Let Me Strongly Dissent from Ben Bernanke’s Claim That the Critical Objective of Recovery Viewed in the Proper Metrics Is Being Met

Ben Bernanke: WSJ Editorial Page Watch: The Slow-Growth Fed?: “The Wall Street Journal… argue[s] (again) for tighter monetary policy…

…It’s generous of the WSJ writers to note… that ‘economic forecasting isn’t easy.’ They should know, since the Journal has been forecasting a breakout in inflation and a collapse in the dollar at least since 2006, when the FOMC decided not to raise the federal funds rate above 5-1/4 percent…. They fail to note… unemployment, which has fallen more quickly than anticipated…. The relatively rapid decline in unemployment in recent years shows that the critical objective of putting people back to work is being met…

No, no, no, no, no, no, no, no, no. NO! NO!!!!

It is not the case that since 2000 three percent of our 25-54 year olds have decided that being at work is not what it is cracked up to be, and it is better to live in their parents’ basement surfing the net.

It is the case that the low-pressure economies and resulting lousy labor markets since 2001 have degraded the social networks that Americans–especially young Americans–use to find jobs, and that an extra three percent of our 25-54 year olds are discouraged, largely rationally discouraged, from looking for jobs. And that other age groups are in the same situation.

You can trumpet the rise in the prime-aged employment rate from its nadir of 74.8% to its current 77.3% as a triumph of monetary policy. (It certainly is not a triumph of fiscal or credit policy.) You can regrettably doubt that further monetary policy expansion would do much to raise that 77.3% further, either at all or without also provoking an outbreak of higher inflation.

But you should not say that: “the critical objective of putting people back to work is being met…”? No, no, no, no, no.

You should say that it is being partially met. You should say that it is being left substantially unmet.

April 30, 2015

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