NP - Structural w/ Austerity or Demand-Lack w/ Stimulus?

[Paul Mackin]

I don't think Krugman mentioned in this morning's column the famous 
Killingsworth/Heller "debate" of 1962-63. It was so much like the 
present day contretemps. Unemployment was 4.5 percent, huge for that 
era, and two economists were fighting it out over whether the cause was 
largely insufficient demand or structural. Heller was head of Kennedy's 
Council of Economic Advisers and advocated measures to increase demand. 
Killingsworth was a Michigan State (or it might have been U of Michigan) 
economist who held that demand approaches would be ineffective because 
of structural problems, the big structural problem at the time being 
automation. Anyway, Kennedy was a Keynesian like Heller and in his '63 
State of the Union called for a big tax cut to increase demand.  After 
the assassination Johnson got about a $10 billion cut passed. And it 
worked. By '65 the unemployment rate was down to 4.5 percent. Not as big 
an effect as the WWII build up, but pretty darn good. Created quite a 
boom as I recall.

P


On 5/11/2012 11:07 AM, Madeleine Maudlin wrote:
> Structure sounds important.
>
> On Fri, May 11, 2012 at 9:50 AM, David Morris <fqmorris at gmail.com
> <mailto:fqmorris at gmail.com>> wrote:
>
>     http://www.nytimes.com/2012/05/11/opinion/krugman-easy-useless-economics.html?_r=1&ref=opinion
>     <http://www.nytimes.com/2012/05/11/opinion/krugman-easy-useless-economics.html?_r=1&ref=opinion>
>
>     Krugman:
>
>     What does it mean to say that we have a structural unemployment
>     problem? The usual version involves the claim that American workers
>     are stuck in the wrong industries or with the wrong skills. A widely
>     cited recent article by Raghuram Rajan of the University of Chicago
>     asserts that the problem is the need to move workers out of the
>     “bloated” housing, finance and government sectors.
>
>     Actually, government employment per capita has been more or less flat
>     for decades, but never mind — the main point is that contrary to what
>     such stories suggest, job losses since the crisis began haven’t mainly
>     been in industries that arguably got too big in the bubble years.
>     Instead, the economy has bled jobs across the board, in just about
>     every sector and every occupation, just as it did in the 1930s. Also,
>     if the problem was that many workers have the wrong skills or are in
>     the wrong place, you’d expect workers with the right skills in the
>     right place to be getting big wage increases; in reality, there are
>     very few winners in the work force.
>
>     All of this strongly suggests that we’re suffering not from the
>     teething pains of some kind of structural transition that must
>     gradually run its course but rather from an overall lack of sufficient
>     demand — the kind of lack that could and should be cured quickly with
>     government programs designed to boost spending.
>
>