In a lot ways it makes sense. Big problems should have big causes. The social and political context that we live in should be far more important than a few simple equations. And, certainly the deep cultural roots of America’s current woes make for better cocktail conversations and better blog posts, for that matter, than discussions of the money supply. The MSM is just never going to find MZM that interesting.

It is, however, wrong. Our problems are cyclical not structural.

The simple fact of the matter is that the structure of the American economy hasn’t changed that much in that last 24 months. We were building houses at an unsustainable rate, sure. But, at its peak the US employed about 7.7 million construction workers. It now employees about 5.8 million. That’s a difference of a little less than 2 million workers or about 1.5% of the American workforce.


That’s not a trivial dislocation, but its not a catastrophic one either. Nor, is it likely to be permanent. Currently residential construction as a percentage of GDP is at a record low


while even its boom-time peak was no where near a record high. The 2000’s barely eclipsed the building booms of the 1970s. Construction will be back.

Manufacturing is declining for sure, but this is nothing new


Manufacturing employment has been declining for decades and if anything this recovery looks to be starting out slightly more robust than usual.

Indeed, what’s really made this recession different is the loss of jobs in the service sector. Over 4 million service sector jobs were lost during the recession, more than construction and manufacturing combined. While the last few recessions saw only the mildest dip in the long run growth trend of service sector jobs.


Are we to believe that our economy is transforming into the New New Economy where the service sector shrinks in favor of . . . a return to agriculture perhaps?

Maybe I am being to glib. Surely there are some segments within service that are showing rapid signs of change. Perhaps for example, increasing demand for iPhone programmers at the expense of McDonald’s workers?

However, I don’t see much evidence for that either. Information technology has been in a continuous nose dive ever since the dot-com burst.


Retail jobs were hard hit in this recession and they have been sluggish ever since. However, if the retail jobs are transitioning, what are they transitioning to? Not manufacturing. Certainly not construction. It doesn’t look like information technology.


Maybe the economy has made a marked shift towards our perennial super stars of Education and Health


Its true that Education and Health has been growing like gangbusters. However, if anything the Meds and Eds sectors seems not to have noticed the recession. A sector shift story would suggest a change in growth rates.

No, by my eyes it looks like that most abhorrent of phenomena – a general glut. People aren’t hiring an especially high number of any profession. And, not to wax too Keynesian but it is because that which they wish to buy is not made by the hands of workmen.

They wish to buy money. And, buying that means making no purchases at all.

All of the pain we see. All of the destroyed lives that Annie and Reihan so eloquently muse about. They are not destroyed by lack of training or shifting winds or even political uncertainty. They are destroyed because monetary policy has hit the zero lower bound. Unlike previous recessions the Fed cannot keep cutting rates until the pain is gone.


This is cyclical problem. This is a monetary problem. And, it will have monetary solution.