There is a lot of talk about whether this is a jobless recovery. The truth is, this has been a somewhat “growthless” recovery. Job growth is weak because GDP growth is weak. Aside from just a few quarters, GDP growth has been at or below its trend rate of growth of about 2½ percent. We just learned last week that GDP grew at only 1.8% in the first quarter of this year.
You only reduce unemployment with above-trend growth in output. So the question is this: If the Fed or Congress contrived to increase the demand for goods and services, would America start producing more goods and services or would prices just go up? I say producing more. When I went to Phoenix (MSA unemployment rate 8.1 percent), I got a drink at a bar at happy hour that had 70 percent of its seats empty and only one bartender working. I think that if people in Phoenix got a principal writedown on their mortgages, they’d have more disposable income and might go to the bar more. I think that if Ben Bernanke dropped money from a helicopter over the city of Phoenix, that people would have more cash in their pockets and might go to the bar more. Then I think more people would be employed as bartenders and busboys. We might need more people to drive trucks to deliver the beer. Breweries might need people to work more shifts. I don’t at all believe that Phoenix-area bars would throw their hands up and say, “Skill-mismatch! Can’t serve any additional customers, gotta raise prices.”