Paul Krugman: Corrosive Effects Of High Unemployment Will Cast Shadow Over Economy For Many Years

The New York Times:

A few days ago, I read an authoritative-sounding paper in The American Economic Review, one of the leading journals in the field, arguing at length that the nation’s high unemployment rate had deep structural roots and wasn’t amenable to any quick solution. The author’s diagnosis was that the U.S. economy just wasn’t flexible enough to cope with rapid technological change. The paper was especially critical of programs like unemployment insurance, which it argued actually hurt workers because they reduced the incentive to adjust.

Read the whole story at The New York Times

Comments

[Broderick Crawford]

01:49 PM on 05/19/2012

U-6 remains unchanged from March, 2012 at 14.5%. The U6 unemployment rate counts not only people without work seeking full-time employment (the more familiar U-3 rate), but also counts "marginally attached workers and those working part-time for economic reasons." Note that some of these part-time workers counted as employed by U-3 could be working as little as an hour a week. And the "marginally attached workers" include those who have gotten discouraged and stopped looking, but still want to work.

[ElCojonuo]

01:43 PM on 05/13/2012

OK Paul, WHERE are they gonna work ?
Mickey D's, Hotels, Motels, Local Malls ?

[BigBearcatBill]

12:27 PM on 05/13/2012

Obama should give congress one major warning, he will call a national emergency combined from unemployment and infrastructure repair needs unless they convene discussion on getting both of these resolved together within a month or two. We all know repubs in congress are holding us hostage to get the infrastructure repaired since it needs hundreds of billions in work immediately and it would employ millions immediately, and you better believe they will continue to hold us hostage for another 4 years if Obama wins if they can - they will have another Inaugaral Day meeting to discuss probably how to overthrow the president if he wins. So Obama, get your safety and engineering experts testifying about infrastructure problems and throw down the gauntlet now, if you win this fight you will definitely win the election especially with progressive stances, and don't forget decrimiinalizing pot.

[spinotter11]

08:39 AM on 05/24/2012

We already have a bottomless pit of debt and you want to add more by deficit-spending for infrastructure?

[Rick4646]

10:53 AM on 05/13/2012

Even the GOP known for a very long time unemployment had to be dealt with, but they don't care. They've blocked just about every job creation bill that came from the democrats and President Obama and the GOP state legislatures had laid off just about every worker they could while still giving more tax breaks for the wealthy.

[DEmusicman]

11:41 AM on 05/13/2012

You're right...unless you're white, stupid and willing to hand everythign over to rich criminals, you don't even exist in thsi country....If the rich were (as if) unemployed or God forbid required to actually pay taxes, the GOP would come out of the woodwork with fangs to protect them. Poor babies...

[fortressfountain]

10:46 AM on 05/13/2012

Wow, lets take a consumer nation that supports the global economy into recession and high unemployment. Lets have forced health care and other costs. Wow, who has money to buY? Maybe that is the plan, as you can see most corporations shifiting over to education and medical. Or lots are doing "research" for gov. dollars. Research any idiot could do.
The only problem with their debt based economy is money and the willingness to take on debt will have to come from somewhere.
The citizen knows working hard for less will not a recovery make.

[BigBearcatBill]

03:09 AM on 05/13/2012

I think the two biggest things the repubs/cons/rich say cause unemployment are taxes and regulations, mainly safety and environmental related. Here is the scoop on who approved the most important safety and environmental Acts as president: Nixon started OSHA for worker safety, and EPA clean air and water Acts. Ford started RCRAct which is that one requring us not to dump Hazrdous Waste/chemicals into regular trash dumps, haz wastes must go to certain specific disposal faclities at a pretty high cost so it is disposed of in way not to pollute water/air. Ford started TSCAct = Toxic Substances Control Act which regulates how new chemicals must be tested for toxicity and classified for hazards and controls required by users. Reagan started the AHERAct which is the Asbestos regulation world we all know about it requiring to not emit fibers above concentration limits and the requiremens on the abatement/removal processes which are very costly. Bush Sr. did the major revision to the Clean Air Act for the EPA requiring costly controls on many air emissions from businesses. Carter, Clinton and Obama have not created new regulartory safety/environmental Acts nearly as much as the republicans. did. So do you think the current republicans should be blaming their forefathers Nixon, Ford, Reagan and Bush Sr. more for the over-regulation???? I don't think they planned to hurt economy when they signed Acts, but you never know maybe another strange reverse logic conspiracy, but I don't think so.

