Arnold Kling  

Various Follow-ups

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These relate to recent discussions on this blog.

1. Clifford Winston and Robert Crandall on market failure and government failure, from Forbes last October.

2. A review of an optimistic book by Gregg Easterbrook. Mark Perry ties this back to FP2P.

3. Bill Easterly connects the dots between government failure and the underwear bomber.

4. Menzie Chinn pushes back against the view that much current unemployment is structural. I would say that the problems with empirically testing this are difficult. The unemployed do not walk around with signs around the necks saying "I'm structurally unemployed" or "I'm cyclically unemployed." But I would make the point that the typical analysis that shows that the stimulus helped the economy is based on a model that assumes that unemployment is cyclical. So the results from those models cannot possibly prove that unemployment is cyclical. To me, the fact that stimulus advocates are talking about needing to constantly increase the amount of stimulus suggests a lack of faith in the idea that this is cyclical unemployment. Cyclical unemployment is caused by the downward spiral of the multiplier (the unemployed consume less, causing more unemployment and less consumption), and the multiplier ought to work just as well in reverse. If we cannot rely on the multiplier, but instead must rely on ever-increasing stimulus, then I wonder whether this is really cyclical unemployment.



COMMENTS (2 to date)
Scott writes:

For the housing market, I think the answer is that we have both structural and cyclical unemployment. Best I can tell, we absorb about 1.5 to 1.6 million newly completed housing units a year. In 2006 we peaked at almost 2 million. We're currently at 800K. Part of the difference between the 2 million and the 800K is going to come back once the recession is over (and we consume the excess inventory.) That looks to me like cyclical unemployment. Another part of that difference won't be coming back - it generated the over supply of housing units. That portion looks to me like structural unemployment. Those folks are going to have to find something else to do (along with their brethren in related industries.)

Tona Moronta writes:

I think I may have found some good topics about differential equations. You should be able to find many at Askdiana.net

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