Saturday, September 12, 2009

What Economic Model.... Larry Summers using to forecast this?:

Summers, the president’s chief economic adviser, warned Friday that the nation’s unemployment rate could stay “unacceptably high” for years to come.

You can have frictional unemployment as the boom/bust cycle readjusts but, to get years of high unemployment, you need sustained intervention by the government with such things as high minimum wage laws, high unemployment benefits and strong government supported unions. All three of these variables are directly controlled by government. Is Summers telling us that the government is going to use these interventions to mess with the market? Is he just some trend follower that sees high unemployment now and thus trend forecasts into the future? Or is he working on some model of unemployment that is new to the economics profession?

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