[rhymney]

01:03 AM on 05/13/2012

The rigid structure in 1939 was caused by FDR's boot on the throat of American businesses. Our economy today faces the same lack of dynamics thanks to Federal and State regulations and the size of the economy now controlled by the government. WWII forced FDR to change policy and hire the head of General Motors to oversee war production. Knudsen insisted on free market principles which allowed the U.S. to produce, by 1943, more war materials than Russia, Germany and Great Britain combined.

[billw8017]

03:55 AM on 05/13/2012

"Free market principles" do not necessarily mean working for the government.

[rhymney]

11:25 AM on 05/13/2012

Actually it means not working for the government. Knudsen insisted on a lack of command and control by the government.

[Zoltan Ban]

09:09 PM on 05/12/2012

The economist Krugman criticizes, is part of the conservative economic movement, he on the other hand is part of the more socialist oriented movement. See the problem? Are not economists supposed to be driven by analysis rather than politics? No wonder the western world is sinking.

http://zoltansustainableecon.blogspot.com/2012/05/austerity-versus-stimulus-prominent-but.html

[billw8017]

04:03 AM on 05/13/2012

The economist that Krugman criticizes is a hack who argues that matters are as they are and, therefore, they cannot be any other way. It reminds me of a contemporary disproof of Galileo, the moons of Jupiter cannot be seen by the naked eye; therefore, they have no influence on human affairs; and therefore, they do not exist. That is, theory matters and facts don't.

Krugman is a profound scholar of economic matters, and, when he has made predictions, he is always right. This is the crux of the scientific method.

[Saulius Muliolis]

11:37 AM on 05/13/2012

Wow. One hack criticizing another hack.

What Krugman makes statements about economic history, like descriptions of what Hoover did, or what Austrian economists believe, he is always wrong. I'm pretty skeptical about any claim that he predicted anything.

[BigBearcatBill]

04:58 PM on 05/12/2012

I am sure there is a worker safety and possibly and environmental and emergency response dividend for having workers continuously employed, especially in the physically demanding trades where young inexperienced workers can get hurt just from not knowing or forgetting some of the things they should have recently learned IF they were kept employed. Some super skilled trades also need some time for the old masters to train the journeymen to replace them before they retire, classes cannot do all the training for some jobs and robots have not replaced all of us yet.

[ruolivert]

04:46 PM on 05/12/2012

If demand in this country is so low why do the prices keep rising? Supply and demand are supposed to be the forces that control pricing and if supply is steady but people just don't have the mony to spend why are the costs going up? What force is making business raise costs while keeping wages, for the majority of employees, suppressed?

[splashy]

07:47 PM on 05/12/2012

The gamblers (the wealthy) are investing in commodities, driving the prices up for food, oil, and other commodities. That's why the prices keep going up with demand being lower. Notice how there are strange spikes for no good reason? That's the gamblers doing it.

[ReadThomasSowell]

09:12 PM on 05/12/2012

INFLATION. You do realize that printing money out of thin air leads to INFLATION, right?

In a free market w/ sound currency, your post would be spot on.

[rhymney]

01:05 AM on 05/13/2012

And Krugman's solution is always spend more money by printing and borrowing it.

[ruolivert]

10:27 AM on 05/13/2012

Oh I do realize this and your answer is the exact one I was looking for.

[TruelyFedUp]

10:13 AM on 05/12/2012

Indigenous populations never face this problem, instead they assume it is the natural right of humans to a share of the land and resources they need to be self sustaining. There are no jobs that are not created for entertainment. People work the necessary hours per day to provide shelter and food and the rest of their lives belong to them. They just don't bother to pay a middleman for the privilege of a place to live and their food. Today we have enough technology to make the shelter and food production MUCH more efficient and enough land and resources to provide for everyone - we just need to focus on the right priorities and get it done.

