Reply to DeLong
By David Henderson
Brad DeLong, in a belated comment at the end of my post, writes:
So is your argument really that if not for the stimulus package wages would be falling–and falling wages would be inducing employers to hire lots more workers?
That hasn’t happened in the U.S. economy since 1921. In the U.S. economy since 1921, falling wages and prices have deepened depressions by multiplying bankruptcies. Deflation is really bad juju.
I confess I am surprised to see somebody calling for it, even here.
My answer to his first graf is no, my argument is more nuanced than that. Here’s the relevant part of my post that answers DeLong:
If wages are not falling, then that well could be due to extension of unemployment benefits and some of the additional spending in the stimulus package. DeLong has arbitrarily chosen zero real-wage increase as his baseline. But in a readjustment, what Arnold Kling calls a recalculation, there’s a case to be made for some real wages to fall. At those lower real wages, some of the currently unemployed would be employed.
His second graf is incorrect. In the 1981-82 recession, the fall in real wages helped end the recession.
In response to his surprise, he might want to read Bryan’s post in July 2009 that made a similar argument. So I’m not sure why he’s surprised.