that Brooks says he “believes” the core problems are structural. It’s faith-based economics.

  15. Noah The Literature

    Holding up the Solow growth model long run / Keynesian type model short run dichotomy as “science” is a embarrassment for you as a “scientist”, it’s not an embarrassment for Brooks.
    Both constructs are built on the embarrassment of “K” and other non-economic categories, and there a well known and long known pathologies involved in every version or modification of these models, not to mention their problematic relation to emperical reality and “the data”.
    Be honest with yourself and Brooks — you are enforcing anomaly ridden dogma, not genuine, conceptually sound and empirically grounded, sucessful science.

  16. dwb

    right on cue Kochlerakota was out today saying unemployment was structural.
    pretty sure he DID take a macro class.

  17. Menzie Chinn

    Noah the Literature: Well, gee, you don’t have to use the neoclassical synthesis. I did cite EDO, a DSGE. Please tell me your favored model; I would like to dissect (like, tell me about the financial system — got a one period real bond there? Or do you assume full risk sharing, and other “plausibe” assumptions?). GIMF is okay too. Still, there are trends and cycles in those models too, and they aren’t like the ones that Brooks mentions.

  18. Bogwood

    Looking from way outside, I detect a little hubris in the post. How do we know a macro text will be helpful? The structural problems are on the periphery of economics: rule of law, property rights, resource limits,sociopathy at high levels. Take the graph of rising GDP, most macro texts would approve. Less sophisticated, but more reality based observers would consider it a disaster.

  19. Chris

    Having taught undergraduates in history at the U of Chicago, I doubt anything most of them learn would fit them to opine on macroeconomic questions. All the more if afterward their first jobs were as police reporter and movie critic. There are some people working for Bloomberg who majored in movie criticism or English lit but who now pronounce on matters of the economy. One openly confessed she was “not an economist”. I guess not knowing much about economics is some sort of qualification to write about it.

  20. mclaren

    For someone like Menzie Chinn to even bother to take the time to debunk an ignorant fool like David Brooks is akin to a Fields medalist correcting a dog’s arithmetic.

  21. Menzie Chinn

    Bogwood: You do realize when the series is logged, and the slope is decreasing, then the growth rate is decreasing…

    Anyway, my point is that some sort of framework is useful (as is an understanding of trend-cycle decompositions, in either an economic or statistical sense).

  22. Bryce

    “The structural problems are on the periphery of economics: rule of law, property rights, resource limits,sociopathy at high levels.”
    Bogwood has a point. But a doubling (from the rate 1950-200) of total debt/GDP to ~380% is economic. And structural.
    I normally think of David Brooks as rather superficial, but the 2 paragraphs Menzie sites make more sense than Menzie’s hubristic words, or anything I ever read in a macro text that flowed from Keynes.

  23. Menzie Chinn

    Bryce: Yes, I will pay careful heed to the assessment of a person who wrote:

    Fascistic banking system in the sense that the intermingling of corporate & govt interest is economic fascism. Banks are virtual creatures of govt in modern America.

    I am not surprised you found Mr. Brooks commentary sensible.

  24. Johannes

    Menzie, why do you take a politician like Brooks seriously ?
    Before the 2003 invasion of Iraq, Brooks argued forcefully for American military intervention, echoing the belief of commentators and political figures that American and British forces would be welcomed as liberators. Well, who is insane here.
    In writing for The New York Times in January 2010, Brooks described Israel as “an astonishing success story”. Well, who is insane here.

  25. liqian

    Prof. Chinn
    If you could write a more detailed comment on Barro’s WSJ article, it would still be helpful. I think people takes Barro’s views more seriously since he wrote a macro textbook AND is a prof. of Econ. at Harvard.

