Beginning in October 2007, he voted consistently for interest rate cuts to get monetary policy “ahead of the curve,” but found himself in the minority. His new book, Not Working, drips with disdain for his colleagues’ apparent poor judgment and blames central banks for unnecessarily exacerbating the unemployment spike in the United States and the United Kingdom during the recession.

At the time, Blanchflower was portrayed as a crank in the UK press for his constant calls for monetary loosening. Yet he turned out to be right when most of the world and economic establishment were wrong. Buoyed by that vindication and scarred by the experience, his book presents a new warning, confidently asserting that policymakers are again taking their eye off the ball.

Central bankers and government finance departments are still causing unnecessary suffering, he believes, because they are wedded to conventional labor market indicators that signify full employment is close and inflation is just around the corner. Fiscal and monetary authorities are therefore setting inappropriate policy, holding back the economy from its potential and preventing the delivery of good jobs at high pay. The results of this policy, he thinks, are catastrophic. On top of existing structural economic and social problems, the subsequent weak recovery has contributed to the political dysfunction that has yielded Brexit and the Trump presidency.

Conservative thesis / Not Working contains a wealth of information, statistics, and literature summaries. One cannot help learning a lot from it. However, the book sometimes meanders, making it difficult to discern a clear mechanistic thesis for its central assertion.

My attempt at summarizing the book would conclude this: Blanchflower believes there is still substantial slack in the labor market, evidenced by measures of “underemployment,” some of which he helped to pioneer. Though he never convincingly explains why, he implies the financial crisis resulted in a structural break that made this additional margin of unemployment more important for countries such as the United States and UK.

Taking a traditional demand‐​side interpretation of the wage Phillips curve (the negative relationship between unemployment and nominal wage growth), this remaining slack helps explain why low official unemployment rates in the United States and UK did not coincide with rising nominal wage inflation over many years. This is the primary answer to the mystery of the perceived “flattening” of the wage Phillips curve that has occupied central bankers.

Blanchflower further believes the “natural rate” of unemployment has fallen since the crisis for structural reasons. A decline in homeownership rates and improvements to internet job‐​matching sites mean a greater potential capacity for workers to move and connect to opportunities. Increases in aggregate demand through stimulatory monetary or (non‐​offset) fiscal policy could therefore still go a long way to boosting output and total hours employed without creating substantial wage inflation.

In many ways then, this thesis could be considered conservative. Whereas other economists, such as Roger Farmer, have demanded ditching the concept of a natural rate of unemployment or the Phillips curve entirely, Blanchflower believes those concepts still work; we simply aren’t measuring unemployment appropriately. If people want to work more hours at their prevailing wage rates, he considers this untapped potential for employment and growth in gross domestic product. If the “natural rate” of unemployment has fallen post‐​crash too, then we could continue to see falling unemployment without experiencing wage inflation.

He’s no doubt right that, to the extent it’s a meaningful concept, the “natural rate” of unemployment is an imperfect, changing, and difficult‐​to‐​quantify measure, as central bank pronouncements since 2008 have shown. With demographic change, migration, and constant industrial flux, assessing it is near‐​impossible, hence contemporary monetarists urge us not to use labor market indicators alone as a guide for policy. Perhaps Blanchflower’s underemployment measures are a better proxy for slack; perhaps not.

Sadly for him, wage growth evidence since the book was printed undermines his claim that labor market slack remains substantial. What’s more, the contention that more expansionary policy could cure underemployment, deliver higher pay, and help quell a range of social and economic challenges in western economies looks even more speculative, particularly given there is little evidence from the crash that lack of stimulus leads to permanently scarring effects on the labor market.

It’s difficult not to conclude that he is still fighting the last recession, with too much focus on the demand side of the economy and not enough consideration of the supply side and productivity.

U.S. underemployment / Take Blanchflower’s thesis in relation to the U.S. economy. His main evidence for underemployment, in the absence of survey data to devise his more comprehensive measure, is the percentage of workers who are part‐​time for economic reasons (PTFER). This measure spiked post‐​crash before falling. Since the book went to print, it has dropped further to 2.8%. That stands above the July 2000 trough of 2.3%, but is about the same level as immediately pre‐​crisis. Given structural changes to the economy—not least the introduction of the Affordable Care Act and demographic change—Blanchflower himself presents San Francisco Fed evidence that we might have expected this underemployment measure to be structurally higher now than before the crash.

