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

[Paul Mackin]

On 5/11/2012 12:28 PM, Paul Mackin wrote:
> 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.

I should have said unemployment in '63 was 5.5 percent, which was very 
high, but had declined to 4.5 percent by '65.

If my reasoning is correct that would amount to a drop to a little more 
than 6 percent today. Something on that order.

P


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> P
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> 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.
>>
>>
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