I’m back from my honeymoon in Argentina, and one thing a visit to that fine country drives home is that, contrary to a lot of confusing commentary out there in the punditocracy, the problem of reducing unemployment is simply not identical to the problem of fostering long-term economic growth. In other words, Argentina is considerably poorer than the United States or even Spain and yet unlike the United States it’s currently enjoying full employment and unlike Spain it’s not currently in the midst of a catastrophic depression.
This is just to say that Argentina’s got all kinds of problems. Problems with the investment climate, problems with the state of the physical infrastructure, problems with the regulatory framework, problems with the historic accumulation of capital, problems with the allocation of labor, problems with the tax code, problems, problems, problems. But one problem they don’t have is mass unemployment. And there’s no need for any country, at any general level of economic development, to have the kind of mass unemployment that’s currently plaguing most developed countries. Reforms to boost productivity and long-term growth prospects are always great, but reforms to reduce short-term unemployment are also great. And they’re not identical. But I don’t think it can be said often enough that one sure-fire way to reduce your country’s long-term growth potential is to be indifferent in the face of a years-long spell of mass unemployment. And you tackle mass unemployment by tackling mass unemployment—by using monetary and fiscal measures to mobilize your country’s existing stock of resources and take workers out of the unemployment sector and into jobs. Other issues are also worth tackling, but as a macroeconomic stabilization policy there’s no substitute for doing a macroeconomic stabilization policy.