SECOND WORLD
World
U.S.
N.Y. / Region
Business
Technology
Science
Health
Sports
Opinion
Arts
Style
Travel
Jobs
Real Estate
Autos
.
——————————————————————————–
Advertise on NYTimes.com.
.
.
——————————————————————————–
July 5, 2013, 8:40 am 166 Comments
On The Political Economy Of Permanent Stagnation
I’ve been having a strange reaction to recent news about economic policy. Stuff is happening: the Fed bungled its communications, doing its bit to undermine modest economic progress; the European Commission is sorta kinda relaxing its demands for austerity; the Bank of England appears to have issued forward guidance that it’s going to issue forward guidance; and so on. But with the possible exception of Abenomics, it’s all pretty small-bore stuff.
And that’s disappointing. We had what felt like an epic intellectual debate over austerity economics, which ended, insofar as such debates ever end, with a stunning victory for the anti-austerity side — and hardly anything changed in the real world. Meanwhile, the pain caucus has found a new target, inventing dubious reasons for monetary tightening. And mass unemployment goes on.
So how does this end? Here’s a depressing thought: maybe it doesn’t.
True, something could come along — a new technology that induces lots of investment, a war, or maybe just a sufficient accumulation of “use, decay, and obsolescence”, as Keynes put it. But at this point I have real doubts about whether there will be events that force policy action.
First of all, I think many of us used to believe that sustained high unemployment would lead to substantial, perhaps accelerating deflation — and that this would push policymakers into doing something forceful. It’s now clear, however, that the relationship between inflation and unemployment flattens out at low inflation rates. We can probably have high unemployment and stable prices in Europe and America for a very long time — and all the wise heads will insist that it’s all structural, and nothing can be done until the public accepts drastic cuts in the safety net.
But won’t there be an ever-growing demand from the public for action? Actually, that’s not at all clear. While there is growing “austerity fatigue” in Europe, and this might provoke a crisis, the overwhelming result from U.S. political studies is that the level of unemployment matters hardly at all for elections; all that matters is the rate of change in the months leading up to the election. In other words, high unemployment could become accepted as the new normal, politically as well as in economic analysis.
I guess what I’m saying is that I worry that a more or less permanent depression could end up simply becoming accepted as the way things are, that we could suffer endless, gratuitous suffering, yet the political and policy elite would feel no need to change its ways.
Oh, and have a nice day.
.
Save
E-mail
Share
Print
——————————————————————————–
Previous Post A Textbook Case of Excessive Leverage
Next Post Crib Sheet: How I Work (Self-indulgent)
.
165 Comments
Share your thoughts.
.
All
Reader Picks
.
Newest
Write a Comment.
wjlara1
Diamond Bar
..
Here is an innovative strategy that ties up tax amnesty with infrastructure bonds raised by an infrastructure bank. Using income tax projection estimates for each taxpayer, the government will grant amnesty for anything in excess of the tax projection estimates, provided that they are invested in infrastructure bonds in a private infrastructure bank . There is no lost tax revenue to the government because they would not have received this extra revenue under the status quo. If the government does nothing, they would remain in tax havens. To the taxpayers with tax havens, they are eager to place their hoard in more productive but safe investments. This tax amnesty will fit the bill exactly. Infrastructure bonds will be paid for by : 1) toll fees where feasible 2) Government payments from its annual infrastructure budgets. The infusion of money for these investments has no ideological conflict with right or left. Taxes remain in line with projections, amnesty satisfies the 1% top income earners, infrastructure projects get done, and the economy is stimulated. Everybody happy?
July 5, 2013 at 2:38 p.m.
..
Calvin
California
..
So, this is how it is?
Politics overrides the common good.
Alas, we have made the ‘unthinkable,’ the default option.
Truly, a shameful day, that every day passes and the leaders (of one party that is) chooses to do nothing to help, and even has the audacity to go insofar and say, doing nothing is more productive than doing something. How convenient.
And then there’s the problem with zealous ideologues rampaging in the halls of Washington, pressing and imposing their agenda, to create a world suited for themselves. Truly, these psychopaths have no shame, and no sense of decency.
As Joseph Welch said, “Have you at long last, lost your sense of decency, Senator McCarthy?” Replace Senator McCarthy with Congress and the message remains unchanged.
I guess the election of 2012, was just that; an election. Truly, how does one trust a man, if the man can not be trusted to fulfill his end of the deal?
Now we have entered the new normal; the new normal of which ‘selfishness is a moral’ is the new rule, and all attempts to curb and even mitigate the direct products of ‘selfishness’ is now derided with the same concern we have to exterminate and eliminate terrorism.
This new age of insanity only brings down the reputation of what was an otherwise accelerating and golden age of communication.
