Debate on combatting high US unemployment may be misguided

Much of the debate today about combating the US' high unemployment rate of 9.5 percent centers on how to get the economy back to full strength. Thus, the discussion focuses on an additional stimulus and other ways to encourage demand to take hold again in the economy. These assertions are based on the assumption that full-employment in the US is 5 to 6 percent in the US. This assumption forces us to think of the high unemployment rate as being caused solely by a negative cyclical turn in the economy. However, more attention and validity needs to be given to the assertion that, as a result of the weak financial and housing markets, the US economy is not as efficient and adaptable as it once was. And, that full employment in the present circumstances may mean an unemployment rate of up to 7 percent. Thus, even though much of the high unemployment rate today is due to a negative cyclical turn that needs to be combated, the Obama Administration may need to consider a more structural solution to the US economy's lack of efficiency in the recession.