If higher unemployment is the tradeoff to fear of inflation, what does that mean for you and I?
Hat tip Rebecca for this link to the Curious Capitalist
Invariably, when we start debating jobs programs and stimulus spending, people start talking about the long-term problem of government spending. It raises our national debt, and could cause inflation down the road. But what is often overlooked when inflation is brought up, is that not doing anything about high unemployment can have really bad long-term ramifications for the economy, perhaps even worse than inflation. Here’s why:
First of all, it’s not just upward mobility that is at risk. I wrote a story back in January about high teen unemployment and that what is at risk is not just whether teens will have to cut out trips to the mall. Without entry-level jobs, young workers can’t gain work experience. The result is a lower skilled workforce that results in longer-term productivity for the US economy in general.
And what the Journal and I pointed out is just the tip of the iceberg in terms of the problem the high unemployment rate creates. The Atlantic had a story in their March issue about the much broader effects that high unemployment will have on American society.
Read more here
What it means is that we should set to work allaying the fear of inflation.
…for you and ME!
Fears of inflation seem limited to very, very rich people with enormous fortunes. Everyone else needs to work for a living. Even people whose earned income is quite high, can cope with inflation better than they can unemployment. It all seems upside down.
To finish the thought–How do we get our elected represented to turn the world right side up?
You all are smart, sophisticated people with a good knowledge of economics, in particular. Enlighten me. Remember, I am no wild-eyed radical. Southerners tend to be conservative in manner of life if not politics. Help a little old lady from South Georgia understand this stuff.
“To finish the thought–How do we get our elected represented to turn the world right side up?”
Stop electing multi-millionaires to Congress.
The percentage of foriegn born workers in our labor force is the highest it has been in ninety years. High structural unemployment means the inn is full. Unemployed workers should not have to compete with desperate unwashed third world masses.
a better question today might be what would deflation do to our national debt?
Bruce Krasting: What’s Ben Gonna Do? – Every day the deflation story gets stronger…
Alarming Charts and Graphs June 2010
speaking of unemployment, immigration and our debt in the same breath:
Just pay the cover – YESTERDAY, commenter hedgefundguy posted an interesting link to this story, about a Cleveland real estate project that has received a lot of investment from foreign nationals: Forty investors from China, Brazil, Argentina, India and Britain have committed $500,000 each to the east bank. That qualifies them and their families for conditional green cards. They can become permanent residents two years after receiving the conditional visas — if the $500,000 investments create at least 10 jobs each. The U.S. Citizenship and Immigration Services offers the visa program to drive foreign investment into distressed American communities, although it has attracted some criticism for giving wealthy foreigners an easier path into the United States.
well yes rjs…one wonders about screwed up policy.
cursed
i share your fear of invading hordes. after all my country has never been the same since the invasion of the angles and the saxons, but
i think you are wrong about immigrant labor being a significan’t part of the unemployement problem. indeed, i think there are fewer undocumented workers in America since the recession started than there were before it.
we have unemployment for lots of reasons. one of them being that we send our jobs to other countries, where we also send our money to destroy the possilbilities poor people have of supporting themselves without getting a job working for one of “our” factories.
your enemy is not the foreigner, it is the same as it as always been: the guy with the money who buys your land and kicks you off because he can make more money growing sheep.
and yes, once he has made a lot of money he worries more about inflation than jobs.
policy seems to be right out of the 1937 playbook…
10-Year TIPS Yield – “Look at this and tell me that the U.S. federal government is running up against the limits of its debt capacity…”
Inflation can’t happen because the rich have too much excess wealth. Funny thing is that reducing the deficit will cause more of this wealth to pour into more speculative investments will in the end will again cause the economy to blow up. Government debt is good debt. Thats why the world buys treasury bonds.
Take your hands off the printing press and back away slowly.
I actually like Mexicans, and agree the real enemy are the guys wanting to wall off the commons. My point however is that we should not add to our labor pool when we have too much labor to began with. The equations will right itself now, for like Icarus who flew too close to the sun, Beyond Prosecution has drilled to deep into the sea. There is probably going to be a die off. Hope that Pandora locked away and surplus labor. Both a good riddance.
