The Grave Evil of Unemployment, Bryan Caplan | EconLog | Library of Economics and Liberty

Bryan Caplan makes the case for a fresh approach from free-market economists:

At the level of high theory, free-market economists love market-clearing models. If there’s surplus wheat, the price of wheat will fall to clear the market. If there’s surplus labor, similarly, the wage will fall to eliminate unemployment. What about nominal wage rigidity? Most free-market economists concede that nominal wage rigidity exists to some degree, but think the problem is mild and short-lived……..The high theory’s wrong: Nominal wage rigidity is both strong and durable.

Rather than treat unemployment as a necessary but temporary affliction, Caplan suggests that free-market economists should be attacking the “vast array of employment-destroying regulations” imposed by government — and tight monetary policy by central banks, where they should be advocating nominal GDP targeting as an alternative.

Read more at The Grave Evil of Unemployment, Bryan Caplan | EconLog | Library of Economics and Liberty.

New Research from Finland’s Central Bank Confirms that Government Spending Is Causing Stagnation in Europe | International Liberty

Dan Mitchell reports on new research from the Bank of Finland:

Europe suffers from a growth slowdown. The GDP growth in Europe has lagged behind the GDP growth in the US and has been far worse than the GDP growth in the NIC countries, particularly China… However, what is the reason for slow or rapid economic growth? …In many respects, the labour market plays the key role in the economy because it determines both the use of the labour input and the level of overall competitiveness of a nation. Obviously, the functioning of the labour market is not independent of the public sector. A large government is almost inevitably associated with a large tax wedge, and the functioning of the labour market appears to be critically dependent on the size of the tax wedge. It may be fair to say that the harmful consequences of a high tax wedge are exceptionally well and unambiguously documented in the literature. …On the basis of the estimates derived in this study, the following guide for growth policies appears to be warranted: …Do not over-expand the welfare state. Larger governments are associated with slower growth rates.

Read more at New Research from Finland’s Central Bank Confirms that Government Spending Is Causing Stagnation in Europe « International Liberty.