I know I characterized your argument a bit harshly. It's probably true? In some cases? All? I don't know. The paper doesn't rule it out. It does purport to sho

I know I characterized your argument a bit harshly. It's probably true? In some cases? All? I don't know. The paper doesn't rule it out. It does purport to show that causality does run the other way [as well]. Anyway, I just think it's important to keep in mind how much the macro environment affects which bad decisions get punished and how much. The same mistake that might have got you a nasty email from the boss in the late 90s might have got you fired in the late 00s. The sorting effect you hypothesize might happen, but there's significant variability in how harsh it is, at least a portion of which we have control over. As for inflation and unemployment, basically all mainstream economists agree that there is something called NAIRU, the non-accelerating inflation rate of unemployment. It's the rate of unemployment below which inflation starts to accelerate. The Wikipedia article isn't very helpful but here it is: http://en.wikipedia.org/wiki/NAIRU http://en.wikipedia.org/wiki/NAIRU and related: http://en.wikipedia.org/wiki/Phillips_curve http://en.wikipedia.org/wiki/Phillips_curve Here are Excel files of historical NAIRU rates targeted by the Federal Reserve: http://www.phil.frb.org/research-and-data/real-time-center/greenbook-data/nairu-data-set.cfm http://www.phil.frb.org/research-and-data/real-time-center/g... Here is a paper on NAIRU (opening section is a reasonably good general introduction) by Greg Mankiw, who is not my favorite economist but very widely respected [pdf]: http://scholar.harvard.edu/files/mankiw/files/jep.ballmankiw.pdf http://scholar.harvard.edu/files/mankiw/files/jep.ballmankiw... The section on why NAIRU exists basically concludes "nobody knows." Unfortunately this is macroeconomics so there's a lot of just-becausing. I'm not sure if it's a good theory or not but it's widely believed by economists, especially central bankers. So if unemployment goes above a given rate, which changes depending on circumstances (I think the latest estimate is 6.5%), they're going to tighten the money supply anyway so that growth and especially job growth slow down. So essentially, it's an unstated national policy in almost every country not to have full employment.