Are you aware that illegal immigration has been net negative the past two years?
How to drop unemployment to 7% overnight…
Hire 5M people at minimum wage to do things that don’t displace existing jobs. This would cost about $100B a year assuming about a 25% overhead for the program.
$100B financed at 0.7% is 700M dollars per year. There are 154M currently employed people. This is $4.50 per employee per year to drop unemployment down to 7%.
FUTA (payroll) tax is typically 0.8%, but it’s capped at 28K per year (actually 7k per quarter technically). The cap was last raised in 1983. The law originally applied to 100% of wages, the first cap (in 1939) covered 98% of wages. The current cap covers about 14% of wages by my calculations. If we simply uncapped the 0.8% portion of FUTA (an employer tax), we would generate $50B additional per year. The $100B per year and declining cost of workfare, would be very sustainable.
now krugman echoes the same:
The Third Depression – Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31. We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense. And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.
Thank, eric. Saved me the trouble.
My unscientific survey finds that fear of inflation is quite common among the elderly, rich or poor. They mostly no longer work for a living, so fit your criterion, but there are lots of them, and they vote in disproportionate numbers. Surveys of inflation expectations show very little change, but assuming a not-too-tight distribution, that leaves plenty of room for more than just the very, very rich fearing inflation.
…and stop allowing multi-millionaires to determine who is elected to Congress.
A good observation kharris. There has to be traction somehow than the 1%ers, who can better defend against inflation than most.
cursed
first… i get frustrated, even though i know that it is a constant fact of human cognition… that you return to your point without much evidence that you are aware i disagreed with it, not failed to understand it.
in fact we do have too much labor to begin with… that’s why the smart people in Washington want to raise the retirement age. See, they think we are facing a labor shortage. Now what they mean by a labor shortage is the ability of labor to demand a living wage. They prefer to see us “compete” with each other for subsistence jobs.
And one of their favorite ploys for getting us to compete with each other is to create a scare about “immigrant labor” taking our jobs.
or maybe “spotted owls taking out jobs.”
if there are low wage workers taking jobs away from people where you live, the answer is to unionize them and make them high wage workers, because you can’t win the fight if you fight against fellow workers, when the enemy is the boss.
Write to your representative and senators. If they don’t change their tune, kick’em out.
Talk to people. Write to newspapers. Do what you can.
(I am not talking through my hat. I have done all of the above, except vote, but I’ll get my chance to do that. What can one person do? Whatever you can. 🙂 )
Benamery21
please explain this further. it looks to me like those 5 million jobs would cost the taxpayer about 650 dollars per year. what does the seven tents of a percent have to do with it?
an increase in the unemployment insurance tax (? i don’t know much about this) would be useful to pay extended unemployment benefits, and it might be smarter to use the money to pay for unemployed workers to take temporary, useful, jobs. but i don’t think you have quite made your case…. at least not so i understand it.
rdan and Kharris,
Fear of inflation is VERY much in the minds of fixed income seniors. They watched the purchasing power of their (or their parents) savings get gutted in the late 70s early 80s inflation. They learned from that little episode and very much fear another shot of high inflation. These are rational fears of not just the 1%ers.
Lastly the idea that your rich elite won’t be able to protect their assets in a high-inflation scenario makes no sense. these people know how to protect their assets. The idea that 20% inflation will gut Soro’s wealth is laughable. (hyper-inflation like Weimer Germany just wipes everyoone out…)
Islam will change
rjs,
Anyone bringing $500K into the US for economic development should be handed citizenship on a platter. Same with PhD level talent. (Except lawyers – we have enough)
Islam will change
I believe he is pointing out that the T-Bill rate for financing 100B amounts to (only) 700M a year. The current T-Bill rate under 2 year terms is about .65%….and has been in fact declining over the past month or so despite all the hand wringing about deficit mania (more to the point of this post).
http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml
You did not read our comments…what is up?
Rdan,
Sorry about that. I misread you guys. I have a relative who is VERY phobic about this – she is 92 and also remembers the depression. She is very interesting to talk to about depression/WW II and the effects on her small town and family. She would be in the poor category and resists almost any help from the family. Tough old bird…
Islam will change