I’ve been in this economics business for a while. In fact, I’ve been in it so long, I still remember what people considered normal in those long-ago days before the financial crisis.
Normal, back then, meant an economy adding a million or more jobs each year, enough to keep up with the growth in the working-age population. Normal meant an unemployment rate not much above 5 per cent, except for brief recessions. And while there was always some unemployment, normal meant very few people out of work for extended periods.
So how, in those days, would we have reacted to Friday’s news that the number of Americans with jobs is still down two million from six years ago, that 7.6 per cent of the workforce is unemployed (with many more underemployed or forced to take low-paying jobs), and that more than four million of the unemployed have been out of work for more than six months?
Political insiders
Well, we know how most political insiders reacted: they called it a pretty good jobs report. In fact, some are even celebrating it as "proof" that the budget sequester isn't doing any harm.
In other words, our policy discourse is still a long way from where it ought to be.
For more than three years, some of us have fought the policy elite’s damaging obsession with budget deficits, an obsession that led governments to cut investment when they should have been raising it, to destroy jobs when job creation should have been their priority. That fight seems largely won – in fact, I don’t think I’ve ever seen anything quite like the sudden intellectual collapse of austerity economics as a policy doctrine.
But while insiders no longer seem determined to worry about the wrong things, that’s not enough; they also need to start worrying about the right things – namely, the plight of the jobless and continuing waste from a depressed economy. And that’s not happening. Instead, policymakers in Europe and the US seem gripped by a combination of complacency and fatalism, a sense that nothing need be done and nothing can be done. Call it the big shrug.
Even the people I consider the good guys, policymakers who have shown real concern over our economic weakness, aren’t showing much sense of urgency. For example, last autumn some of us were greatly encouraged by the Fed’s announcement that it was instituting new measures to bolster the economy. The Fed seemed to signal its willingness to get unemployment down. Lately, however, what one mostly hears from it is talk of “tapering”, of letting up on its efforts, even though inflation is below target, the employment situation is still terrible and the pace of improvement is glacial at best.
And Fed officials are, as I said, the good guys. Sometimes it seems as if nobody in Washington outside the Fed even considers high unemployment a problem.
Why isn’t reducing unemployment a major policy priority? One answer may be that inertia is a powerful force and it’s hard to get policy changes absent the threat of disaster. As long as we’re adding jobs, not losing them, and unemployment is stable or falling, not rising, policymakers don’t feel any urgent need to act.
Another answer is that the unemployed don’t have much of a political voice. Profits are sky-high, stocks are up, so things are okay for the people who matter, right?
A third answer is that while we aren’t hearing so much these days from the deficit hawks, the monetary hawks – economists, politicians and officials who keep warning that low interest rates will have dire consequences – have, if anything, gotten even more vociferous.
It doesn’t seem to matter that the monetary hawks, like the fiscal hawks, have an impressive record of being wrong about everything (where’s that runaway inflation they promised?).
They just keep coming back; the arguments change (now they’re warning about asset bubbles), but the policy demand – tighter money and higher interest rates – is always the same.
And it’s hard to escape the sense that the Fed is being intimidated into inaction.
Destructive budget cuts
The tragedy is that it's all unnecessary. Yes, you hear talk about a "new " of much higher unemployment, but all the reasons given for this alleged new normal fall apart when subjected to careful scrutiny.
If Washington would reverse its destructive budget cuts, if the Fed would show the "Rooseveltian resolve" that Ben Bernanke demanded of Japanese officials back when he was an independent economist, we would quickly discover that there's nothing normal or necessary about mass long-term unemployment.
So here’s my message to policymakers: where we are is not okay. Stop shrugging, and do your jobs.
