My head hurts every time I read about the phony crisis about the debt and the deficit–whether it be the idiotic headlines bowing down to the rating agencies’ hand-wringing (the same bozos who did such a good job blessing the financial instrument trash churned out by Wall Street) or the daily headlines about a "deal" between the Ryanites and capitulating Democrats, from the White House to the Congress. Because none of that Kabuki dance comes anywhere near the real crisis: unemployment.
Turn on your inner wonk if you want to read a new report from the Organisation for Economic Co-operation and Development (OECD) which warns:
At the end of 2010, the average OECD unemployment rate was still close to the historical peak reached during the crisis. In 12 OECD countries it remained two percentage points or more above the pre-crisis level, and even where the rise in joblessness was less severe, the recovery has been generally too weak so far to allow for a significant fall in unemployment (Figure 1). A main concern in countries most severely hit is that persistently high levels of unemployment – and a rising share of unemployed workers facing long spells without a job – will eventually result in widespread deterioration of human capital, discouragement and labour market withdrawal.[emphasis added]
The U.S. ranks fifth–only behind Spain, Ireland, Greece and Iceland–in the pace of the rise in unemployment from the Fall of 2007 to the end of 2010. And it ain’t getting any prettier: [more after the fold]
However, a striking feature of the current situation is an unusually high share of long-term unemployment in the United States, occurring against the backdrop of a sharp rise in unemployment and a trend decline in outflows from unemployment.
Quick translation into English: when they talk about "decline in outflows from unemployment" they mean that unemployment is staying high.
What should be done?
Where job prospects remain bleak, the policy focus in the short term should be to continue to boost labour demand so as to increase unemployment outflows.
That means, in my humble opinion, that rather that spend foolish hours debating how to cut government spending, this is exactly the time when we should be dramatically INCREASING government investment in jobs. Yesterday, I wrote about some observations made by Joseph Stiglitz. I omitted the specific point he made, as many have before, that if the economy was pumping along at a normal rate with strong employment, the deficit would be trivial because, duh, people would be paying taxes on their income.
The OECD supports this:
One reason for concern is that even though a recovery has been underway for some time in the majority of OECD countries, growth in aggregate demand has generally been too weak to begin making serious inroads into unemployment. Indeed, the substantial slack in labour productivity and average hours worked that has built up in the wake of the crisis has provided ample room in the majority of countries for accommodating GDP growth through more intense use of currently employed workers. Furthermore, even though GDP is generally expected to grow in 2011 and 2012 faster than productivity and the labour force combined, in several cases the slack may be absorbed too slowly to allow for a significant decline in unemployment over this horizon.
And we then face the risk of–grab for your true inner wonk–something called "hysteresis". That is basically a fancy word for a world in which unemployment stays permanently high.
So, this brings us back to the fantasy world of Washington and the debate over the phony "crisis" of the deficit and debt. We can spend a lot of time on playing a political game of slashing and burning–with the Republicans truly operating with extreme lunacy ending up in a catastrophic implosion of the basic licing standards for most Americans versus a president who, in trying to make a deal with lunatics, will do just really bad damage.
Or we can fucking get real. And start putting people back to work.