The question of whether the 2008 crisis resulted in structural changes is being answered by Fed chairman Ben Bernanke. The answer is no. Believers in the structural change theory say that the unemployment rate is permanently altered to a higher level.
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Bernanke said he sees little evidence of such structural change, saying that the high unemployment rate can be addressed by a stronger economic recovery, just as it has in every recession since World War II. He made the statement to fellow central bankers and economists at his speech during the annual meeting held recently at Jackson Hole, WY.
He says the slow rebound in the economy is more a factor of continuing tight credit conditions and a weak housing market. He says greater economic aid is the answer. Since the actual unemployment rate is not abating quickly, other economists agree there is more room for monetary stimulus.
The estimate of the unemployment rate that stimulates inflation is 6% by Goldman Sachs chief economist Jan Hatzius and 7% by PIMCO’s CEO, Mohamed El-Erian, both of whom attended the Jackson Hole meeting.
Subscribers to the structural change theory say there is a mismatch between job opportunities and the skills required to do the jobs. They say that increased monetary stimulus will have little effect on the jobs situation and, instead, will do harm by fueling inflation.
Economists in the Bloomberg survey due out on September 7 will say that the unemployment rate will remain above 8% for the 43rd consecutive month and that payrolls grew by only 125,000, sharply down from July’s increase of 163,000.
Opponents to the structural theory say that new training programs will address the skills issue. But the debate between the two sides is likely to heat up even more
as the Fed weighs whether to take more stimulus action, whether in the form of additional bond buying (QE3) or alternative methods.