Pluto Finnigan

The first comment on a recent Krugman post, the comment by Pluto Finnigan, demands attention:

If the employment level pre-crisis was consistent with an unsustainable credit expansion, is the present employment level actually at equilibrium and where would the output gap fit in?

Before the crisis, Pluto observes, employment was sustained by "an unsustainable credit expansion." He suggests that the present high unemployment may be the best we can expect, in a world where credit expands at a sustainable rate.

The issue Pluto raises is credit-efficiency. Credit-use has become inefficient. A high rate of credit-growth these days leads only to a low rate of employment-growth.

The reason for this inefficiency is that there is too much drag -- too much accumulated debt creating a headwind against which the sails of new credit-use must struggle.