The Phrase “Structural Reform” Considered Harmful

Preview of Fiscal Policy in the New Normal IMF Panel

The worst possible “structural reform” program is one that moves a worker from a low productivity job into unemployment, where they then lose their weak tie social network that allows them to get new jobs. They then get used to sitting in their sisters’ basement splaying video games and surfing the internet all day. “Structural reforms” are extremely dangerous unless you have a high-pressure economy to pull resources out of low productivity into high productivity sectors.

The view in the high councils of Europe is that, when there is a high-pressure economy, politicians will not press for “structural reform”: there is no obvious need, and so why rock the boat? Politicians kick every can they can down the road, and you can only try “structural reform” when unemployment is high–and thus when it is likely to be ineffective if not destructive.

I don’t think this view is correct. But this is the view–in Europe. This creates a very difficult political economy puzzle for Europe. I really do not have any sort of solution.

Quite possibly we should simply drop “structural reform”. Most of the time, “structural reform” means policies that reduce the size of unproductive sectors and in the process create significant numbers of substantial losers. That is why people call it “structural reform” rather than some other, more properly descriptive phase.

We can (almost) all get behind “reduce product market monopoly power”. We can (almost) all get behind “reduce NIMBYist constraints on land development”–provided, that is, we can agree which restraints are and which are not NIMBYist. Calling those part of the suspicious portmanteau of “structural reform” does not materially aid their cause. We should drop the phrase “structural reform” in the interest of clarity about just what we are planning to do.


December 14, 2016

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