This article provides a good response to the conservative argument that we have a structural downturn in the business cycle, and, therefore, it does not require government intervention. Those who argue that the downturn is structural claim that the structural changes in the economy have lowered the potential output of the economy. If that is the case, the natural rate of unemployment is higher than it would otherwise be. If the decline in output is structural, the unemployment rate is close to where it should be.
The same folks who believe that the economy is in a structural downturn worry about the potential for inflation if government attempts to stimulate the economy with monetary or fiscal policy. If inflation is the fear, the Fed can raise interest rates from where they are now close to zero. If we have a demand problem, and we do nothing, there is a huge downside. We will have high unemployment that could lead to structural problems in the future. If we are wrong, the Fed has weapons to deal with the mistake by raising interest rates.
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