Las Vegas Sun

April 16, 2014

Currently: 78° — Complete forecast | Log in | Create an account

OTHER VOICES:

America’s real danger is jobless trap

Another view?

View more of the Las Vegas Sun's opinion section:

Editorials - the Sun's viewpoint.

Columnists - local and syndicated writers.

Letters to the editor - readers' views.

Have your own opinion? Write a letter to the editor.

FDR told us that the only thing we had to fear was fear itself. But when future historians look back at our monstrously failed response to economic depression, they probably won’t blame fear, per se. Instead, they’ll castigate our leaders for fearing the wrong things.

For the overriding fear driving economic policy has been debt hysteria, fear that unless we slash spending, we’ll turn into Greece any day now. After all, haven’t economists proved that economic growth collapses once public debt exceeds 90 percent of GDP?

Well, the famous red line on debt, it turns out, was an artifact of dubious statistics, reinforced by bad arithmetic. And America isn’t and can’t be Greece because countries that borrow in their own currencies operate under very different rules from those that rely on someone else’s money. After years of repeated warnings that fiscal crisis is just around the corner, the U.S. government can still borrow at incredibly low interest rates.

But while debt fears were and are misguided, there’s a real danger we’ve ignored: the corrosive effect, social and economic, of persistent high unemployment. And even as the case for debt hysteria is collapsing, our worst fears about the damage from long-term unemployment are being confirmed.

Now, some unemployment is inevitable in an ever-changing economy. Modern America tends to have an unemployment rate of 5 percent or more even in good times. In these good times, however, spells of unemployment are typically brief. Back in 2007, there were about 7 million unemployed Americans — but only a small fraction of this total, around 1.2 million, had been out of work more than six months.

Then financial crisis struck, leading to a terrifying economic plunge followed by a weak recovery. Five years after the crisis, unemployment remains elevated, with almost 12 million Americans out of work. But what’s really striking is the huge number of long-term unemployed, with 4.6 million unemployed more than six months and more than 3 million who have been jobless for a year or more. Oh, and these numbers don’t count those who have given up looking for work because there are no jobs to be found.

It goes without saying that the explosion of long-term unemployment is a tragedy for the unemployed. But it may also be a broader economic disaster.

The key question is whether workers who have been unemployed for a long time eventually come to be seen as unemployable, tainted goods that nobody will buy. This could happen because their work skills atrophy, but a more likely reason is that potential employers assume that something must be wrong with people who can’t find a job, even if the real reason is simply the terrible economy. And there is, unfortunately, growing evidence that the tainting of the long-term unemployed is happening as we speak.

One piece of evidence comes from the relationship between job openings and unemployment. Normally, these two numbers move inversely: The more job openings, the fewer Americans out of work. And this traditional relationship remains true if we look at short-term unemployment. But as William Dickens and Rand Ghayad of Northeastern University recently showed, the relationship has broken down for the long-term unemployed: A rising number of job openings doesn’t seem to do much to reduce their numbers. It’s as if employers don’t even bother looking at anyone who has been out of work for a long time.

To test this hypothesis, Ghayad then did an experiment, sending out resumes describing the qualifications and employment history of 4,800 fictitious workers. Who got called back? The answer was that workers who reported having been unemployed for six months or more got very few callbacks, even when all their other qualifications were better than those of workers who did attract employer interest.

So we are indeed creating a permanent class of jobless Americans.

And let’s be clear: This is a policy decision. The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy.

It’s hard to overstate how self-destructive this policy is. Indeed, the shadow of long-term unemployment means that austerity policies are counterproductive even in purely fiscal terms. Workers, after all, are taxpayers, too; if our debt obsession exiles millions of Americans from productive employment, it will cut into future revenues and raise future deficits.

Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe. It’s ruining many lives and at the same time making us poorer and weaker in every way. And the longer we persist in this folly, the greater the damage will be.

Paul Krugman is a columnist for The New York Times.

Join the Discussion:

Check this out for a full explanation of our conversion to the LiveFyre commenting system and instructions on how to sign up for an account.

Full comments policy

Previous Discussion: 4 comments so far…

Comments are moderated by Las Vegas Sun editors. Our goal is not to limit the discussion, but rather to elevate it. Comments should be relevant and contain no abusive language. Comments that are off-topic, vulgar, profane or include personal attacks will be removed. Full comments policy. Additionally, we now display comments from trusted commenters by default. Those wishing to become a trusted commenter need to verify their identity or sign in with Facebook Connect to tie their Facebook account to their Las Vegas Sun account. For more on this change, read our story about how it works and why we did it.

Only trusted comments are displayed on this page. Untrusted comments have expired from this story.

  1. Dr. Krugman is an esteemed economist and political pundit. Yet, he has failed to comprehend that the same financial steps that individuals and family households have to take in bad times have to be taken by the U.S. government and other countries. Else all the same negative results of those who fall neck deep into massive debt with the inability to pay creditors also befalls the U.S. government.

    Carmine D

  2. I consider Paul Krugman to be the most misguided economist currently being listened to, and I wholeheartedly agree with both prior posters on this article.
    The rapidly rising accumulated American debt is one of the most pressing issues facing your country.
    Unemployment is certainly another huge problem, but Dr. Krugman's "solution" of more stimulus and government spending is ludicrous. Outsourcing jobs to cheaper countries is a factor that your government should strive to prevent. Another tragedy for your economy is the corporate goal of maximizing shareholder value, which encourages companies to increase part-time work with few or no benefits and to decrease full time employment.
    Unfortunately it will take a lot of government guts for these two serious issues to be addressed, and America's politicians do not seem motivated to urinate on their top contributors in any attempt to better the working conditions of those legions of Americans who are currently unemployed or underemployed.

    Donald W. Desaulniers

  3. 7 million illegals in jobs stolen from citizens. Fix that. As DWD says, Dr. Krugman has no clue about real economic weight of the debt.

  4. We don't need more people. A stable population..... Once upon a time, the economy was sort of a Ponzi scheme where numerous kids could work the farm and help mom and dad. Nowadays, it's the reverse where each additional child weighs down the household finances--or more correctly, weighs down the government hand-out programs, K-12, higher ed.... Notice now, in the wake of Boston Strong, that tens of thousands of foreign "students" are here to feed the higher ed hysteria that taxpayers pay for. Why are we educating the world while our own families suffer? Why are we feeding the world so they can kill us? Why are we taxing citizens so that they are unable to save and plan for their futures?