Structural or cyclical? Yes, kind of, maybe says JEC

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The Congressional Joint Economic Committee has released its 2012 Joint Economic Report. Besides giving an overview of the state of the economy (and providing a platform for differing partisan views on the economy and current policy), the report had this to say about the structural versus cyclical debate:

It is generally very difficult to distinguish unobserved movements in cyclical components of growth from structural components and especially so when the time period of interest is relatively recent and relatively short. Some recent studies have concluded that much of the sluggish growth is the result of long term trends that were unrelated to the recession, such as the demographic changes in the labor force as the baby boomer generation retires. Even so, cyclical factors remain a significant force in restraining overall economic growth.
. . .
Even if some of the weakness in product demand growth reflects structural factors, the extraordinary size and persistence of the output gap serves as an indication for macroeconomic policymakers that both monetary and fiscal policies should be promoting aggregate U.S. demand, at least over the near term.

In other words, multiple actions are need to address both the structural and cyclical problems. However, the Report falls short of what those actions might be. With the threat of the fiscal cliff overshadowing the Report, one can understand its focus on the macroeconomic and cyclical issues. I wish, however, the Report had looked a little more at ways to attack the structural issues.


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