Even if you attribute a large fraction of the unemployment to structural factors, there is still plenty of cyclical unemployment left over to target with policy. For example, the SF Fed estimates that only about 1.25% of the rise in the unemployment rate is due to structural factors. The rest of the rise to nearly 10% is due to cyclical problems. Even if you attribute half of the rise in unemployment to structural factors, that still leaves between 2% and 3% of the rise in unemployment to cyclical problems. Since neither monetary or fiscal policy is likely to be large or aggressive enough to fully solve the cyclical problem, there’s no need to have the debate. That is, any reasonable fiscal policy that the administration might have pushed for would not fully solve the cyclical unemployment problem, so there was no real need to debate this issue, particularly on the eve of the election. No matter how you slice it, the numbers indicate that we have a substantial cyclical problem, and the administration needs to try to do something about it.
Even the person who had a lot to do with the “it’s all structural and there’s nothing we can do about it” attitude that some people have, President of the Federal Reserve Bank of Minneapolis Narayana Kocherlakota, recently said QEII “should lead to less unemployment and upward pressure on prices.” Thus, even he believes unemployment can be helped through policy action.
The administration needed to be out there pushing for employment policies, doing everything it could to signal to people that it was on their side, not the side of corporations and big banks. That requires that you figure out that you have a cyclical unemployment problem before the election is all but over, and that you begin pushing for solutions in public forums. That push needs to start at the very top with Obama, and it needs to be reinforced every single day by other administration officials. One mention by Obama in a Saturday address to the nation doesn’t get the job done.
I understand that Congress may not have supported additional policy to try to stimulate employment, but the fight would have been worth it no matter the outcome, and with the administration actually leading rather than accepting defeat before the game has been played, the outcome may not have been as preordained as the administration seems to believe:
Obama could learn from Bush, by Richard Wolffe, Commentary, LA Times: The day before his party’s shellacking in this month’s elections, President Obama sat down with his economic team to examine the single most important issue for voters across the country: jobs.
But the question on the agenda was not how to accelerate the recovery or target job creation… The president had called the meeting to grapple with what he and his propeller-head economists have been debating for some time: the wonkish question of whether today’s high unemployment rate is structural or cyclical. …
Two years into this presidency, and many months into a sluggish recovery, may be a little late to try to agree on the root cause of today’s high unemployment.
This lack of agreement on economic fundamentals is a primary factor behind one of this White House’s most obvious failures: communications. As one senior Obama advisor told me the day after the disastrous midterms: “It was hard to find a single economic message when the economic team couldn’t agree on a single economic policy.” …
However, a new economic team will not resolve the communications problems… In fact, the president has been frustrated by his communications strategy for most of the last year. … Obama told me six months ago that poor communications had hampered his ability to execute his policies, and that was after several months of internal reviews.
But the White House has failed to realize that the communications problem is a symptom of Obama’s problems, not a cause. … As Vice President Joe Biden told me, few voters know who saved the teachers’ jobs in their children’s schools, while many employees had no idea they were getting a tax cut with the extra money in their paychecks. Both were in fact thanks to Obama’s Recovery Act.
The lesson of 2004 is that the president cannot be an empty vessel for hope, no matter how big or small his own hopeful base. And if he doesn’t fill the vessel with his own story of how and why he delivered on hope, then his opponents will fill it for him. …
The pundits have prematurely written this president’s obituary too many times before. … Reports of Obama’s political death have been greatly exaggerated. To prove the pundits wrong, he needs to take control of writing his own story once more.
As far as I can tell, this hasn’t changed. The administration is still allowing the other side to take control of policy debates. We saw a brief flash of change on the question of whether tax cuts should be extended for the wealthy, but nothing consistent, and certainly nothing like the effort we are seeing from opponents.
Update: Brad Delong:
Can we please get the White House back on message? …
Let me point out that I think that the senior Obama advisor quoted is a liar.
Given who they were and what I know of how they all think, all the members of Obama’s original economic policy team–except, I suspect, Peter Orszag–did indeed have different views of what would be the best policy to try to generate jobs in the short run, but they all agreed that anything was better than nothing. (Peter thought, I think, that only policies that promised credible long-term deficit reduction were better than nothing.)
Update: Paul Krugman:
…apparently Obama held a meeting … to debate whether our unemployment problem is cyclical or structural.
What I want to know is, who was arguing for structural? I find it hard to think of anyone I know in the administration’s economic team who would … deny that the bulk of the rise in unemployment since 2007 is cyclical. And as I and others have been trying to point out, none of the signatures of structural unemployment are visible…
More generally, I can’t think of any Democratic-leaning economists who think the problem is largely structural. Yet someone who has Obama’s ear must think otherwise.
No wonder we’re in such trouble. Obama must gravitate instinctively to people who give him bad economic advice, and who almost surely don’t share the values he was elected to promote. That’s what I’d call a structural problem.
Originally published at Economist’s View and reproduced here with the author’s permission.