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Tuesday, August 20, 2013

'Why has the Fed Given up on America’s Unemployed?'

Adam Posen has a question:

Why has the Fed given up on America’s unemployed?: ... There is a rush in the US and Europe to prematurely declare stimulus policies ineffective at reducing unemployment. Much of the persistent joblessness is deemed structural and the costs of addressing long-term unemployment too daunting. Labor regulations and skills mismatches clearly play some role in keeping the jobless out of work, but their impact is exaggerated to excuse inaction. ...
So there is no reason to hold back on trying to drive US unemployment down through monetary and fiscal policy. An elastic supply of labour will keep wage growth low, which will suppress inflationary pressure. ... At present, there is no danger of a 1970s-style wage-price spiral. ...
The costs of pushing a bit too far are small and reversible. But the costs of letting unemployment persist are vast. ... There is no good reason for the Fed to give up on the labor market – and thus no good argument for allowing the de facto tightening of monetary conditions to stand.

I'd also ask why Congress has turned its back on the unemployed, but I think we know the answer to that.

    Posted by on Tuesday, August 20, 2013 at 01:52 PM in Economics, Fiscal Policy, Monetary Policy, Unemployment | Permalink  Comments (41)

          


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