No End to the Unemployment Problem in Sight

More on “duration matters“:

No End in Sight, by James Surowiecki, New Yorker: The talk in Washington these days is all about budget deficits, tax rates, and the “fiscal crisis” that supposedly looms in our near future. But this chatter has eclipsed a much more pressing crisis here and now: almost thirteen million Americans are still unemployed. …

Being unemployed is even more disastrous for individuals than you’d expect. Aside from the obvious harm—poverty, difficulty paying off debts—it seems to directly affect people’s health, particularly that of older workers. …

Unemployment doesn’t hurt just the unemployed, though. It’s bad for all of us. Jobless workers, having no income, aren’t paying taxes, which adds to the budget deficit. More important, when a substantial portion of the workforce is sitting on its hands, the economy is going to grow more slowly…

Most worrying… Right now, unemployment is mainly the result of what economists call cyclical factors… But if high long-term unemployment continues there’s a danger that … cyclical unemployment could become structural unemployment… The longer people are unemployed, the harder it is for them to find a job… Being out of a job can erode people’s confidence and their sense of possibility; and employers, often unfairly, tend to take long-term unemployment as a signal that something is wrong. A more insidious factor is that long-term unemployment can start to erode job skills…

You’d think that Congress and the Federal Reserve would be straining every sinew to avoid such a fate. It isn’t as if they’re out of tools. … Sadly, there’s little sign that policymakers have much interest in using these tools. …

I don’t know how many ways, or how many times I can say that labor markets need more help than they are getting. It’s futile, I know — Congress turned its back on the unemployed long ago and the Fed is not inclined to fill the gap any more than it already has — but I can’t help trying.

This is from two years ago:

I’ve been pushing hard for more help for labor markets for quite awhile — at times I’ve thought it was a bit repetitive, but necessary — but it’s probably time for me to give up and accept that we are going to have a slower recovery than we could have had with more aggressive fiscal policy. … Congress is not going to provide anything more than token help from here forward. …

I’ll still complain — there’s no reason to let policymakers off the hook — but it’s time to give up the hope that anything more will be done to help the unemployed find jobs.

If we’d done more then — or even earlier like many of us were calling for — we’d be in much better shape today. The thing is, it’s still not too late. If we do more now, two years from now we’ll be happy that we did.

This post originally appeared at Economist’s View and is posted with permission.

5 Responses to "No End to the Unemployment Problem in Sight"

  1. RDow   April 23, 2012 at 7:19 pm

    What do you propose we do? Create government jobs like Greece? With free trade, we have enabled commerce to seek lower cost of production elsewhere. One of the highest standards of living in the world is in decline – permanently. Get over it.

    • Robert P. Coutinho   April 26, 2012 at 3:09 am

      We need to structurally change how Congress deals with monetary policy. We have a fiat, non-exchangeable currency. That means that the federal government spends money into existence and taxes money out of existence. If Congress understood this simple fact, they would likely enact policies that would optimize the country's output. Instead, they talk of deficits when the reality is that taxes do not pay for what the government buys. Taxes are simply the means that Congress uses to take money out of the system (sort of as an anit-inflation system).

      So…if we started having the federal government work hand-in-hand with the Federal Reserve to settle inflation, they could set policies and spending at levels that would promote full employment. Initially, they could start up a system where anyone who wanted work would be allowed to take a government job that payed just below minimum wage plus benefits. Eventually that would stimulate the private sector to hire more people.

      The Federal Government needs to determine what it needs for goods and services and buy them. Then it should tax based on how much of that money spent needs to be taken out of circulation in order to prevent unwanted inflation (i.e. inflation higher than wanted). The Treasury Department and Federal Reserve would work together to make sure that the money supply remained at the right levels.

      For more information, do an internet search on Modern Monetary Theory and you will find information that may cause an epiphany.

  2. John Ryskamp   April 23, 2012 at 8:08 pm

    No, what you do is to understand better what employment in fact is. That means looking at jobs as they relate to the rest of society. But to do that you need to increase rights in employment. Right now, under the West Coast Hotel v. Parrish/U.S. v. Carolene Products "scrutiny" regime, policy regarding employment need meet only "minimum scrutiny"–that is, it need only be "rationally related to a legitimate government purpose." That's why Congress can get away with ignoring unemployment. It's easy to throw in a few facts and insist that, because you are the government, those facts lead you to conclude that there's nothing you can do about unemployment.

    If employment enjoyed "strict" scrutiny–that is, if unemployment had to be "narrowly tailored to achieve a compelling government purpose–you would have government's nose held to the grindstone with respect to the role it plays in employment.