  26. Ian Lee

    Prof Chinn,
    I bring to your attention the IMF Sustainability Reports for France, Spain, Italy, Greece et al and are calling for – yes – structural changes to their economies:
    Allow me to quote from the IMF France Sustainability Rpt Exec Summary:
    “France’s public finances have deteriorated over the past decade—owing, in part, to rising
    social spending pressures. At the same time, the current account balance has gradually
    worsened from a surplus to a moderate deficit—largely due to rising labor costs.
    Consolidation is needed to ensure fiscal sustainability, while structural reforms are critical to improving competitiveness and keeping the current account deficit in check”
    The ECB, Eurostats publishes data annually showing that the GIPS are substantially less productive per worker hour than Germany. The IMF, Germany, scholars and think tanks have called on these countries to undertake structural reforms to liberalize their economies in order to make them more competitive.
    The issues of structural reform versus additional stimulus and less austerity are being debated daily across Europe. See the Francoise Hollande debates with Sarkozy

  27. Bryce

    That’s the best counter argument you have?
    Banks are incredibly regulated & under the thumb of the Federal govt. Ask BoA & the other banks why they agreed to the terms of the GM bail-out when none of the non-bank bondholders did. Ask BB&T why they took the TARP against their will.
    On the other hand the banks are heavily subsidized by the Fed’s artificially low interest rates (at the expense of everyone else, but esp. the poor & financially least sophisticated) & bailed out as needed. None of this is consistent with a free market but rather with economic fascism.
    It wasn’t me but rather Mussolini who said a better name for Fascism would be Corporatism.
    To the extent that you purport to be a liberal & liberal still has some connotation of freedom, I find your attitude illogical.

  28. Steven Kopits

    Brooks’ article is not primarily about unemployment. Rather, it’s about deficit spending. His main points, as I understand them:
    – Deficit spending does not appear to be helping the economy back to its potential in a cost effective fashion
    – In the future, spending will likely have to be curtailed in some form.
    – There are structural issues in the economy, not just cyclical ones.
    These are common themes for fiscal conservatives.
    Re: the deficit. We have borrowed some 35%+ of GDP in the last four years. Are we to believe that GDP would be a quarter lower if we had not borrowed such a sum? I think that would be an important analysis.
    Going forward, we look to borrow another–what, maybe 12% of GDP above normally borrowing levels–in the next four years. How does that translate into more than 12% GDP growth?
    The structural issues include i) labor force participation rates (which I think we all agree have some structural component), ii) private sector debt overhang (likely a persistent drag on the economy and qualifying for some consideration as “structural”), and iii) the budget deficit.
    On this latter point, I cannot clearly distinguish between cyclical and structural factors. I would welcome an analysis of whether structural spending has gone up or not. Are we really going back to Fed spending at 20% of GDP coming out of the recession? I’d be pleased if you would show us the path.
    Further, we will have to pay all this borrowing back. Now, a Krugman may argue that we all owe this money to ourselves. But in truth, taxpayers and spending recipients will be hit; bondholders will be repaid. Borrowing money from ourselves is not the same as play money. And I have not even mentioned debt holdings by foreignors. Assuming we pay back our incremental 50% debt of GDP over 50 years, well, that’s 1% per year higher taxes or lower spending. Now, you may argue that this will be made up by a lower cost of capital. Is the low cost of capital helping now? Do you expect the cost of capital to go up in the future? If so, what will be the impact on the financing costs for the US debt, and how will that affect spending and taxes?
    Finally, we have the structural problem of oil. We can’t produce enough of it to fuel everyone’s ambitions.
    So, broadly speaking, I think Brooks has a point, whether or not he has read Barro.

  29. jonathan

    I think kharris makes a good point but I see Brooks as having a specific intent, which is deflection.
    Brooks’ stock method is to create a straw man and then argue with that. This is not only an abstraction but a way to avoid talking about the actual positions the straw man represents. By glibly characterizing the straw man approach as “spend more”, he can argue that we need to address structural issues. This deflects attention from the reality that the actual positions masked by his straw man absolutely push for structural investment and that they favor this investment over “spending” as a generality and, further, that his own party has been resisting at every turn any structural spending.
    For example, the Democrats and a number of economists push for investment in infrastructure, partly because borrowing is silly cheap now, partly because we need it, and partly because deferred maintenance and investment is a future cost as much as promises made in entitlement programs except those future costs impact our productive capacity more directly. Brooks’ party has said no.
    As another example, the Democrats and a number of economists push for investment in education because that increases our productive capacity. Brooks’ party has cut education funding and wants to remove government loan supports in the silly idea that they are what cause education price increases. To be clear, at least in the case of for-profit schools, the ones the GOP and particularly Mitt Romney trumpet, costs are clearly set in relation to the maximum students can borrow with subsidy. For public schools, tuition and other cost increases are clearly driven by cuts to their budgets that require shifting costs to students. For private non-profit schools, there is no one clear reason.
    So what Brooks does is shift the debate away from the level of fact and action because his party loses that debate. His straw man approach dishonestly allows him to ignore that his party is standing in the way of the very things he says are necessary.

