Tag Archives: New York Times

The Problem is Structural…Again

Over at the NY Times Economix page, the editors point to a new study by the Economic Policy Institute which makes the case that the state of unemployment today is cyclical rather than structural. Cyclical unemployment being the idea that unemployment exists because of a lack of demand in the economy. Structural unemployment, on the other hand, sees unemployment as arising because of a change in the structure of the economy (new products, sectors, and technologies requiring workers to move or learn new skills).

The authors of this study want to argue that the problem is simply one of demand. They recommend increased deficit spending to get the economy moving so that workers will be reemployed generally in the areas they used to work in. This is all fine and good, but only if you think the economy was following some natural trend line from 2001-2008 and the recession was just an event not at all connected to the housing boom that came before it. In other words, the problem isn’t structural if you think the economy was structurally sound during the housing boom years.

Is this is a realistic view? I would say no. One can argue about the causes of the housing bubble (low-interest rates, lax lending standards, global savings glut, etc), but one cannot argue that there was, indeed, a housing bubble.  Paul Krugman rightly points out that

The 2007-9 recession was driven by the collapse of a huge housing bubble, and the resulting financial fallout. The Fed couldn’t cut rates sharply, because they weren’t all that high to begin with; there couldn’t be a housing boom, because housing was already overbuilt.

Obviously houses don’t magically appear out of nowhere. To build houses requires material and labor. If houses are being overbuilt than we can only conclude it happened because resources and labor were diverted from other areas of the economy into the construction and manufacturing sectors. Notice that what was going on there was structural. People who would have worked in other sectors of the economy found themselves looking for employment in those areas of the economy connected to housing (obviously this isn’t the full story because hiring was taking place in plenty of other sectors as well).

Just look at wages and salaries of construction workers during the housing bubble:

That’s a pretty clear upward trend right there. Clearly, wages were being bid up which attracted workers from other sectors. More to the point, however, is the fall in construction jobs since the recession began. Employment in the residential building sector alone peaked at a little over 1 million jobs in 2006 but had fallen to a little over 500,000 jobs this last February. That’s almost a 50% drop. What the authors of this study are advocating for is for all of those people to wind back up in the construction sector, which is only going to happen with another housing bubble (at least for the immediate future).

Additional attempts at increasing aggregate demand through fiscal stimulus will only have the effect of maintaining the pre-recession structure of the economy. Goodness knows the Federal government is still trying its darndest to prop up housing prices. This is a recipe for disaster or, at the very least, a non-recovery that goes on for years to come.


Are Members of the Flotilla Terrorists?

The New York Times has a good article today on the IHH (Insani Yardim Vakfi), one of the organizations involved with funding the Free Gaza movement. Although it runs numerous charities worldwide, it is alleged to have close connections to Hamas and possibly other terrorist organizations. If the article is correct, it sounds as though it clearly played a pretty big role in funding this operation.

It is important, however, to keep in mind that this was not a Turkish operation, or an Arab operation, or anything of that nature. It was, indeed, an international coalition made up of over 600 people from all parts of the world. I heard a great interview today on NPR’s Morning Edition with Edward Peck, a retired American diplomat who was aboard one of the ships in the flotilla. The interview can be heard here, and I highly recommend listening to it in full. I just want to comment on a few of the things he said.

As he notes, this mission was made up of 30 countries and he calls it a “European mission.” He admits that he wouldn’t be at all surprised if there were indeed Hamas sympathizers aboard the flotilla, but makes the point that the intent of the group was not to somehow support or bolster Hamas. The fact that there may have been some individuals or organizations aboard the flotilla that had some connection with the enemies of Israel is entirely irrelevant. The mission of the flotilla was humanitarian and that is what needs to be focused on. They weren’t carrying weapons as even the Israeli military has admitted.

The charge that the members of the flotilla are “terrorists” is false and needs to stop. There are bigger questions that need answering at this time.