Department of "Huh?!": Business Cycle Edition
Tyler Cowen wrote:
What does the new gdp report imply for structural explanations of our current troubles?: I find the most plausible structural interpretations of the recent downturn to be based in the “we thought we were wealthier than we were” mechanism, leading to excess enthusiasm, excess leverage, and an eventual series of painful contractions, both AS and AD-driven, to correct the previous mistakes...
"We thought we were wealthier than we were, and so we...
"... consumed more nondurables and services than we should have, and saved and invested too little" is not a reason for our employment-to-population ratio right now to be 58.3%--and likely to stay 58.3% for a while--rather than its normal 63%. It is an reason for us right now to have an economy with a high investment share and a 63% employment-to-population ratio.
"... built too many houses and need to shift labor to other things" is not a reason for our employment-to-population ratio right now to be 58.3%--and likely to stay 58.3% for a while--rather than its normal 63%--especially now that any cumulative housing investment surplus has been burned off.
"... invested too much in risky long-run ventures, and now do not want to undertake more long-run ventures unless they are safe" is not a reason for our employment-to-population ratio right now to be 58.3%--and likely to stay 58.3% for a while--rather than its normal 63%. It is an argument for why we should right now have a nondurables and services-heavy economy with a 63% employment-to-population ratio.
Are there any more stories?
None of these seem to me to make any sense. Indeed, the market economy was doing a perfectly good job at shifting resources out of housing construction and into other things starting in late 2005 as the housing bubble deflated--until the financial crisis hit in late 2007:
