For today, anyway. Brad DeLong is the only one out there who is as flummoxed, not to mention frustrated, as I am about the complete lack of responsiveness by the political system to nine percent U3 unemployment, and one out of six U.S. workers being un- or underemployed. DeLong nails it (italics mine):
There is a line of argument that I do not understand — even though it is made by economists I respect. It is that our current labor-market depression was baked in the cake from the moment that Alan Greenspan decided to keep interest rates low in the early 2000s, declining to stop would-be homeowners from borrowing from would-be mortgage lenders who were eager to lend. I disagree. I think that our current labor-market depression was baked in the cake when we started electing leaders who put other political and policy objectives far in advance of maintaining full employment….
Yes, the collapse of the housing boom and the consequent $8 trillion reduction in household wealth does mean that consumer spending will be significantly below trend for quite a while to come. But when the consumer stops spending and sits down, the government and the exporter — and also the capacity-building business — can stand up: There is no chain of logical necessity leading from the collapse of the housing boom to a prolonged period of very high unemployment.
…Of course, if boosts to economy-wide spending led to inflation instead of increases in capacity utilization, then we would have a very big problem; we would be in the alternative universe of the Hayekians in which we have a fundamental mismatch between the skills of our labor force and the goods wanted by consumers. But there are no signs that we are in that alternative universe — no signs at all.
What, then, is our immediate problem?
It is political.
The Federal Reserve would rather let unemployment remain above 8 percent for a good long while than run the slightest risk of higher inflation. The Treasury would rather let unemployment remain above 8 percent for a good long while than say that a strong dollar is not in America’s interest (even though it is not). The Republican decision-makers in Congress would rather let unemployment remain above 8 percent for a good long while than let Obama win legislative victories.
Most puzzling, the Obama administration would rather let unemployment remain above 8 percent for a good long while than make what it thinks is likely to be an unsuccessful push that will reveal its lack of control over the government.