Conventional Wisdom and Structural Unemployment

I saw this argument from Paul Solman, who I can't help but believe should have known better,

Liberal economist and much-respected friend Dean Baker, co-director of the Center for Economic and Policy Research, where he keeps the Beat the Press blog, has appeared on PBS NewsHour often over the years, and recently on these pages in "Don't Blame the Robots." He appeared here again Wednesday, decrying what he called the media's "mindless" budget reporting.

But when he wrote on his blog on Aug. 3 that "[t]he PBS Newshour won the gold medal for journalistic malpractice on Friday (Aug. 2) by having David Brooks and Ruth Marcus tell the country what the Friday jobs report means," he seemed curiously harsh and patently partisan.

I don't think it's either, actually, save in the sense that we're supposed to tiptoe around the fact that a lot of the analysis offered by "serious" news shows revolves around talking heads who know little about the subjects that they are discussing, but get more and more air time by virtue of their past history of being talking heads, and that it's thus "curiously harsh" to note that this phenomenon represents a manifestation of the Peter Principle. Had they invited Jenny McCarthy on to discuss the science behind vaccines, I suspect that Solman would have taken issue both with the invitation and with the implication that she had special expertise. Yet that is exactly what shows like PBS Newshour do when they present as authorities non-economists who pontificate on the economy despite a long, documented history of having paid very little attention to what actual economists have to say.

"Brooks and Marcus got just about everything they said completely wrong," Baker continued. "Starting at the beginning, Brooks noted the slower than projected job growth and told listeners: 'Yes, I think there's a consensus growing both on left and right that we -- the structural problems are becoming super obvious...'"

But, Baker insisted, "It's hard to know what on earth Brooks thinks he is talking about. There is nothing close to a consensus on either the left or right that the economy's problems are structural, as opposed to a simple lack of demand (i.e. people spending money). This is shown clearly by the overwhelming support on the Federal Reserve Board for its policy of quantitative easing."

Solmon notes that Paul Krugman agreed with Baker, then observed that while Brooks and Marcus aren't in fact describing an economic consensus their argument demonstrates how "Washington conventional wisdom... has clearly swung to the view that our high unemployment is 'structural', not something that could be solved simply by boosting demand".

If I took umbrage at those statements, my first response would be to explore whether or not there was a consensus among economists as to whether the economy's problems are structural. I would also wonder why David Brooks, who occasionally takes ill-informed potshots at his New York Times colleague, Paul Krugman, is not aware of Paul Krugman's years of argument on this subject. But instead....

Look, folks, there may indeed be no "consensus growing on left and right" about the predominance of structural unemployment, as David Brooks alleged. Just look at how vigorously Krugman and Baker took the other side. But I rather doubt Krugman's assertion that there is an "actual economic consensus" on the unemployment debate that favors his cyclical explanation to the exclusion of the structural. Unless, of course, Krugman means a consensus among economists he agrees with.

Why assume anything? Why not call other economists and ask?

A confession: Brooks is a friend for whom I have great respect, as I do for Ruth Marcus.

Well, that explains it... just not in a manner I find satisfactory.

Unlike Krugman and Baker, my main job for 36 years now has been to interview not only economists like them, but hirers and hirees, firers and firees. I've done so through both recessions and recoveries alike. I wheedled soundbites out of the drearily downhearted high tech-workers of the late 1970s and spoke to the happily hopeful hires of the late 1990s.

Then, friendship or no, there's really no excuse for the assumption. Solmon did find "A 2011 paper from the San Francisco Fed attributed 60 percent of long-term unemployment to cyclicality and 40 percent to structural factors," which is at best tepid support for Brook's' assertion that the issue is structural, but that two-year-old paper seems to be the best support he could find for Brooks' claimed consensus.

I'll admit, when I looked at the unemployment data, the fact that many workers displaced by the great recession were never again going to earn the sort of wage they had previously enjoyed, and the downward pressure on the middle class, my initial reaction to "This isn't a structural issue" was "Say way?" But in fact what Krugman and Baker are discussing is something else - the notion that there has been a seismic change in the economy such that we have to simply accept a higher unemployment rate than we have historically seen. Baker, Krugman and others have rebutted that "structural change" argument repeatedly and convincingly, to the point that if you're a business and economics reporter and are only just now taking note of it it's safe to say that you've chosen not to pay attention to material you should be covering. But Solmon seems mostly interested in the issue as a left-right political debate, and thus seems to think it's enough to circle back to Brooks as an authority.

Solmon gets partial credit for allowing Dean Baker to refute the "structural" argument, but he loses points for a response in which he changes the subject,

Baker's may be the best possible summation of the cyclicalist argument. Moreover, he may well be right: throw enough money at the economy, and at some point, everyone will be employed.

But if economics teaches us anything, it's that every decision has both benefits and costs. What might be the cost of Baker's Keynesian "Trillion-Dollar Solution"?

Baker, of course, didn't argue that the only way back to full employment was a $trillion stimulus, he simply described a theoretical means by which the economy could be brought to full employment. When you introduce an idea with, "Imagine someone found a $1 trillion bill in the street and decided that, as a public service, she would spend the money over the next 12 months to boost the economy", it's pretty obvious that you're not describing something you believe is likely to occur. Solmon then speculates about how productive newly created jobs would be, an argument that is in no way tied to the present time or economy. Solmon argues,

If the cyclicalists are right, spend a trillion dollars and new jobs will eventually emerge, as they indeed regularly have throughout American (and world) history. If the structuralists are right, however, history is in the process of changing and the government jobs will last only as long as the trillion dollars.

But the discussion was about consensus, right? And Solmon has completely abandoned the pretense that the consensus described by Brooks exists on either the left of the right. Solmon closes by offering a comment from his prior thread, in which a tech graduate describes being heavily recruited, with generous wage offers and stock options,

Those opportunities, however, are out there only for those with a set of specialized skills. If the structure of the U.S. economy is changing to employ those who have such skills and disemploy those who don't, the structuralists have a point.

But again, same as it ever was. When changes in technology and the economy led to the demise of the livery stable and blacksmith's shop, even as blacksmiths and stable hands struggled to find new work, other people were entering the job market with a very different set of skills and with far better job and income prospects. When the domestic garment industry collapsed in favor of offshore production, medical school graduates were doing better than ever. The fact that wages or opportunities in one corner of the economy are reduced even as opportunities exist "for those with a set of specialized skills" is not new - it's history repeating itself.