  30. Anthony Esposito

    CEO’s of every industry, especially the most vibrant, eg. high-tech, complain of not having enough “skilled” workers to hire.
    That’s a “structural” dilemma.

  31. Anonymous

    The lack of skilled workers is not a dilemma. It may be a problem, but not a dilemma. If there is a “dilemma”, it’s that firms want more workers, but are not willing to bid up wages to get them.
    If we believe that market forces work, then the way to encourage more workers to gain the skills that CEOs say they want is to express demand through higher prices – the wages of workers with the desired skills. Yes, there are some bottle-necks. It takes a good bit of time to train workers in highly skilled professions. It takes even longer if you fail to signal demand effectively.
    Problem is, it is not just high tech firms, as you say, that complain of insufficient workers. The whole “immigrants do work that US workers won’t do” bit may well be true when it comes to stoop labor. Ask farmers in states that have tightened up on illegal workers. In the construction sector and a number of others, that argument usually means “I’d have to pay more than I want to hire US workers”. That is a micro-economic problem disguised as a structural problem. There are still 4 to 5 out of work but looking for work people for every job opening in the US, and many of them worked in skilled positions before losing their jobs. Wages, in general, aren’t rising fast enough to keep pace with inflation. If there were structural problems limiting supply in the labor market, we’d see rapid wage gains. Just because CEOs say they want more skilled workers doesn’t mean that’s the whole story. Let ’em pay up and see what happens.

  32. Ian Lee

    Steve Kopits above summarized the issues far more eloquently and succinctly than my empirical reference to the IMF country sustainability studies that call for structural reforms.
    The debate is not about left versus right as such or Dems vs GOP or whether someone did or did not read an advanced text on macro.
    At the risk of offending, these issues exist completely independent of one’s knowledge of macro or micro.
    Even more importantly, these are public policy isuses – with enormous budgetary consequences – that should be addressed by the elected officials in every country – although the issues are vastly more acute in Europe due to the substantial occupation and industry protectionism and large number of unprofitable government corporations.
    Restated, the debate between the Germans and e.g. France, Spain, Italy lies precisely in what Brooks suggested.
    To French President Hollande, “growth” means more deficit stimulus spending but to Germans it means structural reform to ensure competitiveness to produce export led growth, per the IMF recommendations – which are anthama to the French and Greeks as they do not want to lose control as they believe it will threaten their “unique way of life”.

  33. Bryce

    That’s the best counter argument you have?
    Banks are incredibly regulated & under the thumb of the Federal govt. Ask BoA & the other banks why they agreed to the terms of the GM bail-out when none of the non-bank bondholders did. Ask BB&T why they took the TARP against their will.
    On the other hand the banks are heavily subsidized by the Fed’s artificially low interest rates (at the expense of everyone else, but esp. the poor & financially least sophisticated) & bailed out as needed. None of this is consistent with a free market but rather with economic fascism.
    It wasn’t me but rather Mussolini who said a better name for Fascism would be Corporatism.
    To the extent that you purport to be a liberal & liberal still has some connotation of freedom, I find your attitude illogical.

