Paul Krugman has a message for policy-makers: "Where we are is not O.K. Stop shrugging, and do your jobs"

Patrick Chappatte [click to enlarge]

"For more than three years some of us have fought the policy elite's damaging obsession with budget deficits, an obsession that led governments to cut investment when they should have been raising it, to destroy jobs when job creation should have been their priority. That fight seems largely won -- in fact, I don't think I've ever seen anything quite like the sudden intellectual collapse of austerity economics as a policy doctrine.

"But while insiders no longer seem determined to worry about the wrong things, that's not enough; they also need to start worrying about the right things -- namely, the plight of the jobless and the immense continuing waste from a depressed economy."

-- Paul Krugman, in his NYT column "The Big Shrug"

by Ken

Howie and I were talking the other day (or the other week?) about what is, I now gather the talk of the blogging community: the death of politics. Or rather, that fewer and fewer people seem interested in the stuff.

Which I understand completely. Things aren't bad enough to drive us into open revolt, or even vaguely mutinous disgruntlement, as might have been the case in the first year or two of the economic meltdown -- the vaguely mutinous disgruntlement, not the impulse to open revolt. We have learned enough about the corruption of our system, and the way in which it is controlled by our power elites, as to leave most of us throwing our arms up, saying, "WTF can we do anyway?"

And there's a tendency to answer: fry up some more bacon, and watch the new episodes of Game of Throw-Up.

Imagine Paul Krugman, then, trotting out the quaint idea that there are people in policy-making positions whose job it is to do something about the state of the economy.

"I've been in this economics business for a while," he begins today's NYT column, "The Big Shrug." "In fact, I've been in it so long I still remember what people considered normal in those long-ago days before the financial crisis."

In those ancient times, he says, "normal" meant:

* "an economy adding a million or more jobs each year, enough to keep up with the growth in the working-age population";

* "an unemployment rate not much above 5 percent, except for brief recessions";

* and "very few people out of work for extended periods."

"So how, in those long-ago days," he wonders, "would we have reacted to Friday's news" --

that the number of Americans with jobs is still down two million from six years ago, that 7.6 percent of the work force is unemployed (with many more underemployed or forced to take low-paying jobs), and that more than four million of the unemployed have been out of work for more than six months? Well, we know how most political insiders reacted: they called it a pretty good jobs report. In fact, some are even celebrating the report as "proof" that the budget sequester isn't doing any harm.

Krugman credits the Fed with at least -- once upon a time, which is to say last fall -- signaling a "willingness to do whatever it took to get unemployment down." But that passed, and now, he says, "sometimes it seems as if nobody in Washington outside the Fed even considers high unemployment a problem."

He wonders why this isn't "a major policy priority," and ventures three answers:

(1) "Inertia"

[I]t's hard to get policy changes absent the threat of disaster. As long as we're adding jobs, not losing them, and unemployment is basically stable or falling, not rising, policy makers don't feel any urgent need to act.

(2) "The unemployed don't have much of a political voice"

Profits are sky-high, stocks are up, so things are O.K. for the people who matter, right?

(3) "The monetary hawks"

[W]hile we aren't hearing so much these days from the self-styled deficit hawks, the monetary hawks -- economists, politicians and officials who keep warning that low interest rates will have dire consequences -- have, if anything, gotten even more vociferous. It doesn't seem to matter that the monetary hawks, like the fiscal hawks, have an impressive record of being wrong about everything (where's that runaway inflation they promised?). They just keep coming back; the arguments change (now they're warning about asset bubbles), but the policy demand -- tighter money and higher interest rates -- is always the same. And it's hard to escape the sense that the Fed is being intimidated into inaction.

"The tragedy is that it's all unnecessary"

Krugman allows that "you hear talk about a 'new normal' of much higher unemployment," but insists that "all the reasons given for this alleged new normal, such as the supposed mismatch between workers' skills and the demands of the modern economy, fall apart when subjected to careful scrutiny."

If Washington would reverse its destructive budget cuts, if the Fed would show the "Rooseveltian resolve" that Ben Bernanke demanded of Japanese officials back when he was an independent economist, we would quickly discover that there's nothing normal or necessary about mass long-term unemployment.

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