Structural Slumps: The Modern Equilibrium Theory of Unemployment, Interest, and Assets.

• Author: Amos, Orley M., Jr.

Structural Slumps is a continuation of Edmund Phelps's extensive work on the natural unemployment rate. In this volume Professor Phelps seeks to explain the structural factors that would cause changes in the natural rate. In particular, he is most interested in how a change in the structure of the economy (reflected in interest rates, government deficits, or transfer payments) alters the dynamic paths of unemployment and other macroeconomic variables. The practical objective is to understand persistent high rates of unemployment existing during the 1980s. This is a commendable effort.

He pursues this objective by developing three separate models, each with its own asset at the center of analysis (trained employees, customers, and capital goods) that model activity in the labor, product, and capital markets, respectively. He develops and analyzes each model, then seeks to combine the three into a more general equilibrium framework. The primary shortcoming of his theoretical development is an incomplete synthesis of the three models into comprehensive structure.

Structural Slumps is not a book for the casual reader. Readers should be prepared to spend considerable time and effort working through Phelps's presentation. The writing style is somewhat heavy-handed, often with two-or three parenthetical thoughts in a sentence, and primary thoughts frequently spread across several sentences. Phelps also assumes that readers are intimately familiar with related models, analyses, and theories that are central to his line of thought (especially in the first ten chapters). Many salient points are lost, however, on readers without this familiarity. Economists on the cutting edge of macroeconomic theory will find this treatise intruguing and insightful. Others will need to pause every few paragraphs for background research.

Structural Slumps contains 20 chapters divided into six parts. After a brief introduction, Phelps presents a six-chapter overview of existing general equilibrium theory, focusing on the three markets that form the core of his theory - labor, product, and capital in Part I. This part sets the stage for the presentation of his theory in Parts II and III.

The first three chapters in Part II lay out each of the three models - Turnover Training, Customer Market, and Two-Sector Fixed Investment - that deal with the three assets under scrutiny - trained employees, customers, and capital, respectively. These three chapters will provide the...