Wednesday, February 9, 2011

Still Believe in Keynesian Magic?

Here, Brad Schiller does the unemployment math for us.  Anyone who still believes in Keynesian debt spending to "stimulate" the economy must be smoking something.

Arnold Kling has a much more sensible hypothesis about persistent unemployment.  He calls it PSST, for Patterns of Sustainable Specialization and Trade.  You can listen to a podcast about it here.  You can begin reading about it here

Kling's basic hypothesis is that we get high, continuing unemployment as a result of a mismatch between abilities available in the labor force and potential for using those abilities to produce sustainable production and trade.  That makes sense.  If all you have to offer an employer is hammering, what do you do if potential employers don't use nails?

Time for macroeconomics to admit its deficiencies and move on. Arnold Kling offers a refreshing and promising path to explore.

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