  34. Eclectic Obsvr

    My own take on the structural issue is that while it exists it is not the driver for the level of UE we are experiencing that is due to consumer demand and public financing restraints at the state and local level. Structural issues may be worth taking on, but if you have limited funding demand creation would be far more wise a choice.
    The other point would be that industry has not done anything to obtain skills they say is lacking in applicants as in one of the structural issues. That sort of means, that anecdotes by employers fall into the whining context when not accompanied by action through wage increases, internships, partnerships with community and technical colleges etc.
    Of course as you say this is an excuse to blame the patient for the bad treatment as opposed to doing something.

  35. 2slugbaits

    David Brooks is the Megan McArdle of the NYT op-ed page…except he has more chin whiskers to scratch to compliment the look of a deeply reflective man. In another age his photo would show him smoking a pipe. kharris has it dead right.
    But what’s really annoying is that Brooks can’t even get the structural argument right. As Menzie notes, the intermediate macro textbook Solow growth model is the workhorse for a structural understanding of the economy. For decades labor’s share of the Cobb-Douglas function in the Solow model was about two-thirds and capital’s share was about one-third. But that has started to change. And if instead of a Cobb-Douglas function with a Hicks neutral technology factor the structural shift has been towards a Constant Elasticity of Substitution (CES) model with shares that don’t have to sum to 1.0, and if you include a labor augmentation factor instead of a Hicks neutral technology term, then this whole structural argument starts to look a little different. And if Brooks bothered to think it through he might discover that the structural change argument leads to very different conclusions than the ones he hints at in his op-ed drivel.

  36. mclaren

    Bogwood remarks “The structural problems are on the periphery of economics: rule of law, property rights, resource limits,sociopathy at high levels,” while Ian Lee says that peripheral Eurozone nations need “structural changes in their economies.”
    Regardless of the accuracy or inaccuracy of these comments, it should be noted that economists use the term “structural” in a very different and quite specific way than the commenters here are using the term “structural.”
    See the wikipedia definition of “structural unemployment” for more details.
    When an economist speaks of “structural unemployment,” that specifically means unemployment due to a widespread skills mismatch in the economy. I.e., lots of jobs for highly trained machinists or programmers, but most of the people in the workforce are baristas or carpenters without the skills to operate machine tools or program a computer.
    As Krugman and DeLong and Chinn and many others have repeatedly pointed out, a cursory glance at the BLS employment figures by profession and by region just before the 2007-8 crash and since then shows us unmistakably that there was no widespread skills mismatch just before the economic crash, and that unemployment is high across all professions and across most regions in America after the crash. This means that whatever the economic problems causing persistent high unemployment since 2008, they cannot be structural (i.e., widespread skills mismatch) in the sense economists use the word.

  37. acerimusdux

    You have to admit there is some pretty powerful anecdotal evidence of a skills mismatch problem, when David Brooks is writing a column on economics.

  38. Chris

    Really Bryce? Posting your vile nonsense once isn’t enough, you have to subject us to your mind-numbing attacks twice?
    The world does not work according to your (frankly) pathetic idealism. In fact, it is quite the opposite– sensible pragmatism. Banks are regulated for great reason because they quite *obviously* cannot be counted on to have a viable and responsible capital structure. Only a total moron would think that regulation and the Federal Reserve are the reason why banks irresponsibly over-leverage. More like it’s simply the easy way out; much cheaper to borrow than raise equity. Yet, debt is fixed in nominal terms, so when the banks suddenly face losses or whatever reason, they are left out to dry and you have a credit crisis.
    If I hadn’t just gotten back from a conference on banking capital with some of the best and brightest academics, bankers, regulators, and other financial experts, I might be a little amused with your naivete. You clearly don’t know how financial markets work if you seriously think clinging to your idealism works in that world that exists outside of your narrow mind.
    Pragmatism is a uniquely America philosophy– much more so than being a reactionary goofball idealist.

