The economics profession has hit a roadblock in terms of being able to design policies that can help the economy. On the one hand we have many prominent economists, like Paul Krugman and Larry Summers, who say the problem is that we don't have enough demand to get us back to full employment. There is a simple remedy in this story; get the government to spend more money on items like infrastructure, education, and clean energy. This is a simple story, but politically it is a non-starter. Few Democrats are prepared to push for anything more than nickels and dimes in terms of increased spending, nothing close to magnitudes that would be needed. As far as the Republicans in Congress, it would be easier to convert the Islamic State folks to Christianity. (We could also boost demand by lowering the dollar and thereby reducing the trade deficit, but economists don't talk about that one.) The other side of the professional divide in economics doesn't have much to offer on full employment because they say we are already there. The argument goes that people have dropped out of the labor force because they would rather not work at the wage their skills command in the market. In this story, we may want to find ways to educate or train people so they have more skills, but unemployment is not really a problem in today's economy. The notion that seven million people (the drop in population adjusted employment since the start of the recession) just decided they don't feel like working, doesn't pass the laugh test outside of economic departments and corporate boardrooms. This leaves us stuck with a policy prescription - more stimulus - that has zero political prospect any time in the foreseeable future. There is an alternative.Read rest here.
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