Monday, April 22, 2013

Permanently Unemployed

Paul Krugman writes in The New York Times that America is creating a new social class -- the permanently unemployed:

Now, some unemployment is inevitable in an ever-changing economy. Modern America tends to have an unemployment rate of 5 percent or more even in good times. In these good times, however, spells of unemployment are typically brief. Back in 2007 there were about seven million unemployed Americans — but only a small fraction of this total, around 1.2 million, had been out of work more than six months.

Then financial crisis struck, leading to a terrifying economic plunge followed by a weak recovery. Five years after the crisis, unemployment remains elevated, with almost 12 million Americans out of work. But what’s really striking is the huge number of long-term unemployed, with 4.6 million unemployed more than six months and more than three million who have been jobless for a year or more. Oh, and these numbers don’t count those who have given up looking for work because there are no jobs to be found. 

Unfortunately, when companies hire, they assume that long term unemployment is caused by moral turpitude, not a flawed system. The unemployed become "tainted goods that nobody will buy." Krugman pulls no punches:

And let’s be clear: this is a policy decision. The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy.

It’s hard to overstate how self-destructive this policy is. Indeed, the shadow of long-term unemployment means that austerity policies are counterproductive even in purely fiscal terms. Workers, after all, are taxpayers too; if our debt obsession exiles millions of Americans from productive employment, it will cut into future revenues and raise future deficits. 

There is nothing new in Krugman's thesis. History supports it. Unfortunately, as Santayana said, "Those who refuse to learn from history are condemned to repeat it."

This entry is cross posted at The Moderate Voice.


Lorne said...

Owen, I watched a very interesting video the other day in which Mark Blyth talks to TVO's Steve Paikin about the problems with austerity. Among the excellent points he makes are the following:

- Austerity is counterproductive when most countries are embracing it. Less worldwide disposable income means less purchasing of other countries' products;

- Even though they are not responsible for the world's current fiscal mess, those less able to are forced to carry the burden through higher unemployment, reductions in social spending, etc.

- Nothing is being demanded of the rich, for example, in terms of higher taxation; he dismissed the canard about higher taxes stifling growth. He pointed out that during the Eisenhower era, the top marginal tax rate in the U.S. was something like 90%. Compare that to today's laughable low rates that contribute nothing to growth, despite all of the right-wing propaganda to the contrary.

Here is the URL for the video:

Owen Gray said...

Thanks for the link, Lorne. Blyth and Krugman are right. In the long run, austerity leads to bigger deficits.

Unfortunately, in Europe, the United States and Canada, the right views economic collapse as the result of moral turpitude -- not pig headed stupidity.