American job creation: Cyclical vs. structural arguments.

Let’s Face It: Anemic Job Creation Isn’t “Cyclical.” It’s the New Normal.

Let’s Face It: Anemic Job Creation Isn’t “Cyclical.” It’s the New Normal.

Taking the Long View of the Global Economy
April 9 2014 3:27 PM

Reality Has No Partisan Bias

It’s time to face facts: The problems facing the American jobs landscape are structural, not cyclical.

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The problem with those arguments is that they are inherently unfalsifiable. So it’s been five going on six years, but just wait, say those claiming we are in the midst of a painful cycle. And because government is unlikely to spend trillions more to stimulate or job-create, government can forever be a cause of the current impasse.

Oddly, the progressive proponents of the cyclical argument blame government just as much as the conservative proponents of the structural argument. Hubbard, a former economic adviser to George W. Bush, is the most moderate of the conservative camp, but although he sees a role for government, it is true that many who argue for the structural causes of the employment challenge are staunch opponents of aggressive government action. The most acute version of the conservative critique is that there would be more employment today were it not for the endless extension of federal unemployment benefits and the artificially low interest rates promulgated by the Fed. That explains the refusal of the Republican-controlled House to vote on the just-passed Senate bill to resume those benefits to the long-term unemployed.

Yet it is possible to argue for structural shifts and also believe that government has a vital role in managing the transition. In fact, you can make a strong case that much of what is happening is a dramatic structural shift, akin to the transition away from farming and agrarian work at the turn of the 20th century; those disruptions helped trigger the Great Depression and the deep research work of economists and statisticians to measure what was going on and assess what government could do to fix it. Today, with the transition away from manufacturing to services and information, we are in the midst of a comparable disruption, and there is much we simply do not know, cannot measure, and don’t understand.


Not only is employment growth sluggish, but many of the jobs that are being created—in health care services and retail—are poorly paid and hardly tenable. And we fail to measure or account for those trying to craft self-employed or entrepreneurial lives, which may number only a few million but whose long-term impact on the future economy will be huge.

Rather than accepting that there is much we do not know or understand about the current situation, we act as if the cycles of the 20th century are the only cycles possible and that we know how to manage these transitions with government spending. That does automatically mean that government should be passive or that the market will solve all. You can argue, as I do, for structural shifts that are deep and profound and also argue for a vital role of government in providing a safety net for those who’ve been dislocated and in helping create a fluid labor market that rewards business creation. You can argue for a dramatic paradigm shift, not as a veiled way to attack what the Obama administration has done but because that argument represents reality. And you can argue that our government policies and spending would be far more productive if the diagnosis were correct.

Imagine this: A sick patient shows up in a doctor’s office and meets two doctors. One says the patient has cancer, and the other says he has the flu. If it turns out to be cancer, then rest and fluids won’t work and may prove fatal. It doesn’t matter if the doctor is a registered Democrat or a member of the Tea Party.

The debate over cyclical versus structural employment is as vital as any to our future well-being. Poisoning that debate with an unnecessary layer of partisan bile does not just impede our understanding. It actively diminishes our ability to diagnose our challenges and respond accordingly.