Macroeconomic Equilibrium-Restoring Forces Of The Marketplace Are ... Nowhere

by: Brad DeLong

I used to teach my students that the equilibrium restoring forces in the US economy would close 40% of the gap between the current unemployment rate and the natural rate of unemployment within a year. That means that after three years only 20% of the recession is left.

Now it looks like I lied.

As far as the employment to population ratio is concerned, the equilibrium restoring forces of the market are nowheresville. Two and a half years after the recession trough, and all the action in the unemployment rate is in labor force participation. None of the action is in the employment to population ratio.

As far as the employment-to-population ratio is concerned, the macroeconomic equilibrium-restoring forces of the market are nowheresville.

Thus I find myself becoming more Paleokeynesian by the hour, as the world keeps hitting me on the head with a brick, pausing after each blow to say: "Now do you understand?!"