I RECENTLY attended a panel discussion featuring a Nobel Prize
winning economist who claimed that fiscal stimulus—specifically,
government spending—could restore unemployment to the pre-
crisis, 5% to 6%, level. I asked if that meant he thought none
of the unemployment is structural. He smirked and said, “Every
recession you journalists claim the higher unemployment is
permanent, that's because you don't understand the dynamics of
equilibrium.”  Alas, I had already passed on the microphone. So
I could not point out that, in addition to writing about
economics, I am also a former student of Ned Phelps (who won the
Nobel Prize for unemployment theory) and spent several years
studying his theories and empirical evidence on the dynamic
properties of the structural rate. I learned that the structural
rate is not permanent; like the cyclical rate, it changes over
time. But the difference between the two kinds of unemployment
is important because each has distinct policy implications.
Cyclical unemployment results fr