The Republicans have dug themselves into a hole, and they intend to bring us down with us.
Calling it shame and indecency would be charitable.
July 5, 2013 at 2:29 p.m.
Recommended1
..
TipJ
Bellingham,WA
..
Isn’t it really a consistent bipartisan policy initiative to cram down the middle class? Decision-makers say free trade agreements will lift all boats but secretly have decided many American must sink.
No consideration is given successful economies, like the Mondragon Cooperative, which prospered since WWII, and has proven resilient during the recent crisis. They put education at the center and make capital subservient to the common good. But you can’t call them communists. We need better models.
‘Economics’ – the supposed ordering of the house – should be divided into ‘exonomics’ and ‘endonomics’, distinguishing between externally imposed and internally organized ordering principals, respectively.
In land use plans, flowery language talks about building neighborhoods and communities but the zoning and code promotes plunder, pillage, cutting, flipping and running. It’s not unlike the endonomic organization of indigenous communities being upset by exonomic forces of logging or mining.
If the bank bailout had been directed toward job development credit unions on a county per capita basis, my small county of 160,000 could have had, at banking ratios, over $3 billion to help with business development and job creation. Instead the banks took it but wouldn’t even loan it out.
At some point in this ‘land of the free’ we may wish we had taken care to provide better endonomic frameworks for community achievement instead of relying on trickle-down exonomic constraints.
July 5, 2013 at 2:02 p.m.
Recommended3
..
WoodsBeldau
Bloomington
..
The malaise will end when we need to get things done again. Then, depending on the measure of the challenge facing us thousands or millions will be put to work, earn money, buy things, and drive the economy. War certainly is not the answer. In 1977 Jimmy Carter presented energy as the “moral equivalent of war”. President Obama’s recently announced climate initiative is somewhat in the same spirit. However, there is a much greater challenge ahead. We need a new frontier to challenge people to rise to a higher level. That frontier is space. The Moon is arguably the greatest mineral find in human history and has seen asteroids impacts for billions of years and has also accumulated extremely valuable substances such as water and helium 3, which may be the fuel of the future for fusion power. If industrial infrastructure were developed on the Moon, then the cost of doing things in space would drop by orders of magnitude. What costs millions to be launched from the Earth would cost pennies to launch from the Moon. Such a reduction in the cost of doing business would open the space frontier to millions while creating millions of jobs on Earth to address climate change and other major issues facing humanity. The fabulous wealth on the Moon will attract private investment, given that governments can rise to the challenge to create the infrastructure that is needed.
July 5, 2013 at 1:49 p.m.
..
JO
Colorado
..
Time was when high unemployment (including the decline in workplace participation) implied real costs: lower sales. Now, in parallel with the shift in production (manufacturing), foreign consumer markets … notably China … emerge as alternatives to domestic sales. What was once regarded as “high unemployment” becomes more manageable with alternative markets available, and serves the cause of downward pressure on wages. A delicate balance, to be sure, but a new balance nevertheless.
Bygone are the days when government might be expected to be hyper-sensitive to the implicit suffering of 7.7% unemployment (really, much higher when one factors in non-participation + underemployment + lower wages) and take action. Bygone because the government has been defanged by PACs & lobbyists. In an era dominated by finance — a world where “money” is the core value, entirely obscuring “people,” “nations,” or “class” — what’s the difference between a sale of a gizmo in Beijing vs a sale in Pekin, Illinois? The Flat Earth Society means American labor is in the same pool as everyone else: work for peanuts, or don’t work at all. Cliches about “work hard, study hard, and succeed” are so irrelevant as to be just plain silly.
It’s not possible (mathematically) to shift vast amounts of wealth into the hands of an itsy minority (0.1%) and not feel the effects, however much we resist the thought. Any change will come spontaneously from the bottom (local initiatives), not from D.C.
July 5, 2013 at 1:11 p.m.
Recommended3
..
Bud I
Bloomington, IL
Verified
..
Direction is missing; a clear way forward to sustainable growth in the private sector. In the absence of a pathway to rising incomes, debt reduction becomes the default safe fiscal policy.
July 5, 2013 at 1:10 p.m.
Recommended2
..
jka418
Twin Cities
..
Yes, personally I think one of the big political challenges of our age is how to hold institutions like the Fed that are designed to be independent of the political process accountable. A Mayor can respond to an incompetent department by cutting it’s budget, shaking up it’s higher levels or reducing it’s power and influence. But there’s no real way to hold Bernanke (let alone some of the regional big wigs) accountable to their dual mandate as the system is currently constructed. It’s a huge problem.
July 5, 2013 at 1:03 p.m.
.
Steve Bolger
New York City.
..
The Federal Reserve Bank is the worst destabilizer in the US economy with its absurd monetary policy that has nothing to do with what gives value to a fiat currency: the interest it makes when deposited in banks.
