Run the Economy Extra-Hot

More, please.

Photographer: Anthony Lanzilote/Bloomberg

With the unemployment rate down to near four percent, and new claims for unemployment insurance at a 48-year low, maybe the economy can't accommodate more workers without zooming out of control. That's the conventional wisdom, but a few economists, myself included, are skeptical of this narrative. We see an economy that is still well below its long-term trend line. How do we square this with such low unemployment?

QuickTake Full Employment

The key is a phenomenon known as hysteresis, a term borrowed from physics that's used to mark the way past recessions leave scars on the labor market.