Imagine that you faced a choice for the United States between the following two extreme possibilities, which would you choose?
1) The US would have in the next 10 years an inflation rate of only 2% a year, but an unemployment rate of 9%, thus about 12 million unemployed.
2) The US would have in the next ten years an inflation rate of 10% a month, but an unemployment rate of only 3%, thus about 4 million unemployed.
About 75 percent of survey respondents chose option one. Now I would say this isn’t super-duper relevant to our current situation since the high-inflation scenario on offer is much more extreme than anything I’ve heard anyone propose. But the fact that the public is more tolerant of high-unemployment than of high-inflation is suggestive.
On a related note, I observed over the weekend that even amidst the worst labor market crisis in many decades, the vast majority of people who want a job have one. Which is to say that an unemployment rate of 9.8 percent means a non-unemployment rate of 91.2 percent. Some people took that to mean me saying that we should be complacent about sky-high unemployment. I absolutely reject that. High unemployment is a moral and economic disaster. But in political terms it does matter. The costs of high unemployment are disproportionately borne by the unemployed minority. If the non-unemployed majority fears that measures to reduce unemployment — whether they involve higher deficits or a higher rate of increase in the price level or what have you — are likely to come at their expense, then building political support for said measures will be challenging. It’s especially worth noting that senior citizens are extremely insulated from labor market conditions and have emerged as a critical pro-conservative voting bloc.
To regard the politics of 9.8 unemployment as a zero-sum competition between the interests of the unemployed and the non-unemployed is a mistake but it’s very common for people to mistakenly over-estimate the zero-sum element of policy debates.