Imagine that we all demand (like Iceland has done) that all mortgage debt is forgiven and that the people own their homes. Imagine that we have a debt jubilee and all debt is forgiven. Imagine that we demand from the government enough of the land that they hold in "trust" for us but refuse to let us use, to provide bases for eco villages for any American that needs or wants to live there. We could end homelessness and joblessness all at once if we just demand the right to our lives, our liberty and to pursue our happiness. Let's take our focus off the wars and killing and take care of each other instead.

[rhymney]

01:10 AM on 05/13/2012

The reason we are not still a primitive society and have the wealth you describe is because we abandoned the policies you are advocating. BTW, your comments on Iceland are false, see link:
http://wizbangblog.com/2012/04/14/did-iceland-forgive-the-majority-of-its-citizens-mortgage-debt/

[TruelyFedUp]

10:36 AM on 05/13/2012

It looks like my comments on Iceland were slightly off the mark because of what was available in the news at the time, not false. You seem to have a little trouble with accuracy in your assessment of things.

What is so magnificent about our "sophisticated" society that condones wars, drone attacks on innocent people, millions of our citizens in prison for simple acts that harm nobody, millions of our people homeless and without aid, money being funneled to the wealthy and powerful off the backs of the rest of us, our rights being stripped away by a corrupt government and the militarization of our police force and our environment being decimated in the name of growth and profits, old people choosing between a home or medication, 18 million college grads with massive debt and no future because of unemployment, vast neighborhoods of private McMansions sucking resources away from poorer nations? Oh yeah, we sure have bought some wonderful stuff with our lovely economic systems. NOT.

I'm sure that we can have a truly civilized world if we shift the paradigm from profits to the care of people as our first priority. Only when we are sure that every person has the right to a quality of life should we start worrying about wealth.

[TruelyFedUp]

10:37 AM on 05/13/2012

As for me, I am happier living close to nature, growing my own food, driving an old car that runs well and gets good gas milage, working towards living sustainably. I don't need the wealth of stuff to feel important, knowing that the homeless are provided land and resources would make me feel wealthy, knowing that people in the middle east & their kids are not getting blown to bits by drone bombs I help pay for makes me feel wealthy. I'd rather buy world peace than a bigger SUV, I guess it's all a matter of values...

[nkurland]

08:50 AM on 05/12/2012

Its one thing to correctly note the presence of deep structural flaws in the economy. Its quite another to use this as an excuse to avoid decisive action on the unemployment issue, which is exactly what is being done by a small, but increasingly loud minority of economists.

The key structural flaw hindering growth is a low wage floor coupled with a high debt burden. Right now, the average household is not only seeing virtually no income growth, but workers are being rehired at lowers wages. Increasingly large portions of household incomes are going to housing, healthcare, food and debt amortization (ie, paying off debts) meaning there's precious little to spend in the real economy.

A real strategy needs to go back the basics. This means a real mortgage relief program with teeth to force meaningful writedowns. More importantly, it means promoting wage growth through a minimum wage increase, and a bolstering of workers' rights along with direct hiring programs in areas requiring large, longterm investments.

If there isn't a "quick fix," its because there's no political will in either party to invest seriously in measures to jumpstart the economy.

[FCH]

08:54 AM on 05/12/2012

Clear and accurate. Well stated .Thank You

[ruolivert]

04:27 PM on 05/12/2012

Income growth is only necessary when you see an increase in prices, when you see inflation. Our government targets 2% inflation each year but does anyone get a 2% raise year over year? The real question you don't ask is how prices can go up when real demand isn't rising. Up until 2008 the expansion of credit made available to the public was a big reason for this. People could consume much more then they were able to afford and this caused businesses to expand to meet the demand created by cheap and easy credit. When 2008 hit and the banks stopped lending and people realized they couldn't spend more then they take in the people began to reduce their debt levels. This inherently means that they can't consume as much as they used to. This also means that much of the growth we experienced was due to the expansion of the money supply through credit creation. Now prices want to recede, of deflate, to a natural level but this would mean that the large financial institutions that are holding trillions of dollars in overmarked assets will see their solvency slip by the way side. The government can't let this happen so they will keep the banks liquid by creating money and letting them pad their balance sheets while they use the overpriced assets as collateral for even more leveraging.

