TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

The typical solution to recessions is to increase demand; as demand increases, companies will hire more workers to fulfill it, leading to more demand which creates more jobs. Krugman, and others, think a lack of demand is precisely the cause of our unemployment.

Jim Tankersley suggests it isn’t that simple. He writes:

Groshen and Potter noted that after the past two recessions, in 1990-91 and 2001, economic growth had picked up long before jobs began to reappear, bucking a long historical trend of growth and jobs returning in tandem. The explanation, Groshen and Potter said, was a shift away from the time-honored American tradition of laying off workers in bad times and recalling them when the clouds parted.
“Most of the jobs added during the recovery have been new positions in different firms and industries, not rehires,” they wrote. “In our view, this shift to new jobs largely explains why the payroll numbers have been so slow to rise: Creating jobs takes longer than recalling workers to their old positions and is riskier” when recovery still appears fragile.
In other words, American companies had adopted a more cold-blooded attitude toward recessions, one that fit the new model of globalization and automation. Technology made it easier to lay off your 100 least-effective workers and ship their jobs to India, or to replace them with a software program that made your remaining workforce dramatically more productive.

This might be okay if our economy was dynamic and generated new kinds of jobs rapidly, but that isn’t the case:

One baffling aspect of the current recovery is why U.S. companies continue to sideline nearly $2 trillion in cash instead of using it to buy equipment or hire workers. That hoarding turns out to be a piece of a decades-long investment puzzle. American corporate spending on nonresidential plant equipment—factories and equipment, not houses or shopping malls—has fallen to its lowest rate as a share of the economy in 40 years. Businesses aren’t investing in American workers, either. The major productivity gains of the fledgling recovery, and in the 2000s in general, came largely from companies producing more with fewer employees.

The simple truth is that American firms are either returning the spoils of globalization and technology to their shareholders, spending them on new projects abroad, or both. “Globalization isn’t the problem,” says Howard F. Rosen, a labor economist and visiting fellow at the Peterson Institute. “U.S. companies are investing in plants and equipment, just not in our borders.… They are privatizing the gains of globalization. That’s really it. They’re our gains!”

The question is why. Demand is certainly a part of it, but not the entire answer. This seems to reflect a view of the U.S. economy as staid and moribund.