If macroblog is going to say that the slowdown in growth in labor force participation between 1979 and 1982 is not a sign of a slack labor market but of "efficient changes in labor force participation" due to factors analogous to "summer vacations... winter holidays... every weekend" that cause fluctuations in labor force participation that we "would never think of calling... 'gaps'--well, then, I wish it luck out there in the Gamma Quadrant.
Well, I appreciate the well wishes, but I think Brad missed the point of the offending post. Or I was not at all clear in making that point. In either event, let me try to clarify. My position is that I am quite hesitant to make economic interpretations based on trend/cycle decompositions. In part that is because such decompositions are sensitive to the statistical techniques employed -- as was suggested by the simple decomposition in the post to which Brad refers. But more importantly, I contend that the statistical exercise is questionable as a matter of theory: Models that we macroeconomists view as "respectable" these days -- Mike Woodford has written a whole book about them -- do not automatically identify "gaps" as the deviations from a long-term trend.
Incidentally, that 1979-1982 episode is an interesting case. Here's a relevant picture:
Between September 1998 and April 1981 the relative price of energy (at the consumer level) rose by about 37%. That sort of "supply-side" shock can generate exactly the sort of environment in which declines in employment, lower participation rates, or an increase in unemployment might be inappropriately identified with the opening of gaps.
The period is, of course, confounded by a very substantial monetary shock. There is still an active dispute about how much of the responsibility for economic downturns that tend to follow energy-related shocks (clearly seen in the picture above -- the shaded bars identify NBER recession dates) are a result of those shocks, and how much can be attributed to tight monetary policies that tend to accompany them. The following comes from a very nice review of the evidence on oil shocks and the economy by the Congressional Research Service's Mark Labonte:
The work of [Ben Bernanke, Mark Gertler, and Mark Watson] raises an interesting conceptual question: while the effects of oil shocks and monetary policy can be statistically separated, can they be separated in reality? Bernanke, et al. attribute the tightening of monetary policy following oil shocks as the Fed’s response to the increase in inflationary pressures that oil shocks are commonly believed to cause...
[James] Hamilton and [Ana Maria] Herrera [argue that]... While Bernanke’s regressions can mechanically be interpreted to imply that monetary policy could prevent a recession, Hamilton and Herrera point out that these regressions would imply that the federal funds rate would have to have been an improbable 9 percentage points lower in 1973 to prevent a recession... Hamilton and Herrera also argue that Bernanke et al. underestimate the effects of oil shocks because they use too short a lag length. Bernanke et al. assume that changes in oil prices affect the economy for the next seven months, whereas Hamilton and Herrera suggest a lag length of at least 12 months would be more appropriate since many works find the largest economic effects of oil price changes to come after three and four quarters. In particular, by using a longer lag than Bernanke, they find that countering oil shocks with expansionary monetary policy has much larger effects on inflation since monetary policy affects inflation with a significant lag.
Incidentally, the increase in the relative energy-price series since February 2002 (through July) has totaled about 40 percent. The fact that we have not yet had a recession might lead you to have some sympathy for the Bernanke-Gertler-Watson version of history (and for DeLong's interpretation of 1979-1982 labor markets specifically). On the other hand, you might believe that this time around is a bit different from those earlier episodes (until recently, perhaps). Or maybe we're just waiting for the big shoe to drop.
For my part, I'm still feeling plenty earthbound.
Here are the Bernanke et al and Hamilton-Hererra citations:
Ben Bernanke, Mark Gertler, and Mark Watson, “Systematic Monetary Policy and the
Effects of Oil Price Shocks,” Brookings Papers on Economic Activity 1, 1997, p. 91.
James Hamilton and Ana Maria Herrera, “Oil Shocks and Aggregate Macroeconomic
Behavior: The Role of Monetary Policy,” Journal of Money, Credit, and Banking,
vol 36, no 2, 265-286, April 2004.
UPDATE: pgl has a long an thoughtful post on this topic over at Angry Bear. It deserves an extended response, but for the moment I offer this as my acknowledgement of his hard work.