I’m a believing in more fiscal stimulus. And I’m a believer in more monetary stimulus. I believe that by doing more of both we can substantially reduce the unemployment rate. And I’d like to tell you that by doing enough of both, we can bring the unemployment rate all the way down to pre-crisis levels without sparking problems. But unfortunately, I don’t think that’s the case. Our failure to start adequately stimulating back in the second half of 2008 (remember back then you heard people say there was no need for stimulus because the policy lags would be too long!) has led to the creation of an enormous backlog of long-term unemployed people who, history teaches, are going to be very hard to get back into the labor market through any kind of ordinary economic process.
Indeed, we’re currently seeing the highest level of long-term unemployment since the statistic started being measured. And as Annie Lowrey writes, congress doesn’t seem very interested in thinking about this:
The number of long-term unemployed persons poses a serious policy problem now, though one Congress seems to have answered: It will not extend unemployment benefits any longer than 99 weeks in some states, but will likely continue funding extended unemployment benefits as stimulus. But the issue will also pose a serious policy problem in the future: What will Congress do if, five years from now, with the recovery well underway, there remain millions of people who simply cannot find work? Job retraining programs and hiring incentives present one partial solution, but if Congress continues to tighten the nation’s fiscal belt, such expensive programs might not be politically feasible.
Endlessly extending unemployment insurance benefits isn’t my favorite policy remedy in the world, and I sympathize with reluctance to push benefit eligibility past 99 weeks. But you have to do something for these people. It’s really hard to find a job right now, especially if you’ve been out of work for two years. The situation clearly calls for some kind of targeted program, not just washing our hands and pretending that with unemployment at around 10 percent people can just go out and get work with ease.