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Monday, September 16, 2013

Paul Krugman: Give Jobs a Chance

All we are sayin', is give jobs a chance:

Give Jobs a Chance, by Paul Krugman, Commentary, NY Times: This week the Federal Reserve’s Open Market Committee ... will be holding its sixth meeting of 2013. At the meeting’s end, the committee is widely expected to announce the so-called “taper” — a slowing of the pace at which it buys long-term assets.
Memo to the Fed: please don’t do it. True, the arguments for a taper are neither crazy nor stupid... But if you think about the balance of risks, this is a bad time to be doing anything that looks like a tightening of monetary policy.
O.K.,... the Fed is talking about slowing the pace of these purchases, bringing them to a complete halt by sometime next year. Why?
One answer is the belief that these purchases — especially purchases of government debt — are, in the end, not very effective. There’s a fair bit of evidence in support of that belief...
Unfortunately, financial markets have clearly decided that the taper signals a general turn away from boosting the economy... In effect, by talking about tapering, the Fed has already tightened monetary policy quite a lot.
But is that such a bad thing? ...
Suppose, on one side, that the Fed were to hold off on tightening, then learn that the economy was closer to full employment than it thought. What would happen? Well, inflation would rise, although probably only modestly. ... Right now inflation is running below the Fed’s target of 2 percent, and many serious economists ... have argued for a higher target, say 4 percent. So the cost of tightening too late doesn’t look very high.
Suppose, on the other side, that the Fed were to tighten early, then learn that it had moved too soon. This could damage an already weak recovery, causing hundreds of billions if not trillions of dollars in economic damage, leaving hundreds of thousands if not millions of additional workers without jobs and inflicting long-term damage as more and more of the unemployed are perceived as unemployable.
The point is that while there is legitimate uncertainty about what the Fed should be doing, the costs of being too harsh vastly exceed the costs of being too lenient. To err is human; to err on the side of growth is wise. ...
So my message is, don’t do it. Don’t taper, don’t tighten, until you can see the whites of inflation’s eyes. Give jobs a chance.

    Posted by on Monday, September 16, 2013 at 12:33 AM in Economics, Monetary Policy, Unemployment | Permalink  Comments (53)


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