Mark Thoma: “The Growing Unemployed: A Case of Benign Neglect“
The high unemployment rate ought to be a national emergency. There are millions of people in need of jobs. The lost income as a result of the recession totals hundreds of billions of dollars annually, and the longer the problem persists, the more permanent the damage becomes. Why doesn’t the unemployment problem get more attention? Why have other worries such as inflation and debt reduction dominated the conversation instead? … The increased concentration of political power at the top of the income distribution provides much of the explanation.
Consider the Federal Reserve. Again and again we hear Federal Reserve officials say that an outbreak of inflation could undermine the Fed’s hard-earned credibility and threaten its independence from Congress. But why is the Fed only worried about inflation? Why aren’t officials at the Fed just as worried about Congress reducing the Fed’s independence because of high and persistent unemployment?
Similar questions can be asked about fiscal policy. Why is most of the discussion in Congress focused on the national debt rather than the unemployed? Is it because the wealthy fear that they will be the ones asked to pay for monetary and fiscal policies that mostly benefit others, and since they have the most political power their interests – keeping inflation low, cutting spending, and lowering tax burdens – dominate policy discussions?
Christina D. Romer: “It’s Time for the Fed to Lead the Fight“
The Fed’s dual mandate doesn’t say it should care about unemployment only so long as inflation is at or below the target. It’s supposed to care about both equally.
… The academic literature shows that monetary policy can be very effective at reducing unemployment in situations like ours. In the recovery from the Great Depression, for example, aggressive expansion of the money supply played a large role in lowering the real cost of borrowing and in spurring growth.
After the Fed has pushed interest rates down to zero, its main remaining tool is communications. It can affect expectations of future growth and inflation, which can have powerful effects on consumer spending and business investment today. But to have a big impact, the monetary actions need to be bold — and pursued with gusto.
More people with microphones and appropriate audiences need to start using moral language to describe Ben Bernanke’s actions. He’s not stupid, so there’s only one other option, really. We know that the costs of relatively low (as in, sub-8 percent) inflation are trivial. We also know that a willing Fed has precisely zero problem killing inflation if it so desires. There is no need for “credibility” on this issue unless you have a government that’s spent years running the printing presses to pay its bills. Bernanke sleeps well at night so he can get up every day and ensure that millions experience severe economic hardship.
Noni Mausa: “Let’s Play ‘You Be the Sucker!’“
Business and banks have heaps of money – and aren’t hiring, spending their money, or loaning it out. Meanwhile, a few million working-age Americans have no money and no work, and many are young, strong, highly trained and capable. Business is complaining that they can’t get suitable employees for some sectors. But they aren’t training them, and in sectors where wages are low, they aren’t raising wages. Houses stand empty, while thousands are homeless or living in cramped conditions with family or friends. They are all playing “Don’t Make Me The Sucker.” It’s like a game of musical chairs where no-one gets off their chairs except the terminally benign or naïve. You can crank up the music all you want, but nobody’s moving.
And in this game, they’re all correct. If any of them moves without all the others moving, they get to be The Sucker.
… So obviously what we need, right here, right now, is a nation of fools. Can anything get all the players off their chairs in back into Mr. Fezziwig’s dance? Nobody trusts anybody, and rightly. The smaller players can’t do it, and the giant ones hardly need to. But something needs to be done.