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Saturday, February 14, 2004


The Big Picture: Is the job market broken? (Short answer: No, but fundamentally changing):
One cannot respond appropriately to problems if one fails to see them in the first place. I suspect that this administration -- like most of the traditional economists -- have simply failed to recognize what are very significant changes in the structure of the Global and U.S. economies. The most obvious manifestations of these structural changes are found in the new job creation data. ...

Indeed, creation of innovative solutions is difficult (if not impossible) without an adequate recognition of the underlying problems. Perhaps innovation is really an issue of flexibility: Can economic policy wonks apply a necessary degree of creativity if they are intellectually boxed in to the Supply Side thesis? This is the danger of rigid dogma. To the man who's [sic] only tool is a hammer, everything soon looks like a nail. If your only economic tool is new tax cuts, that limits your options when responding to what are new and different problems.
Good points on an under-recognized phenomenon. Note especially the employment graph at Big Picture and compare it to this one at EconoPundit, also showing the increasing lag and weakness in post-recession job creation - but with less concern over structural causation.

Where I demur from Ritholtz is his unstated assumption that "innovative solutions" necesssarily flow from government policy; government isn't good at innovation or flexibility, and never has been - despite what policy wonks like to think about their work. I suspect that the rationale for the tax-cut hammer is giving the market more resources to develop and implement its own solutions. Which takes time, and is painful, and wasteful, and whose only recommendation is that it has built-in self-correcting mechanisms (including but not limited to regulation) and tends to work out in the long run.

Second point: non-innovative solutions founded in nostalgia for an economy that doesn't exist any more are unlikely to be helpful, no matter how alluringly populist they sound and how they work in the short run of the election cycle. (Another good reason not to look to government for solutions.)

posted by Kelly | 3:12 PM link