The Indian context is somewhat unusual for understanding the U.S. labor market, but arguably that throws the idea into all-the-stronger relief.  Here is an abstract and paper from Supreet Kaur, who is on the job market from Harvard this year:

Wage and employment responses to rainfall shocks in 500 Indian districts from 1956-2008 provide evidence for downward nominal wage rigidity in markets for casual daily agricultural labor. First, nominal wages rise in response to positive labor demand shocks but do not fall during droughts. Second, after transitory positive shocks have dissipated, nominal wages do not return to their previous levels—they remain high in future years. Third, inflation moderates these effects: when inflation is higher, real wages are more likely to be lower during droughts and after transitory positive shocks. Fourth, wage distortions generate employment distortions: employment is lower in the year after a transitory positive shock than if the positive shock had not occurred. Those with less land—who must sell their labor to other farms—are considerably more likely to face rationing. Landless laborers experience a 7% reduction in employment—twice as large as the employment decrease during a drought. Fifth, there is some evidence that wages are less rigid in areas where rigidity is likely to cause larger profit losses due to crop characteristics. Finally, data from a new survey I conducted in two Indian states suggests that agricultural workers and employers: view nominal wage cuts as unfair; are considerably less likely to regard real wage cuts as unfair if they are achieved through inflation rather than nominal cuts; and believe that nominal wage cuts cause effort reductions.

It is impressive how Kaur focuses on the cross-sectional variation.  You will note, of course, that wage rigidity for established workers is not the same as wage rigidity for the currently unemployed, or wage rigidity for new job market entrants, who also have high rates of unemployment.

You see a long-term slowdown in start-ups:

The numbers are sobering. From the mid-1980s to the mid-2000s, 450,000-550,000 new businesses with at least one employee were created in the US each year. In 2009, the latest year for which records are available, there were just 400,000. More recent numbers suggest that the climate has not improved: the number of incorporated self-employed people, a measure of the health of small businesses, was 5.06m in November, down from 5.37m in November 2009, official figures say.

A slowdown would be expected in a downturn, but the start of the decline predates the start of the recession at the end of 2007; the peak year for business starts was 2006.

The dwindling birth rate for new businesses matters because young companies are disproportionately responsible for job creation. Indeed, companies less than five years old have generated all of the net jobs in the US economy since the 1970s, according to research published by the Kauffman Foundation.

Weak job creation remains at the heart of America’s unemployment problem.  Accepting this hypothesis does not require the rejection of Keynesian economics; for instance you can think of weak job and start-up creation as one reason why AD is not recovering so well on its own, with causation running both ways of course.  Remember — monetary velocity is endogenous to perceived gains from trade.

By the way, here is a profile of me and TGS from The Washington Diplomat.  It is very good, and the journalist understands TGS quite well.

Mark Pagel writes:

A tiny number of ideas can go a long way, as we’ve seen. And the Internet makes that more and more likely. What’s happening is that we might, in fact, be at a time in our history where we’re being domesticated by these great big societal things, such as Facebook and the Internet. We’re being domesticated by them, because fewer and fewer and fewer of us have to be innovators to get by. And so, in the cold calculus of evolution by natural selection, at no greater time in history than ever before, copiers are probably doing better than innovators. Because innovation is extraordinarily hard. My worry is that we could be moving in that direction, towards becoming more and more sort of docile copiers.

For the pointer I thank John Brockman.

The document is here, Hussman writes:

We’ve seen some theories that Europe intends to address the problem through ECB lending to banks, taking distressed debt as collateral, with the banks turning around and buying more distressed debt.

Apart from the fact that this would be the sort of “legal trick” that the ECB would be unwilling to facilitate, this would imply an increase in bank leverage ratios far beyond the 30-40 multiples that already exist (which would be a disaster when tighter Basel III capital requirements kick in). In practice, depositors would flee, and you would end up with a European banking system where bank bondholders, not the ECB, would be subject to the losses, since the ECB’s collateral claims would be senior.

As I noted last week, what investors really want isn’t just for someone to buy distressed European debt, but for someone to buy that debt and willingly take a loss on it so the money doesn’t ever actually have to be repaid. This is a solvency issue – a shortfall between money owed and the resources to credibly repay it. There is no legal trick to get around that. Ultimately, you either have to restore credibility, or you have to restructure the claims through default or devaluation.

The FT Neil Hume source and discussion is here, very good comments there as well.  My view is simple: unless they pull the plug on the new plan, it will be very hard to stop this from happening.  What kind of firewall can you erect between a domestic bank and its regulating government?  Arbitrage is a strong force.  And why should an insolvent bank fear more leverage?  It’s a form of doubling down, not a solution, and it is one way of hoping for a longer-run growth bailout.  To meet a problem of leverage with…more leverage is not exactly unheard of.

More practically, the markets are not taking the new plan well (though not for this reason, I think) and it probably will have to be revised in any case.