This also suggests the underlying cyclical trend in this measure of underemployment is now below its pre‐​crisis level. This is supported by the fact that the U‑6 unemployment rate —an unemployment rate that includes all marginally attached workers plus total employed part‐​time for economic reasons —is now pretty much as low as its trough in 2000. Combined with the low unemployment rate and an employment rate that looks strong once one accounts for population aging, the labor market appears to have largely recovered. The tight labor market should therefore be delivering nominal wage growth akin to that seen pre‐​crash.

Yet Blanchflower believes that “underemployment” and labor market slack are still significant. Further, he thinks the PTFER could fall further, to its 2000 levels, and that today’s natural unemployment rate could be as low as 2.5%. If he’s right, we’d expect to see at least one of these indicators improve alongside stable wage inflation. Yet in the past two years, nominal wage growth appears to have increased. The Federal Reserve Bank of Atlanta says that the 12‐​month moving average growth rate for nominal wages ticked up to 3.6% in May 2019, a level last seen in 2009. The three‐​month weighted rolling average suggests this wage growth is higher still, at 4.2% right now. Wage growth has sped up in other countries, too, including the UK, as the un‐ and underemployment rates continue to fall.

In other words, wage growth does appear to be rising as the unemployment and underemployment levels fall to pre‐​crash rates. Though there might be a bit more labor market slack (the unemployment rate is at a 50‐​year low already), claims that unemployment could drop sustainably to 2.5% and PTFER fall to 2000 levels seem unlikely. The uptick in wage growth suggests the United States is already approaching full employment, all without the discretionary stimulus that Blanchflower believes is necessary to achieve it.

Confusion about long‐​term unemployment / In some ways, Blanchflower should feel vindicated. Plenty of economists believed that the elevated unemployment level immediately post‐​crash indicated structural challenges, such as skills mismatches, that would permanently worsen employment prospects. Many said the structural rate of unemployment across countries had risen, not fallen. Back in 2012, the Fed thought the medium‐​term natural rate of unemployment was 5–6%. When the Bank of England issued its “forward guidance,” it considered the UK’s natural rate to be 6.5%.

In other words, many economists thought the structural effect of the crisis would mean we’d have run up against supply‐​side constraints at unemployment levels far higher than seen today. Though we cannot say for sure whether they were wrong at the time (perhaps an impaired financial sector did impair potential growth, but that problem has since dissipated), the subsequent strength of the labor market rebound does imply that unemployment or weak participation was largely cyclical and not structural. As Blanchflower himself writes, “The gloomy predictions of some that the long‐​term unemployment numbers wouldn’t come down as the economy recovered have turned out to be short of the mark.”

This is true, but it highlights an inconsistency in Blanchflower’s arguments over the years. In advocating for more stimulus in the past, he warned that tight monetary policy and/​or public spending cuts could result in a “lost generation” of workers. Much of his case for greater monetary and fiscal stimulus now rests on the idea that failure to eliminate labor market slack will result in the unemployed or underemployed suffering substantial skills atrophy, making it difficult for them to find gainful, productive employment in the future. Yet this labor market “hysteresis” effect does not appear to have occurred so far to any great extent in the United States or at all in the UK, despite Blanchflower’s previous warnings. So why should we fear it now?

This tension between wanting to damn the effects of policy mistakes while using the labor market improvement as vindication for stimulus, appears throughout the book. Just two pages before explaining that gloomy predictions about long‐​term unemployment had proven false, Blanchflower writes, “Long‐​term unemployment used to be mostly a European but not an American phenomenon, but that has changed also.” He uses this as evidence that monetary and fiscal mistakes have severely worsened social problems, creating the urgency for new action.

But where long‐​term unemployment is concerned, his claim is just false. The percentage of unemployed people who’ve been out of work for more than a year in the United States was indeed higher in 2017 at 15% than in 1985 (9%). But the unemployment rate fell from 7.2% to 4.3% over that same period. That means 0.65% (15% of 7.2%) of the labor pool found themselves “long‐​term unemployed” in 1985. In 2017, that proportion was still 0.65%. Across the major European Union economies (France, Germany, Italy, and the UK), a crude cross‐​country average shows 43% of unemployed people have been out of work for nearly a year, or 3.4% of the labor pool. Whatever the long‐​term consequences of the recession or incorrect policy in the United States, a shift to European levels of long‐​term unemployment is not one of them.

