Tags: Krugman | shrug | unemployment | policymakers

Krugman: Policymakers 'Shrug' Off High Unemployment

By    |   Tuesday, 11 June 2013 07:49 AM

Policymakers, including the Federal Reserve, have given up fighting high unemployment, writes New York Times columnist Paul Krugman.

They seem indifferent to persistently high unemployment and weak job reports. Krugman calls it "the big shrug."

The government on Friday reported a 7.6 percent unemployment rate in May and that more than 4 million people have been out over work for over six months.

Editor's Note:
The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

Yet that dismal jobs report received a good reception.

Before the financial crisis, normal meant an unemployment rate close to 5 percent, adding a million or more new jobs a year and few people out of work for extended periods.

"In other words, our policy discourse is still a long way from where it ought to be," Krugman writes.

Policymakers, he argues, should be worrying about "the plight of the jobless and the immense continuing waste from a depressed economy."

Unfortunately, that's not happening, he notes.

"Instead, policymakers both here and in Europe 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 Federal Reserve, who Krugman calls "the good guys," seems to have lost interest and are talking about tapering quantitative easing, even though inflation is below its target, the employment picture is dreadful and the recovery rate is "glacial at best," according to Krugman.

Policymakers feel no urgency in not facing a disaster, and the unemployed hold little political clout. "Profits are sky-high, stocks are up, so things are OK for the people who matter, right?"

Plus, the monetary hawks continue to loudly warn about low interest rates causing disaster. "It doesn’t seem to matter that the monetary hawks, like the fiscal hawks, have an impressive record of being wrong about everything," Krugman writes, noting their warnings of runaway inflation have yet to materialize.

Instead of warning of inflation, they're now warning of asset bubbles, but still pressing for higher interest rates.

Arguments that high unemployment is the "new normal" because workers' skills don't meet demands of the new economy disintegrate on close examination. Washington must end its budget cuts and the Fed must show more resolve, then it would show that long-term mass unemployment is not normal, Krugman asserts.

"So here’s my message to policymakers: Where we are is not OK. Stop shrugging, and do your jobs."

Federal Reserve Chairman Ben Bernanke in recent testimony to Congress said high unemployment and low inflation "requires a highly accommodative monetary policy."

Washington, he said, "could consider replacing some of the near-term fiscal restraint now in law with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run."

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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Policymakers, including the Federal Reserve, have given up fighting high unemployment, writes New York Times columnist Paul Krugman.
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2013-49-11
Tuesday, 11 June 2013 07:49 AM
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