Eli Dourado is skeptical of the effect of monetary stimulus on the U.S. economy.
My first bit of evidence is corporate profits. They are at an all time high, around two-and-a-half times higher in nominal terms than they were during the late 1990s, our last real boom.
If you think that unemployment is high because demand is low and therefore business isn’t profitable, you are empirically mistaken. Business is very profitable, but it has learned to get by without as much labor.
A second data point is the duration of unemployment. Around 40 percent of the unemployed have been unemployed for six months or longer. And the mean duration of unemployment is even longer, around 40 weeks, which means that the distribution has a high-duration tail.
Now, do you mean to tell me that four years into the recession, for people who have been unemployed for six months, a year, or even longer, that their wage demands are sticky? This seems implausible.
Will unemployment rates in the U.S. ever return to rates previously considered to be normal? Or is this current unemployment rate the new normal for the U.S. economy? Macroeconomics is so complex that it's hard to wrap one's minds around the debate. If there's one minor blessing in this recession it's that some hypotheses (like Zero Marginal Product workers, or ZMP) are being put through an empirical stress test.