Sunday, September 2, 2012

Lack of demand and the need for more stimulus

"Even" a Bush-era economic advisor, via The Wall Street Journal, confirms that current unemployment rates are rooted in lack of consumer demand and that renewed stimulus can help move the numbers:
Is the job market weak because of structural changes, or is a lack of demand the true factor keeping unemployment rates high?

Answer that, and you resolve a grand mystery that’s bedeviled those who are trying to make sense of the persistently high levels of unemployment that have been afflicting the U.S. economy for several years now.

The answer isn’t just academic: If a lack of demand is behind high unemployment, the Federal Reserve can help fix the situation via monetary policy stimulus. Structural problems, however, are beyond the reach of those remedies.

A paper presented Saturday at the Kansas City Fed’s annual Jackson Hole, Wyo., research conference argues that what currently ails the economy is indeed a demand problem. That suggests the Fed has room to act if it chooses to do so. The paper was written by Edward Lazear of Stanford Graduate School of Business and James Spletzer of the U.S. Census Bureau. Mr. Lazear was also a chairman of President George W. Bush’s Council of Economic Advisers.
“An analysis of labor market data suggests that there are no structural changes that can explain movements in unemployment rates over recent years,” the authors write. “Neither industrial nor demographic shifts nor a mismatch of skills with job vacancies is behind the increased rates of unemployment.” ...

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