In fact, Keynesian economists have now largely switched their stance, arguing not that absence of more stimulus resulted in hysteresis through longer‐​term unemployment, but that failure to fulfill economic potential has resulted in a form of “productivity hysteresis.” There is much less micro evidence from previous recessions for this kind of effect, and it’s unclear even what the causal mechanism would be.

It’s far more likely, as mainstream macro models that feature a “natural rate” indicate, that demand shocks only have temporary effects on employment until wages and prices adjust, at which point output and unemployment return to their natural rates. Even if the Great Recession simply was a demand‐​side shock, its effects may have largely fallen away by now.

What can macroeconomic policy achieve? / Even if Blanchflower’s thesis were correct that underemployment represented a key margin of slack, evidence suggests that slack has almost entirely been eliminated. Nominal wage growth appears to be accelerating because the level of wages has been too low (wage stickiness) relative to market conditions. If that is correct, then Blanchflower is overly optimistic about what looser monetary policy or government infrastructure spending could achieve.

In his final chapter, he calls for “Put[ting] the Pedal to the Metal.” He claims that running the economy hot would “boost wages, which is [the policy’s] main point, and hence boost living standards.” But in a near‐​full‐​employment economy, the only way that stimulatory activity could enhance employment would be via removing labor market frictions and helping reallocate workers to more productive activities (i.e., boosting real GDP rather than nominal GDP). The only way that real wages grow in the long run is through faster productivity growth.

Can stimulus achieve this? It might be the case that slightly looser monetary policy might draw some newly discouraged or disabled workers into the labor force or that an even tighter labor market might lead to more options for workers in a way that leads to better allocation of workers and increased productivity. In theory, some productive government‐​led infrastructure investments might improve the productive capacity of the economy too, although these effects are often overstated given the types of investments government makes.

But surely Blanchflower is asking too much of macroeconomic policy here. He certainly doesn’t present sufficient evidence that subdued business investment and weak productivity are driven by weak demand. At times, he seems to discount entirely that there is a supply side of the economy. This is all the more surprising given productivity measures themselves have started to rise somewhat in both the United States and UK in recent years. With consumer price inflation anchored, this improving productivity has meant rising real wages and living standards, as Blanchflower desires.

Strong economic growth, lower un‐ and underemployment, and rising wages would indeed alleviate some of the strains that lead to a host of social and economic problems. But some of the challenges documented in meticulous detail in the book—“deaths of despair,” the opioid problem, the decline of the UK’s coastal towns, Rust Belt economic woes, etc.—are too often alluded to as symptoms of recent policy mistakes rather than as deep‐​seated, multifaceted problems that slightly looser monetary policy or more infrastructure spending would fail to solve.

That, again, sets up Blanchflower’s thesis for failure through overpromising. If nominal wages continue to rise strongly as underemployment falls, then according to Blanchflower we should expect these problems to dissipate. They might improve on the margins, but one suspects most will remain. The risk, as ever, is that trying to use monetary policy to push the economy beyond its productive limits could destabilize it entirely.

Sloppy / Blanchflower is clearly an extraordinarily talented labor economist. His chapters drip with interesting tidbits and references to studies on the labor market, disabilities, the perils of forecasting, and the rise of economic populism. His book goes far beyond the unconvincing macro thesis. One can learn a lot about labor economics as a discipline and about key contemporary debates over labor market performance across a range of countries by reading this work.

Yet so vast are his references and insights that at times the writing is extraordinarily sloppy. We have already seen this in relation to discussion of long‐​term unemployment. A similar contradiction occurs in the final chapter where he uses Japan’s recent history as both a model and a cautionary tale. Perhaps there’s a way that Blanchflower can reconcile contradictory evidence to support his overall contentions, but often it is difficult to see it clearly. Other times the writing is just careless and badly edited. One section on UK life expectancy, omitting key qualifiers in a sentence, gives a completely misleading picture of life in a poor part of the richest borough in the country. I noted several other errors or misinterpretations.

For all its insight and punchy reading, this book disappointed on two levels. First, its main thesis seemed dated and exaggerated. Second, attention to detail, at certain points, seemed lacking.

Plenty of economists have been left with egg on their faces by economic trends since the crash. Blanchflower proved to be on the right side of some key debates, from forecasting the recession through to claiming unemployment was a cyclical problem. Yet, given that sluggish productivity and economic inclusiveness are the concerns of today, a policy platform headlined by more monetary and fiscal stimulus risks makes him look like a one‐​club golfer. The United States and UK face major economic and social challenges. Running the economy hot will solve relatively few of them.