A Question

Why does the current state of the economy have to be described by either a sectoral reallocation or a reduction in demand? Isn’t this a false dichotomy?

4 responses to “A Question

  1. I think that structual unemployment is higher, but that the total of frictional, structural, techological, and institutional unemployment is substantially below the current unemployment rate.

    Another way to say the same thing is that potential income is below its long run trend growth path, but real output is subsantially lower still.

    And, of course, the rest of the story is the view that either lower prices and wages would help, or else a larger quantity of money.

    As I see it, Williamson refuses to think about the economy in terms other than prices (including wages and interest rates) where quantity supplied equals quantity demanded. Market clearing always.

  2. This “dilemma” correlates strongly with the left-right political divide.

    http://modustollensblog.blogspot.com/2010/12/left-and-right-on-unemployment.html

  3. Lee,

    I have noticed that as well.

    It is becoming more difficult to determine where I fit on the spectrum.

  4. Josh,

    It depends on who you are talking to, I suppose.

    Anything you say will be interpreted by righties as vulgar Keynesianism, i.e. consumption good, saving bad, government good, animal spirits rule, free markets unstable, reinflate the housing bubble, etc. While lefties will interpret the same words as pain-caucus Austrianism, i.e. unemployment good, let prices fall, deflation good, hyperinflation soon, government bad, poor people should suffer, etc.

    At least, that is my experience. I mean, how many people think QE2 is a good idea and free banking is ideal? Neither righties nor lefties can even conceptualise how such a thought-space could exist. But maybe it is best to ignore me: recent encounters have left me feeling pessimistic about the prospect of fruitful dialogue.

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