View Full Version : Economist's View: We dare not let this happen

David G
05-07-2011, 02:07 PM

Snippets --

Dean Baker is frustrated (http://www.cepr.net/index.php/blogs/beat-the-press/the-post-bombards-readers-with-misinformation-about-jobs-and-the-economy) with a Washington Post editorial telling the public there's nothing we can do about the unemployment problem, a problem it cannot even characterize correctly (see Dean on this point). Me too.

We dare not let that happen! We need to do something! Unless, according to the editorial, fear of what might happen if we try to help the unemployed gets in the way.
First, fiscal policy is ruled out as a solution to this urgent problem. As Dean Baker notes, "The Post tells readers that we can't try to create jobs through fiscal stimulus" because bond vigilantes might drive interest rates up. However, the "interest rate on 10-year Treasury notes is now 3.14 percent, much lower than it was in the budget surplus days of the late 90s" even though we've heard these warnings for some time now.

Well, if the problem is so urgent, certainly the editorial will support money policy instead? Nope. Here, the worry is inflation. But, as Greg Mankiw notes this morning, he agrees with Paul Krugman (http://gregmankiw.blogspot.com/2011/05/i-agree-with-paul-krugman.html) that "the price of labor does not show any significant inflationary pressures right now," and hence there is little to worry about in terms of inflation (and other signs of inflation are absent as well).

A sense of urgency to do what? With both fiscal and monetary policy off the table, what, exactly, is the government supposed to do? Apparently, the millions and millions of people who are unemployed, some of whom won't be reemployed until years from now if we do nothing to help, are supposed to be patient because people with power over policy are worried about inflation and higher interest rates. But there's no evidence of these problems in the data, and if the problem is truly urgent -- and I agree it is -- then we need to take action. Yes, there are risks. I don't think they are large, but both inflation and interest rates could go higher as a result of more active policy.

05-07-2011, 02:20 PM
lead, follow, or get out of the way?

05-07-2011, 03:21 PM
read Paul.

David G
05-09-2011, 12:21 PM

What would Paul say on the topic, you think? (I'll resist asking for your opinion of what Peter, Mark & Luke would say <G>)