Saturday, December 5, 2009

Is There Some Nasty Irrational Force That Has It In For Labor Employment?

Mario Rizzo comments on Greg Mankiw's juxtaposition of "opinion pieces by Paul Krugman and Gary Becker on dealing with the cyclical unemployment problem (aka “how to create jobs”). "

Rizzo notes:
...the contrast in the two sets of suggestions illustrates the difference between an economist who thinks that the current recession entails an indefinite suspension of the principles of microeconomics (Krugman) and one who is still concerned about incentives at the margin (Becker).

Nevertheless, both economists are, I think, too much in the spell of the Principle of Aggregate Demand. Aggregate demand theories abstract from concern about the need for readjustments in lines of production after credit-induced unsustainable sectoral expansions.
Read Rizzo's full comment here.

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