Thursday, March 3, 2011

Stimulus and demand.


Shows that unemployment is due to weak demand.

Unemployment is due to weak demand, not structural.

"Structural unemployment – unemployment stemming from a mismatch of workers' skills and job requirements – has been cited in mainstream media as the main cause of current, high unemployment. Data from the National Federation of Independent Business (NFIB), however, suggest that structural unemployment is not what is ailing the economy. The graph below draws on data from the NFIB's monthly survey from December 2007 (the official start of the recession) to January 2011. Each month, the NFIB asks its sample of small businesses to state the single most important problem facing their business today. Since the recession began,
 respondents overwhelmingly have cited "poor sales," suggesting that today's unemployment is primarily due to a lack of demand. "Quality of labor," the factor most consistent with structural unemployment, barely made the list."

Keynes was right.

"Keynes was right and classical economics wrong. The economist John Maynard Keynes argued that the market has its limits. Most markets work well most of the time, but financial markets left alone are prone to dysfunction, and an economy stuck in a rut can stay in a rut for some time. Thus the necessity of the stimulus".

As we have been saying a low wage economy cannot afford to buy much and tax cuts to high incomes have failed to stimulate demand.

Increases in minimum wages and benefits would benefit small and medium enterprises.

Business are shooting themselves in the foot by asking for a low wage economy and cuts to Government spending.

1 comment:

  1. There is an interesting debate in the blogosphere exploring the reasons for the persistent high unemployment rates in the US and elsewhere. Conservatives lay the blame on the structural skills mismatch and argue that this cannot be resolved through any stimulus spending measures. Liberals claim that the massive slump in aggregate demand from the boom, means that there are massive idling resources which can be brought to work with an appropriately structured stimulus program.

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