Structural, Cyclical or Paradigm

Paul Krugman notes that there is some debate over on the fringes that slow job growth, and high unemployment is a result of structural problems in our society. Dr. Krugman as well as Dean Baker say it’s cyclical, and not structural. I have a third option: it’s a paradigm shift.

Retail

Service Sector employment surpassed manufacturing employment a while ago. The recession hurt manufacturing even more, and the Service Sector has not been able to make up the difference. I’d argue that the Service Sector couldn’t make up the difference even before the recession started, and instead, the bubble made up the difference – at least partly. The result is obvious; prolonged periods of low recovery with low aggregate demand in the face of low wages, prolonged unemployment, and a social safety net that’s being torched.

While I hold Dr. Krugman on a moderately high pedestal, and agree that the solution is to increase demand, I cannot agree that it’s either structural or cyclical; it’s a paradigm shift. Because of that paradigm shift, the cycles are going to change. The bubble skewed some of those cyclical changes. We may even see a little bit of deflation (as we hit the zero lower bound) in this new cycle, as most economic measures remain sticky.

A Paradigm Shift is like exploring a new frontier. Things change under a new paradigm. With that change comes some new ideas, models, theories, and solutions that may not have been all that popular in the past.

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This entry was posted in Economics, Macroeconomics, Sociology, Wages. Bookmark the permalink.

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