If you are not talking about a higher inflation target, (much) more quantitative easing, and/or more aggressive expansionary fiscal policy right now, you have no business complaining that the employment-to-population ratio is too low.
Shane, in comments, points me at Greg Mankiw in the summer of 2011 maintaining that Federal Reserve policy is perfect, perfect:
Greg Mankiw: What’s With All the Bernanke Bashing?… POOR Ben Bernanke…. Mr. Bernanke’s record shows that the fears of both [left and right] sides have been exaggerated.
Mr. Bernanke became the Fed chairman in February 2006. Since then… the [inflation] outcome is remarkably close to the Fed’s unofficial inflation target of 2 percent. So, despite the economic turmoil of the last five years, the Fed has kept inflation on track….
Could the Fed have done substantially more to avoid the recession and promote recovery? Probably not…. A few economists have argued… that the employment picture would be brighter if the Fed raised its target for inflation above 2 percent. They say higher expected inflation would lower real interest rates, thus encouraging borrowing. That, in turn, would expand the aggregate demand for goods and services. With more demand for their products, companies would increase hiring.
Even if that were true, a higher inflation target is a political nonstarter. Economists are divided about whether a higher target makes sense, and the public would likely oppose a more rapidly rising cost of living…
What the Fed could do, however, is codify its projected price path of 2 percent… promise to pursue policies to get back to the target price path if shocks to the economy ever pushed the actual price level away from it…. If we started to see the Japanese-style deflation that the left fears, the Fed would maintain a loose monetary policy and even allow a bit of extra inflation to make up for past tracking errors. If we faced the high inflation that worries the right, the Fed would be committed to raising interest rates aggressively to bring inflation back on target. MORE important, an announced target path for inflation would add more certainty to the economy…. Less uncertainty would, other things being equal, encourage spending and promote more rapid recovery. It might even raise Mr. Bernanke’s approval ratings a bit.
So the bottom line: the Fed needs to promise that it won't let the inflation rate over any significant period of time average less than 2%/year, but Bernanke has done and is doing fine.
And if Bernanke is doing fine, and if fiscal policy is if anything too expansionary in Mankiw's eyes, why the complaints about the employment-to-population ratio?
All this is, of course, in sharp contrast to Greg Mankiw back in early 2009:
It May Be Time for the Fed to Go Negative: [T]here is a more prosaic way of obtaining negative interest rates: through inflation. Suppose that, looking ahead, the Fed commits itself to producing significant inflation. In this case, while nominal interest rates could remain at zero, real interest rates — interest rates measured in purchasing power — could become negative. If people were confident that they could repay their zero-interest loans in devalued dollars, they would have significant incentive to borrow and spend.
Having the central bank embrace inflation would shock economists and Fed watchers who view price stability as the foremost goal of monetary policy. But there are worse things than inflation. And guess what? We have them today. A little more inflation might be preferable to rising unemployment or a series of fiscal measures that pile on debt bequeathed to future generations.
Ben S. Bernanke, the Fed chairman, is the perfect person to make this commitment to higher inflation. Mr. Bernanke has long been an advocate of inflation targeting. In the past, advocates of inflation targeting have stressed the need to keep inflation from getting out of hand. But in the current environment, the goal could be to produce enough inflation to ensure that the real interest rate is sufficiently negative.
