Unemployment: Getting the Questions Right

In my opinion, the form and conception of this conference exemplifies the right instinct for modern macroeconomics. There is a fact, a big unmistakable unsubtle fact: essentially everywhere in the modern industrial capitalist world, unemployment rates are much higher than they used to be two or three decades ago. Why is that? If macroeconomics is good for anything, it ought to be able to understand and explain that fact. We should be able to produce a fairly convincing analytical account of the occurrence and persistence of unusually high unemployment rates. You might think that to be a mere commonplace. To what other sort of end would anyone organize a conference? My experience, however, is that most high-powered academic conferences are stimulated by purely technical developments, or-less often-by ideological or political promotion, rather than by the need to deal with an outstanding fact. I do not blame anyone for this state of affairs. We may not be blessed with many significant observations too big to be quibbled over. And technical innovations do need to be thrashed out by experts. Anyway, it is good to be faced by a brute fact that needs explanation. It is what macroeconomics ought to be about. I compliment the organizers also on a second aspect of the agenda: the country-by-country organization of the papers. We can all hope to learn something from cross-country comparisons. One of the few good ways we have to test analytical ideas is to see whether they can make sense of international differences in outcomes by appealing to international differences in institutional structure and historical environment. The right place to start is within each country separately, studied by someone who knows the peculiarities of its history and its data. You might think that this too ought to be obvious. But in fact the usual approach is just the opposite. More often than not we fail to take institutional differences seriously. One model is supposed to apply everywhere and always. Each country is just a point on a cross-section regression, or one among several essentially identical regressions, leaving only grumblers to worry about what is exogenous and what is endogenous, and whether simple parametrizations do justice to real differences in the way the economic mechanism functions in one place or another. I have no way of knowing whether this organized effort will get anywhere in explaining high unemployment, but it seems to be set up to give itself the best chance. For better or worse, probably for the better, theoretical and empirical work are closely intertwined in macroeconomics. Scratch a macro-theorist and you find a casual econometrician. Scratch a macro-econometrician and you find a casual theorist. Usually you do not have to scratch very hard. Thus, the discussion of the issues central to the conference has already hardened into certain characteristic forms. There are questions already lying on the table that the individual country papers will be trying to answer. I suspect that some