Beware of structural explanations of cyclical events

One of the things you can always bet on with surety is that the conservatives will always try to convince the public that a cyclical event is, in fact, a ‘structural’ event. This has two, linked purposes. First, they can downplay any hint that aggregate fiscal policy interventions, which work at the macroeconomic level are necessary no matter how bad the problem is. Second, they can then wheel out their favourite ‘structural’ remedies, all of which just happen to result in national income being distributed to profits or high income earners, less capacity for low-wage workers to enjoy real wage rises or reasonably share in national productivity growth, and lower government income support payments to the disadvantaged. A double-whammy strategy. Here is an example of that sort of lie. The US Employment-Population ratio has fallen dramatically since the onset of the crisis and remains stuck at low levels. The reason is clear – there was a huge collapse in employment in 2008 and 2009 and, in the recovery, the rate of job creation has not been sufficiently strong to reverse that decline. Total employment growth has been around or just above the underlying growth in the civilian population (above 16 years), which is why the ratio is stuck. There needs to be much faster employment growth for the US to make back the ground that was lost in the downturn. While the US civilian population is growing older and that is having an impact on the calculated Employment-Population ratio, the impact is small and doesn’t alter the fact that a huge negative cyclical event occurred in the US and the fiscal intervention was not large enough to fix the problem.

http://bilbo.economicoutlook.net/blog/?p=28067