Paul Krugman, NY Times - Many people have pleaded all along for policies that put job creation front and center. Their pleas have, however, been drowned out by the voices of conventional prudence. We can’t spend more money on jobs, say these voices, because that would mean more debt. We can’t even hire unemployed workers and put idle savings to work building roads, tunnels, schools. Never mind the short run, we have to think about the future.
The bitter irony, then, is that it turns out that by failing to address unemployment, we have, in fact, been sacrificing the future, too. What passes these days for sound policy is in fact a form of economic self-mutilation, which will cripple America for many years to come. Or so say researchers from the Federal Reserve, and I’m sorry to say that I believe them...
According to the paper, ... our seemingly endless slump has done long-term damage through multiple channels. The long-term unemployed eventually come to be seen as unemployable; business investment lags thanks to weak sales; new businesses don’t get started; and existing businesses skimp on research and development.
What’s more, the authors ... put a number to these effects, and it’s terrifying. They suggest that economic weakness has already reduced America’s economic potential by around 7 percent, which means that it makes us poorer to the tune of more than $1 trillion a year. And we’re not talking about just one year’s losses, we’re talking about long-term damage: $1 trillion a year for multiple years.
That estimate is the end product of some complex data-crunching, and you can quibble with the details. Hey, maybe we’re only losing $800 billion a year. But the evidence is overwhelming that by failing to respond effectively to mass unemployment — by not even making unemployment a major policy priority — we’ve done ourselves immense long-term damage.
And it is, as I said, a bitter irony, because one main reason we’ve done so little about unemployment is the preaching of deficit scolds, who have wrapped themselves in the mantle of long-run responsibility — which they have managed to get identified in the public mind almost entirely with holding down government debt.
This never made sense even in its own terms. As some of us have tried to explain, debt, while it can pose problems, doesn’t make the nation poorer, because it’s money we owe to ourselves. Anyone who talks about how we’re borrowing from our children just hasn’t done the math.
True, debt can indirectly make us poorer if deficits drive up interest rates and thereby discourage productive investment. But that hasn’t been happening. Instead, investment is low because of the economy’s weakness. And one of the main things keeping the economy weak is the depressing effect of cutbacks in public spending — especially, by the way, cuts in public investment — all justified in the name of protecting the future from the wildly exaggerated threat of excessive debt.
Is there any chance of reversing this damage? The Fed researchers are pessimistic, and, once again, I fear that they’re probably right. America will probably spend decades paying for the mistaken priorities of the past few years.
It’s really a terrible story: a tale of self-inflicted harm, made all the worse because it was done in the name of responsibility. And the damage continues as we speak. A version of this op-ed appears in print on November 8, 2013, on page A35 of the New York edition with the headline: The Mutilated Economy.
Save E-mail Share
1226 Comments
Readers shared their thoughts on this article.
All Reader Picks NYT Picks
Comments Closed
Jerry Fastrup Arlington VA NYT Pick
The average American is fearful of the future and Krugman describes one reason why, our fixation on debt in a time of deep recession is resulting in an annual loss of a trillion dollars in national year after year. My first Econ class back in 1968 thought me that public debt and personal are two different animals. In bad times individuals must pull in their horns, but if government does it at the same time, taking money out of the economy, it is the road to further decline rather than improved prospects for the future. The latest research reported, in this article, puts numbers on the misguided economic policies of the large majority of the conservative wing of our national politics. It's tragic what we have been doing to ourselves. Pass this on to your friends, please. Nov. 8, 2013 at 7:12 a.m. Recommend411 R. New York Verified NYT Pick
Progressives like Krugman and his followers here dislike or hate business, and many of their antibusiness agendas have been or are being enacted.
Think EPA vs. coal, fracking, oil drilling on US lands, Obama Care, vilifying bankers and Wall Street as evil, etc.
This is the major reason why businesses are not hiring. Nov. 8, 2013 at 9:07 a.m. Recommend40 Paul from Lower Manhattan Downtown New York, NY NYT Pick
I'll just speak for myself. I have very direct evidence that large-scale cuts in federal spending have cut into my small business revenue and profits. I've been working without the additional people I used to use routinely, and cutting both business & personal spending wherever possible. Multiply my story by millions of other businesses small & large, and no wonder our economy is still so weak. Nov. 8, 2013 at 9:40 a.m. Recommend347 Dave Viens Pacific Northwest NYT Pick
It's amazing that so many of the comments here begin with a statement such as: "I'm no economist..." and the go on to try and refute a Nobel Prize winning economist.
I have little doubt Dr. Krugman has it right from the academic and big picture standpoint. How I process it is this:
The One Percent and the 1/10th of the One Percent are the folks who influence our so-called 'leaders.' Those folks -- they've got theirs; to heck with everybody else.
The 'bus drivers,' and the guys who pay them off, steer us away from what is necessary -- like economic decisions that put people to meaningful work on projects from healthcare reform to infrastructure renovation and rebuilding or dealing with climate change. Instead, they drive us into the swamp of meaningless hot-button issues like guns and gay marriage, or pseudo-crises such as passing a continuing budget resolution or lifting the debt ceiling.
I don't believe the myths of America anymore -- that we're brave; that we have guaranteed Constitutional rights which our government respects; that we're a land of justice - one of Laws, not the whims of (very, very rich) men. One look around with open eyes at torture as policy, uninvestigated and unprosecuted war crimes, or rampant economic inequality due to policy, is all I need to see. Dr. Krugman's explanations are just frosting on the cake.
