Why does unemployment remain high?

Here is the take of Brad DeLong:

First, and most important, the unemployment rate is high because the Federal Reserve misjudged how much investment spending would fall in the aftermath of the collapse of the NASDAQ bubble, and because the Federal Reserve then misjudged how fast productivity would grow. If the Federal Reserve had had an accurate forecast of the investment-spending slowdown, it would have taken appropriate action and the labor market would be in good shape. And if labor productivity growth had exhibited its “normal” recession-and-stagnation slowdown rather than zooming ahead, the amount of demand growth we have had in the past two years would have been enough to put the labor market in good shape. However, don’t blame the Federal Reserve too much: it has a very hard task, it’s policies can’t be perfect, and all-in-all its performance over the past two decades has been amazing.

Plus the Bush tax cuts have not had much of a stimulatory effect on employment. Most of all, Brad tells us, we should not blame trade with China. I am less negative toward the Bush economists than is Brad, but I agree with the core of his analysis.

Comments

Comments for this post are closed