  39. Anthony Esposito

    Anonymous, you lost me at “It may be a problem, but not a dilemma.”
    I’ll persevere only to say that your post is a bushel of apples and oranges, pun intended.
    You cannot compare software designers (who CEO’s do, in fact, pay according to market) with fruit pickers and respirator-wearing “wall-bangers,” who, in the real world, set the price of wages, since they come from a country that would pay them $10/day to a country that might pay them $15/hr but accept half that at $7.50/hour because they, by comparison to their country, are “well-paid.” (Americans are not accustomed to living with three-generations in one apartment. For the time being, anyway.)
    You curiously focus on construction of all things. Construction, real estate and all their related services pre-2008 created a lopsided labor force, a labor force that now finds itself without similar opportunities and without the computer and other technical skills that have advanced in the meantime.
    That’s why there are so many people who once were “real estate” agents now trying to repeat the “self-employed magic” on the social network sites as “life coaches” “wellness advisors” and “social network consultants” to business.
    We have, in a practical sense, a flailing work force for many years now that is unemployed, underemployed or marginally-employed in the middle of an economy that, for these unskilled workers, is shrinking in opportunities. That’s a structural dilemma, problem, take your pick.
    In either semantic, the work force must be re-educated to become a part of the new economic structure.
    Haven’t you noticed all the on-line degree institutes and universities? That should tell you something.

  40. 2slugbaits

    Bryce Banks are incredibly regulated & under the thumb of the Federal govt.
    You do know that it was primarily unregulated “shadow” banks that caused the financial meltdown? You do know that, don’t you? And you do know that even among conventional banks with marble walls and rows of tellers (as Krugman likes to say), it was the unconventional and unregulated divisions of those banks that went off the rails? Conventional regulated banks made predictable but not spectacular returns. B-o-r-i-n-g! Thanks to the Bush deficits during full employment there was a glut of savings looking for a place to make high returns…so unregulated entities started to push the envelope. You probably still believe the Fox News morality play that the Great Recession was caused by liberal legislation from 1979 that forced bankers to loan money to irresponsible low-income folks who had no business buying a home…another twist on government regulation supposedly telling businesses what they must do.
    Ask BoA & the other banks why they agreed to the terms of the GM bail-out when none of the non-bank bondholders did.
    Yes, by all means ask them. But first give them truth serum and hook them up to a lie detector machine. And while you’re at it, ask J.P. Morgan shareholders if they’re glad that new SEC rules haven’t gone into place that would have prevented financial genius Jamie Dimon from losing $2B. With losses like that I’m sure Dimon will have to ask for an even bigger bonus next quarter because it’s all Obama’s fault. And naturally you’ll believe him.
    On the other hand the banks are heavily subsidized by the Fed’s artificially low interest rates
    The Fed does not create “artificially low interest rates,” whatever that means. The Fed sets the interest rate needed to maintain market equilibrium. Sometimes the Fed lowers that rate and sometimes the Fed raises that rate. In normal times the Fed’s overnight rate is the best estimate we have of the pure risk free instantaneous interest rate. The problem today is that the zero lower bound is too high. The “free market” is actually signaling that it wants a negative rate, but that’s not possible because at the zero lower bound money and bonds are perfect substitutes.

  41. Ian Lee

    Bogwood remarks “The structural problems are on the periphery of economics: rule of law, property rights, resource limits,sociopathy at high levels,” while Ian Lee says that peripheral Eurozone nations need “structural changes in their economies.” Mclaren
    Actually, there are a remarkable number of reports, studies, analyses by economists ranging from IMF to OECD to World Bank to the BIS to European think tanks e.g. Eurointelligence, Breugal, VoxEU, that are analyzing these issues.
    For a sample see:
    IMF, Bennett et al, Competitiveness in the Southern Euro Area:
    France, Greece, Italy, Portugal, and Spain, WP-8-112
    CRS, Ahearne et al, Future of the Eurozone, January 2012
    Levy Economics Institute WP 664,Leao, Can Portugal Escape Stagnation without Opting Out from the Eurozone? March 2011
    However, the starting point are the individual country reports prepared by IMF economists for the G-20 that addresses what these economists characterize as “structural issues”.
    The key word to pull up a remarkable number of reports written by economists are “imbalances between north and south Europe”.

