Paul Krugman Wonders What Raghuram Rajan Is Talking About
Paul Krugman:
The Work Of Depressions: OK, I actually haven’t taken cars into account; someone with more time can do that. But let’s look at the role of job losses in construction versus other sectors.... If high unemployment were largely about shifting workers out of an overblown construction sector, wouldn’t you expect job losses to be concentrated in that sector? Wouldn’t you expect employment elsewhere to be, if anything, rising? In fact, however, the vast majority of job losses have occurred in parts of the economy with little direct connection to the housing bubble. Yes, as a percentage job losses have been much larger in construction; but nothing in Rajan’s argument explains why we shouldn’t be using policy in an attempt to prevent vast job losses in parts of the economy that aren’t overblown.
I’d add that even if you think structural unemployment has gone up, it clearly hasn’t risen enough to stop a slide toward deflation — and if it has risen, the slump is arguably a cause, not an effect, of that rise.
Anyway, to go back to the beginning: it’s amazing, and depressing in multiple senses, that we’re having to replay all these old debates.
The way Robert Hall puts it, until mid-2008 we had an autos-and-construction recession--the problem was one of expanding other sectors to soak up labor that had previously been employed in autos and construction. Since the fall of 2008 we have had something very different...