July 5, 2013 at 1:36 p.m.
..
.
Kenneth
Lindsey
..
Problem: undersupply of US jobs due to globalization/offshoring & oversupply of US labor. Simple solution: slap a 20% tariff on imported goods (mimic the transportation costs of shipping prior to containers); as the US is a net import based economy; we don’t have to worry about a trade war hurting our exports. Our present free trade policy is an indirect subsidy to Walmart et al,
which is destroying middle class jobs.
July 5, 2013 at 1:00 p.m.
Recommended4
..
ponsoldt
athens, georgia
..
what you’re seeing is another example of “money talks”. in this case, the wealthy are not the ones (mostly) being harmed by stagnation and unemployment. ceo pay packages continue to rise.
so, what we need are some senior elected officials with guts and intelligence. know any? why has obama pulled back from urging/campaigning for more direct stimulus spending? (because his political advisors tell him that such advocacy would be used against democrats in the midterm elections).
the key, if any, is to educate enough (smaller) businessmen and moderate voters of the necessary effects of promoting/stimulating employment–and the negative weight of austerity. this will require everyone with a voice (including you, but also your colleagues) to keep writing and talking, and hope that the message sinks in.
you know, “ripples in the pond”. that’s what large scale education is all about. so keep on writing and talking.
July 5, 2013 at 12:58 p.m.
Recommended2
..
Very Serious Sam
Germany
..
Considering what happens to US bonds, I’m not sure if the “more deficit spending because debt doesn’t really matter” thing you preach since years came indeed out as a stunning victor. BTW, have a look at the 10y bunds vs tsy devolpment.
July 5, 2013 at 12:57 p.m.
Recommended3
..
Look Ahead
WA
Verified
..
The US reminds me sometimes of an aging celebrity athlete. Still possesses remarkable skills and pulls down a big salary and bonuses but the personal life is a mess. The financial situation should have been a no-brainer, but a lot of bad advice from friends led to investments that tanked. The family lived high but shallow lives and struggles with prescription drugs and depression. Weight gain and poor training has slowed down the lightning speed and sapped endurance.
The coaches have plenty of advice, not always in agreement but it doesn’t really matter because the celebrity ego no longer tolerates advice.
So will our celebrity nation realize its not about me, its about us, the team, remember them? Re-train everyone on the team to play together (education and vocational), lose weight (put the corpulent health care system and Defense Dept on a diet), learn more efficient movement (energy efficient transportation and buildings), re-evaluate abusive friendships (Congress corrupting banks & businesses) and pay more attention to the needs of family.
The objective observer would not be hopeful, but I am counting on that subjective human factor.
July 5, 2013 at 12:56 p.m.
Recommended3
..
Craig
Oregon
..
I suspect the true catalyst for change won’t be economic, it will simply have economic effects. If the GOP war against women, coupled with their continual bungling regarding minorities, triggers a backlash then the composition of Congress and the State legislatures will change, and that will bring along support for doing “economic things.”
On the other hand, the same impact might be made if the unemployed look at those who have jobs but won’t do them…namely the House…and decide these folks should be collecting unemployment since they refuse to work.
Lastly, the absence of a Leader in the GOP is going to result in some really ugly campaigning, both in 2014 and 2016. While those dates are a long way off, the debate brawls of 2012 will seem tame as the polarization of the party gets worse. That will be especially true if we see more of the “extremist wins primary, paving the way to lose in the general” system that seems to be in place.
Ultimately whatever repairs get done economically might just be an accident unrelated to wanting them.
July 5, 2013 at 12:56 p.m.
Recommended3
..
Monkey
U.S
..
Dear Professor Paul Krugman,
there is no optimal level of housing bubble. If real estate leasing industry can be revitalized, rents can be decreased and this will be helpful for the low income families. Simultaneously, more construction jobs will be given to the low income families. Government needs to manage ‘properly’ this housing bubble. This will be difficult. But, some solutions should be given to us. If U.S economy rebounds again, we will be happy. Also, government employees will be happy because more demands of public services and public goods will be given to them along with economic recovery. We can make a Win-Win solution for everybody. Real estate bubble index and Real estate multiplier index are necessary for the economic recovery. Thank you.
July 5, 2013 at 12:47 p.m.
.
Monkey
U.S
..
And private sector is very sensitive to the profit expectation and bankruptcy. Private sector will want to hire more people when the ROI of human capital investment is more than 1. And public sector will be good along with the economic recovery of private sector because the demands of public services and goods will grow along with the private sector recovery and GDP growth. Thank you.
July 5, 2013 at 12:54 p.m.
..
.
JMM
Worcester MA
..