  42. Bryce

    I didn’t say the banks were intelligently regulated. Rather they are heavily regulated in the stupid ways big govts do things. Each product a bank offers , each bank director, must pass muster with some regulator, etc. Mountains of paper work no one ever reads.
    Why did BoA act against its shareholders interest to accept a totally unfair rightdown of its GM bond debt? You don’t answer. It is because they are under the thumb of the ruling administration. Ditto BB&T.
    “Market equilibrium” is a pretty meaningless expression when the Fed & all the central banks of the world are creating & lending billions that no one has ever saved–magnified in turn by fractional reserve banking. A market rate of interest is that which would be established by the supply of savings & the demand to borrow those savings. That isn’t complicated.
    I suggest to you that Knut Wicksell would not agree with your sitations of him.

  43. 2slugbaits

    Oh my, I’m afraid you have badly misunderstood Wicksell. Wicksell’s original contribution to monetary theory was that he broke away from the old quantity theory of money that prevailed during his day. Wicksell argued that the price level had real effects. More importanly, he argued that there could be a divergence between what he called the “natural” interest rate and the market interest rate. Wicksell argued that it was the job of a central bank to bring the two rates into alignment. Where Wicksell went off the tracks was in his hidden assumption of an economy that always had to be at full employment. You seem to think that Wicksell believed the market rate and the “natural” rate of interest are synonomous. Like I said, I think you have badly misunderstood Wicksell’s argument.
    BoA did not act against the interests of its shareholders. The shareholders had to either accept a big haircut or get nothing. Those were the two choices on the table. The real problem was divergence of interests between BoA’s executives and BoA’s shareholders.

  44. Bryce

    BoA & the other banks holding bonds & the non-band bondholders would have ended up with the bulk of GM in accordance with bankruptcy law. Obama subverted this for the benefit of his UAW supporters. He was only able to do this because of his COMPLETE power over the banks. But let’s not call it economic fascism. No. We reserve that for…what?
    Wicksell can wait.

  45. 2slugbaits

    Bryce You’re living in la-la-land. The bondholders were in a state of denial. The bonds were virtually worthless absent government intervention. By agreeing to bail out GM and Chrysler the government also bailed out the bondholders. The majority of the bondholders agreed to the swap because it was the only game in town. The bondholders wanted some third option that left them whole while shifting all of the risk onto the government and the labor unions that agreed to radical rewriting of labor contracts in exchange for equity shares. The bondholders should be thankful for what they got.
    You said that the bondholders would have ended up with the bulk of GM in accordance with bankruptcy law. Fine, but absent the government bail out we would not have been talking about restructuring under bankruptcy, but liquidation under bankruptcy. And under liquidation the best estimate is that bondholders would have received three-tenths of one cent on the dollar. About as close to zero as you’re going to get. The value of GM under a government financed restructuring was many times the value of GM under liquidation. You seem to think the bondholders should have been allowed to have it both ways…the value of GM under restructuring without the associated risk of liquidation.

  46. mclaren

    Ian Lee takes issue with me and cites various studies showing structural imbalances twixt members of the Eurozone.
    All well and good, Ian, but my point is not whether you are right or wrong about the existence of imbalances twixt various Eurozone economies. Rather, my point is that economists like Menzie Chinn make specific use of the term “structural” in regard to unemployment that has no connection with what you are talking about.

  47. bernard

    Well, the reconciliation between structural (skill mismatch) unemployment and cyclical unemployment is that the “cyclically” unemployed – or those retiring from the labor force out of despair -, when unemployed for long enough, will experience skills decay and eventually join the structural ranks. I had noted in a predictive comment on this blog two or three years ago that we knew this very well in much of Europe, thank you,having experienced essentially 30 years+ of high unemployment and had taken to calling this hysteresis effects. Which attracted me all sorts of insulting retorts, which I suppose is in the nature of blog comment.
    The USA – and Europe of course – are presently “experimenting” with maintaining very large numbers of their workforce unemployed for a very long time. Interestingly Japan, a terrible, terrible country, never did that over the past 20 years of economic funk and kept unemployment contained at around 5%. It will be enlightening to watch if hysteresis works in Europe but not in the USA. As are the constant reductions of future potential output growth assessment by the CBO.

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