Edmund S. Phelps, recent winner of this year’s Nobel Prize in Economics, has this great piece in the Wall Street Journal Online.

In showing the differences between the U.S.’s form of capitalism and Western Europe’s “social democracy,” Phelps provides an insight into his view of unemployment, the issue that won his distinction.

A more innovative economy [as the U.S. economy is] tends to devote more resources to investing of all kinds–in new employees and customers as well as new office and factory space. And although this may come about through a shift of resources from the consumer-goods sector, it also comes through the recruitment of new participants to the labor force. Also, the resulting increase of employee-engagement serves to lower quit rates and, hence, to make possible a reduction of the “natural” unemployment rate. Thus, high dynamism tends to bring a pervasive prosperity to the economy on top of the productivity advances and all the self-realization going on. True, that may not be pronounced every month or year. Just as the creative artist does not create all the time, but rather in episodes and breaks, so the dynamic economy has heightened high-frequency volatility and may go through wide swings. Perhaps this volatility is not only normal but also productive from the point of view of creativity and, ultimately, achievement.