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This just in from Mark Thoma: The Problem is a Lack of Demand. According to Mark,

The chair of Bush's Council of Economic Advisors, Ed Lazear, says that the unemployment problem is not structural, it's due to lack of demand:  

and then he goes on to cite a WSJ report: Jackson Hole Paper: True Cause of High Unemployment is Basic Economic Weakness.

Hmm, where to start?

I cannot find Lazear's paper at the moment, so I'm not exactly sure what he said or did not say. I'm pretty sure, however, that he did NOT say the "the problem is a lack of demand." Take a look at this interview with Lazear at Jackson Hole.

OK, so he does say that the problem with the U.S. labor market is not "structural." But then, what is the problem? He ascribes it to general "economic weakness"---which is a far cry, I think, from attributing the problem to a "lack of demand." The "lack of private sector demand" theories generally imply a role for monetary and fiscal stimulus. But here is what Lazear says in his interview:

...I don't think that there's a lot of evidence that this (fiscal stimulus) is going to work. The evidence is that the stuff that works is the long-run stuff. That means low and effective taxes. It means a good trade policy...and most important it means getting the fiscal situation under control...

So, you see what happened here. Lazear says that the problem is not structural, that it is the product of general economic weakness. The WSJ reporter, who has likely only ever been exposed to a macroeconomic principles course, has no other way to categorize what might be ailing the economy, apart from a "lack of demand." And so that's what he writes, which is understandable. But I don't think Mark should have made the same mistake. Mark's headline might have been more accurately stated as: Lazear: The Problem is Not Structural.

As for the title of this post, what I mean by it is as follows. Imagine that we all agree that a depression is characterized by a "lack of demand." The current demand for domestic investment spending, for example, still seems weak relative to how it typically rebounds following a recession; see here. But while we might share this view, and even use the same language to describe it, we may at the same time have very different opinions about what is causing the "lack of demand." Economists know that different causes generally imply different policy solutions. And the problem of identifying these different causes remains as difficult as ever (I explore alternative hypotheses here, here, and here, for example. Other interpretations are possible too, and I think we should keep our minds open to them.)

Happy Labor Day weekend! (And a happy Labour Day to my compatriots in Canada.)