This was the pattern of the long-term unemployed in the Great Depression. It was also the pattern of the long-term unemployed in Western Europe at the end of the 1980s. And, in a year or two, it will be the pattern again for the long-term unemployed in the North Atlantic region.
For the past four years, our business-cycle problems have called for more aggressively expansionary monetary and fiscal policies, and our biggest problems would have quickly melted away were such policies to be adopted. That is still true. However, over the next two years, barring a sudden and unexpected interruption of current trends, it will become less true.
The current balance of probabilities is that two years from now, the North Atlantic’s principal labor-market failures will not be demand-side market failures that could be easily remedied by more aggressive policies to boost economic activity and employment. Rather, they will be structural market failures of participation that are not amenable to any straightforward and easily implemented cure.
J. Bradford DeLong, a former deputy assistant secretary of the US Treasury, is a professor of economics at the University of California, Berkeley, and a research associate at the National Bureau for Economic Research.
Copyright: Project Syndicate