By Arnold Kling
These relate to recent discussions on this blog.
1. Clifford Winston and Robert Crandall on market failure and government failure, from Forbes last October.
3. Bill Easterly connects the dots between government failure and the underwear bomber.
4. Menzie Chinn pushes back against the view that much current unemployment is structural. I would say that the problems with empirically testing this are difficult. The unemployed do not walk around with signs around the necks saying “I’m structurally unemployed” or “I’m cyclically unemployed.” But I would make the point that the typical analysis that shows that the stimulus helped the economy is based on a model that assumes that unemployment is cyclical. So the results from those models cannot possibly prove that unemployment is cyclical. To me, the fact that stimulus advocates are talking about needing to constantly increase the amount of stimulus suggests a lack of faith in the idea that this is cyclical unemployment. Cyclical unemployment is caused by the downward spiral of the multiplier (the unemployed consume less, causing more unemployment and less consumption), and the multiplier ought to work just as well in reverse. If we cannot rely on the multiplier, but instead must rely on ever-increasing stimulus, then I wonder whether this is really cyclical unemployment.