[rtx47]

07:46 AM on 05/12/2012

Govt should offer the 55+ the option of Medicare participation if they elect to retire and / or not seek unemployment benefits.

Those interested may take the govt's offer; which opens up vacancies for the younger workers.

This would be a win-win-win for govt, Medicare, unemployed, Conservatives and Progressives.
Nobody is forcing anybody to do anything.

It is amazing how many private and govt workers are retiring to take up another job; often just for the expensive health insurance; if they can even get it on their own.

Permitting the 55+ to participate in Medicare would lower the costs of Medicare since on average, they are more healthy than those above 65.

[splashy]

08:55 PM on 05/12/2012

That's an excellent idea. In fact, expanding Medicare to cover younger and younger people over a period of time would really cut costs.

[DarkReaction]

11:22 PM on 05/12/2012

Just lower the age to 0 and you save a lot of problems, including cost.

[Sean 6399]

04:34 AM on 05/12/2012

"The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance.To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."

-Paul Krugman 2002
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

[Saulius Muliolis]

06:54 PM on 05/12/2012

Wonderful prescription. And where did that get us?

Austrian economists see falling prices as a good thing. Common workers get, in effect, a big raise even if they don't earn more money because that money buys more. Keynesians see falling prices as a bad thing.

Krugman an McCulley think we need to replace one bubble with another.

"I want real growth, not a series of bubbles." -- F A Hayek in "Fight of the Century: Keynes vs. Hayek Round II

http://www.youtube.com/watch?v=GTQnarzmTOc

So who is on the side of the common man here?

[Sean 6399]

08:32 PM on 05/12/2012

Oddly enough, I suspect both camps of thought think they are on the side of the common man. The difference is that the Keynesians think the only way to help the common man is to erect powerful central institutions that can cushion the common man from what they see as a dangerously chaotic marketplace, while the Austrians see that impulse to central control as the danger in itself.

[artgurrl]

03:09 AM on 05/12/2012

I love Krugman, he tells it like it is. However, I have to admit I have some problems with the current economic models we base our system on. First of all, we are a consumerist system. We base our wealth on a system of consumption which requires enormous amount of energy and natural resources. Both of which are currently incredibly inefficient to produce, not to mention very very destructive to our health and our planet. It seems to me that we need a new way of thinking about economics and a new form of an economic system rather than Capitalism, which is destroying the planet. Yes we need people to be employed, but what good is it if they go about working for a system that is leading to our own demise?

[Saulius Muliolis]

07:57 AM on 05/12/2012

If you love Krugman, understand that he utterly fails to understand different ways of looking at the economy and different theories of business cycles. I, a complete layman, have written an article debunking his criticism of the major school of thought that debunks his Keynesian theories.

http://thefreemarketsalibi.blogspot.com/2012/04/krugmans-hangover.html

As for "destroying the planet", we aren't. The planet will keep spinning no matter what we do. Not only that, better technology is leading to better ways of using resources. The truth is that capitalism leads to better use of resources and a cleaner world, because that is actually what consumers want. Things are, overall, getting better. I siggest reading Bjorn Lomborg's "The Skeptical Environmentalist" and Julian Simon's "The Ultimate Resource".

[splashy]

08:58 PM on 05/12/2012

Capitalism leads to better use of resources? No, actually REGULATING capitalism leads to better use of resources.

[seegray]

05:13 AM on 05/13/2012

"The truth is that capitalism leads to better use of resources and a cleaner world, because that is actually what consumers want."

Historically, that's so far off it isn't funny. The problem is your assumption that consumers want more efficient and cleaner use....they don't. They want cheap use - most consumers will never bother to find out whether their use is clean or efficient. Since consumers aren't actually that concerned, industry provides those resources as cheaply as possible to keep their costs down....usually leading to much greater pollution. We've been there, in the 70s...that's the kind of thing Nixon was thinking of when he created the EPA. When consumers are educated on the subject, which usually comes from outside the industry (doesn't pay for the industry itself to do it), then the consumer wants cleaner production and use. It is at that point, and only at that point, that capitalism leads to better use of resources and a cleaner world.....it doesn't happen voluntarily.