Credibility, Fiscal Policy, and Monetary Policy
Eric Swanson: Let's Twist Again

Why Isn't 9% Unemployment a Political Emergency?

If there was one thing that I would have said in 2007 was certain to be true, it would have been that in a country with as weak a social safety net as the United States that 9% would be a three-alarm political emergency.

Yet it isn't.

Paul Krugman muses on why:

The Forgotten Millions: Washington has lost interest in the unemployed. Jobs do get mentioned now and then — and a few political figures, notably Nancy Pelosi, the Democratic leader in the House, are still trying to get some kind of action. But no jobs bills have been introduced in Congress, no job-creation plans have been advanced by the White House and all the policy focus seems to be on spending cuts. So one-sixth of America’s workers — all those who can’t find any job or are stuck with part-time work when they want a full-time job — have, in effect, been abandoned.

It might not be so bad if the jobless could expect to find new employment fairly soon. But unemployment has become a trap, one that’s very difficult to escape. There are almost five times as many unemployed workers as there are job openings; the average unemployed worker has been jobless for 37 weeks, a post-World War II record.

In short, we’re well on the way to creating a permanent underclass of the jobless. Why doesn’t Washington care?...

[T]hose who still have jobs are feeling more secure than they did a couple of years ago.... [T]he U.S. economy is suffering from low hiring, not high firing, so things don’t look so bad — as long as you’re willing to write off the unemployed. Yet polls indicate that voters still care much more about jobs than they do about the budget deficit. So it’s quite remarkable that inside the Beltway, it’s just the opposite....

[W]e’ve been warned, over and over again, that “bond vigilantes” will turn on the U.S. government unless we slash spending immediately. Yet interest rates remain low... lower now than they were in the spring of 2009.... [W]e’ve been assured that spending cuts would do wonders for business confidence. But that hasn’t happened in any of the countries currently pursuing harsh austerity programs... the Cameron government in Britain... received fawning praise from U.S. deficit hawks. But British business confidence plunged, and it has not recovered....

I still don’t know why the Obama administration was so quick to accept defeat in the war of ideas, but the fact is that it surrendered very early in the game. In early 2009, John Boehner, now the speaker of the House, was widely and rightly mocked for declaring that since families were suffering, the government should tighten its own belt. That’s Herbert Hoover economics, and it’s as wrong now as it was in the 1930s. But, in the 2010 State of the Union address, President Obama adopted exactly the same metaphor and began using it incessantly.

And earlier this week, the White House budget director declared: “There is an agreement that we should be reducing spending,” suggesting that his only quarrel with Republicans is over whether we should be cutting taxes, too. No wonder, then, that according to a new Pew Research Center poll, a majority of Americans see “not much difference” between Mr. Obama’s approach to the deficit and that of Republicans.

So who pays the price for this unfortunate bipartisanship? The increasingly hopeless unemployed, of course. And the worst hit will be young workers — a point made in 2009 by Peter Orszag, then the White House budget director.... [T]he next time you hear some Republican declaring that he’s concerned about deficits because he cares about his children — or, for that matter, the next time you hear Mr. Obama talk about winning the future — you should remember that the clear and present danger to the prospects of young Americans isn’t the deficit. It’s the absence of jobs.

But, as I said, these days Washington doesn’t seem to care about any of that...

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