Austrian Elements of Structuralist Unemployment Theory?

One of the leading schools in modern unemployment theory is the "Structuralist" theory of the "natural" or equilibrium rate of unemployment (NRU) started by Edmund S. Phelps (see Blanchard 2000, p. 255; Phelps 1994, 2005b; Fitoussi et al. 2000; Phelps and Zoega 2004). In fact, it can be understood as a kind of meta-theory of unemployment (Phelps 2002). In a nutshell, Structuralist theory postulates that changes in real interest rates, asset prices, and wealth lead to changes in the NRU. In the Austrian context, it is quite astounding that this prominent theory of modern mainstream macroeconomics is supposed to have Austrian characteristics (Phelps 1994), although Phelps (2003a, b, 2004a) argues that Austrian business cycle theory cannot account for the boom and the slump of the 1920s/1930s and the 1990s/2000s: "The interwar Austrian School . . . held that a boom's excesses cause . . . overshooting: a slump is the cure. I noted weaknesses in their overinvestment argument. Austrians counter with a revised 'malinvestment' argument. . . . But that model does not fit" (Phelps 2003b). It is therefore no surprise that Phelps's theory of "structural booms and slumps" came under heavy attack by well-known Austrian economists (Batemarco 2003; Cochran 2003; Thornton 2003). The goal of this paper is to clarify this debate and to answer the question does Structuralist theory really have Austrian elements as suggested by Phelps. This article is organized as follows: "The Austrian School: Capital-Based Macroeconomics" gives a refresher on the basic principles of Austrian macroeconomics.