All those pundits and prognosticators who would like the United States to do a better job emulating Europe might want to reconsider all of the ramifications of that stance, especially after reading a new Washington Examiner article from Joseph Lawler.
Highly regarded Northwestern University economist and doomsayer Robert Gordon warns in a new paper that the “U.S. economy may have become more like Europe,” with permanently higher unemployment that cannot be addressed with stimulus from the Federal Reserve.
Gordon, who made waves in 2012 for suggesting that the U.S. might be facing a long-term economic slowdown, argues in new study published by the National Bureau of Economic Research that it might not be possible for the Fed to lower the unemployment rate much further without raising inflation, thanks to a “structural shift in U. S. labor markets.”
Gordon estimates that the natural rate of unemployment has risen from 4.8 percent in 2006 to 6.5 percent today. That means that if unemployment falls below 6.5 percent, inflation will eventually start rising. Unemployment stands at 7.4 percent, having risen from under 5 percent before the recession began to 10 percent at its highest in 2010.
“This result is important news for the Fed,” Gordon writes, warning that “there may be less slack in the U. S. labor market than is generally assumed, and it may be unrealistic to maintain the widespread assumption that the unemployment rate can be pushed down to 5.0 percent without igniting an acceleration of inflation.”
