Matthew Yglesias on Christina Romer on the unemployment problem

Christina Romer argued in a talk at Princeton that the reason the unemployment rate is so high is not structural problems in the economy but a simple deficiency of aggregate demand. Matthew Yglesias draws the wrong conclusion:

Every time there’s a downturn a certain swathe of the elite starts to label it unfixable and structural. And the worse the downturn, the louder come the calls. Look at the history of the Great Depression and you see an enormous chorus of voices from the right arguing that nothing could be done and people would just have to suffer through it. They were countered by a chorus of voices from the left arguing that nothing could be done and people would just have to stage a revolution. It wasn’t true then and it wasn’t true now. The fact of the matter is that key people responsible for running the global economy—people at the European Central Bank and the Federal Reserve Board, and the Bank of Japan, people in the United States Senate, people in the Germany cabinet—are screwing up. In the developed world, those countries who’ve been able to respond aggressively to the crisis with aggressive expansion-via-devaluation are all doing pretty well. The bigger developed economies can’t do that exact thing, but they can mount more aggressive expansionary responses—they just aren’t.

That's not how I interpreted her remarks, nor how I think she intended them to be interpreted. I believe Romer was responding to a view that is common among those who criticize the Administration's policies from the left. Their argument is that the disproportionate rise in the unemployment rate during the recession reflects structural problems - firms have figured out how to do more with fewer workers - and therefore we are unlikely to get a significant drop in unemployment unless we have extraordinarily high GDP growth. Romer's point, with which I agree, is that normal recovery-level GDP growth - I would say in the 4-5 percent range for several quarters - should be sufficient to bring the unemployment rate down at a reasonable pace (reasonable meaning as fast as can be expected, not fast enough). The Obama Administration's focus on stimulating demand through fiscal policy, bailing out the financial sector, and supporting the Fed's monetary policy, is the correct approach to the problem.