The other dynamic is the need for CEO’s to show growth to meet their bonus targets. First costs were squeezed (workers fired), then as a recovery began sales increased with no additional hires, now they are entering the phase of “Why aren’t we innovating?”. It will thank them a quarter or two before they reliaze the lack of innovation is because they no longer employ creative people. Then they will begin to hire.
We’re almost there!
July 5, 2013 at 12:42 p.m.
..
Bob Dobbs
Santa Cruz, CA
..
Prof., let me give you hope… with extreme bad news.
In the next five years, the leading edge of the baby boom is going to slide into retirement — forced, in many cases, by unemployment or disability. Half of them don’t have the resources to make it. Many don’t have family that can help; and when they do, that’s more stress on struggling wage earners in any case. Tremendous misery looms. This is one black swan that anyone can see on approach for years in advance. If you care to look.
Populism: it’ll be the new AARP.
July 5, 2013 at 12:42 p.m.
Recommended1
.
Zulalily Madden
Chattanooga
..
People all over the country are in desperate situations. My parents, in their 80’s, retired for 25 yrs., were in good shape with farm income, a pension check, and two social security checks–until about five years ago. I found out last week, when my mother died, that they had been subsidizing my sister’s family (including her children and college-age grandchildren) to the point where they have credit-card debt for the first time ever! I was shocked and appalled and started wondering how many others from “The Greatest Generation” have become victims of the times in which we live.
July 5, 2013 at 1:42 p.m.
Recommended2
..
.
Steve
California
..
Some of the comments are as depressing Krugman’s post. At least his post is based on a sound economic model that is supported by data.
July 5, 2013 at 12:42 p.m.
Recommended1
..
frencholivier
annadale-on-hudson
..
excellent analysis, unfortunately
July 5, 2013 at 12:42 p.m.
Recommended1
..
PH
Near NYC
..
Confusing faith with reason has been a problem for human-kind for some time. If only the austerity puritans were even that philosophical. How the GOP manages to convince poor and lower middle class folks to shill for the insurance companies that gouge them and the perpetrators of their own job insecurity is beyond me. Now that we’ve achieved high unemployment pain-stasis, change will be tough. For the austerity puritans, that now include people like Michael Kinsley, it hurts (you, but not me) so good.
July 5, 2013 at 12:42 p.m.
Recommended1
..
Paul T
Memphis, TN
..
I love you Prof. Krugman, but maybe you could have saved this one for after lunch?
July 5, 2013 at 12:42 p.m.
Recommended2
..
Priscilla
Utah
..
And I am cynical enough to believe that some VSP types like having the unemployed to demonize.
July 5, 2013 at 12:42 p.m.
Recommended2
..
Katie
No one Nowhere
..
Dr. K, you sound somewhat glum: Perhaps this will cheer you:
An engineer, a chemist, and an economist are marooned on a desert island. They start to brainstorm a way off the island.
The engineer says, “we can lash together some branches and make a crude raft and try to make our way back to land somehow.”
The chemist says, “with the right materials we could build a really smokey fire and try to signal a plane.”
The economist says, “okay let’s assume we have a boat…”
July 5, 2013 at 12:42 p.m.
Recommended2
..
Karen from Albany
Albany, NY
..
On a personal note. A good friend once told me: Never make serious decisions within 6 months of a death in the family.
“I guess what I’m saying is that I worry that a more or less permanent depression could end up simply becoming accepted as the way things are, that we could suffer endless, gratuitous suffering…”
The country is no worse off today than it was last week or last year when your father was still alive. Be kind to yourself. After all, the world has been going to hell in a handbag for a very long time now.
July 5, 2013 at 12:42 p.m.
Recommended3
..
MinuteMan
Colorado
..
What we need is something analogous to another sputnik crisis; the other alternative seems to be a new arm’s race (or worse).
July 5, 2013 at 12:42 p.m.
Recommended1
..
DanMulligan
CA
..
Tim Geithner and Ben Bernanke and Barak Obama do not personally know anyone that lost their jobs and/or their homes to foreclosure. Ron Paul might but he knows who is to blame. So, no real crisis at all. Might as well just do what our wealthy friends ask because no one else talks to us anyway. Or, no one important anyway.
July 5, 2013 at 12:42 p.m.
Recommended1
..
cletus22
Toledo, Ohio
..
Greed and selfishness.
They’ve both been made acceptable by our plutocratic overlords who continue to steal from the middle and lower classes to make the divide even wider so that they….. can sit on even bigger piles of cash.
And people keep on buying it!! Why?!?
How did we become such an awful group?!??
Simple old fashioned racism and the fear of socialism that’s been pounded into Americans for generations.
Is there a breaking point?
July 5, 2013 at 12:42 p.m.
Recommended3
..
Read More Comments
.
.
.
.
.
.
.
.
.
.
.
.