Friday, July 29, 2011


Over the past 10 years:

• The U.S. economy’s output of goods and services has expanded 19%.

• Nonfinancial corporate profits have risen 85%.

• The labor force has grown by 10.1 million.

• But the number of private-sector jobs has fallen by nearly two million.

• And the percentage of American adults at work has dropped to 58.2%, a low not seen since 1983.

As United Technologies Corp. Chief Financial Officer Greg Hayes put it recently: “Sales have come back, but people have not.”

You might hear the argument that if demand were higher, employment would be higher too. That’s true, but consider a comparable claim. Let’s say you were a 6’2″ basketball player with a so-so outside shot. If you were seven feet tall, that problem wouldn’t matter so much because you could just dunk the ball. In the meantime you could say “It’s not my shot that’s the problem, it’s my height. If I were taller, they would all go in.”

At the end of the day, this player still has a problem with his shot, no matter how true his counterfactual. In the macroeconomics of 2011, it is important that we understand our problems as existing along multiple margins.