But for me the biggest tragedy isn't the economic loss: It's the corrosion of trust and faith in our System. Nov. 8, 2013 at 10:21 a.m. Recommend567 Charles Tallahassee, FL NYT Pick
I have my own small business. We aren't hiring because sales is not increasing.
The big corporations are sitting on more profits / cash than ever. They have the money to hire but no increase in sales to cause them to hire.
Anyone who believes that a 5% increase in the marginal tax rate of the "job creators" is going to make a difference in hiring hasn't taken the 5 minutes necessary to think through this, see what the difference in income will be and realize how silly that argument is. In reply to R. Nov. 8, 2013 at 10:29 a.m. Recommend286 TerryB Decatur, GA NYT Pick
You do not have one fact to back that up. Just look at the foreign companies starting facilities here because of our LOW energy costs. Our unemployment has nothing to do with policy on coal and fracking.
No, it is the systematic and purposeful removal of the American worker and suppression of his wages, primarily via foreign desperation-wages labor and technology. American capital is doing everything it can to limit labor's share of created wealth. Then, act surprised when American consumption falls. In reply to R. Nov. 8, 2013 at 10:29 a.m. Recommend258 Dennis Donaghey Texas NYT Pick
The best thing that could happen is an increase in the minimum wage. Minimum wage earners spend every dime they get. Putting more money into the hands of the poor is money that will be spent immediately.
Can't say the same about tax cuts, which disproportionately go the rich who simply hoard the money. In reply to emar Nov. 8, 2013 at 10:31 a.m. Recommend319 Paul Easton NYC NYT Pick
Bill Clinton's surplus was achieved by ignoring social needs. His main economic legacy was NAFTA. The Rs may be more speedy than the Ds but they are all on the same page. In reply to Richard Luettgen Nov. 8, 2013 at 10:36 a.m. Recommend76 Polarapete Kirkland, WA NYT Pick
Baron95 So you are suggesting we should have a war in order to stimulate the economy?? That did not help in Afghanistan or Iraq. All we did was ship billions of dollars of war material somewhere to be blown up, make a lot of new enemies and bring home our dead and horribly wounded...that is not my idea of free trade.! Far better to bring all the boys and girls home and put them to work rebuilding our infrastructure. We all win then. In reply to Baron95 Nov. 8, 2013 at 10:38 a.m. Recommend105 JohnK Durham NYT Pick
Net private sector jobs created under George W. Bush: -665K Net private sector jobs (so far) under Obama: 3362K
No doubt job growth has been slow under Obama, but next to the astonishing record of GWB the man looks like a genius. In reply to Richard Luettgen Nov. 8, 2013 at 10:40 a.m. Recommend264 revwayne Womelsdorf,PA NYT Pick
In a New York Times blog (Oct. 13) economist Joseph Stiglitz observed: “I see us entering a world divided not just between the haves and have-nots, but also between the countries that do nothing about it and those that do. Some countries will be successful in creating shared prosperity – the only kind of prosperity that I believe is truly sustainable.” Prof Krugman has been advocating for years that we need to focus on employment. No one suggests we all make the same income. But jobs that are middle class, jobs that don’t require government subsidies to survive, jobs that provide value and dignity for the worker are needed. We as a nation must concentrate our resources and effort on creating jobs. Prosperity for the many means we all benefit. Nov. 8, 2013 at 10:42 a.m. Recommend284 Padfoot People's Republic of Portland NYT Pick
The best and quickest way to shrink the government is to starve it. And the best and quickest way to starve the government is to crash the economy and keep it down.
If you look at things this way, the damage to economy is not the by product of a boneheaded fiscal policy, but the deliberate agenda of small government conservatives who have enough power to keep the works gummed up. Watch what they do, not the reason they say they are doing it. Nov. 8, 2013 at 10:45 a.m. Recommend251 Joe From Boston Massachusetts NYT Pick
Richard:
Dick Cheney has famously said "Ronald Reagan proved that deficits don't matter."
Ronald Reagan. Wasn't he a Republican?
Dick Cheney. Wasn't he a Republican?
You guys seem to have come to religion pretty late. When Republicans run the show deficits are not a problem. Deficits only become a problem for you when Democrats are in charge.
http://www.forbes.com/sites/jerrybowyer/2012/12/13/dont-cave-gop-this-ti...
This article says:
Do deficits matter? Conservatives have sometimes claimed that they don’t. Dick Cheney has said on more than one occasion that, “Reagan taught us that deficits don’t matter.” In fact, he said that to me personally once. In reply to Richard Luettgen Nov. 8, 2013 at 10:48 a.m. Recommend158 maguire Lewisburg, Pa NYT Pick
No jobs but 1 million new immigrants a year to the US and expansion of H1B visas
This is rational policy? Nov. 8, 2013 at 11:24 a.m. Recommend66 Tygerrr Greensboro NYT Pick
As a bizguy myself, I just cannot see the logic in your prescriptions. I infer that you want no more government borrowing to boost job growth.
So how does filling a scarce private-sector job with someone getting unemployment benefits helpful? You'd get your work done for free?
When I started my career, new hires were paid full salary while they received in-house company training. Why has business dumped that responsibility onto community colleges while advocating budget cuts for those same schools?
Ah, the old union bug-a-boo. Yikes! Run for your life!
The fair wage for a given position is the highest price you'd pay not to have to perform its tasks.
When you pay a fair wage, you have employees more willing to team up, to learn other positions' tasks, to be prompt and come equipped, and to hang in there through adversity. In reply to Boston BizGuy Nov. 8, 2013 at 12:23 p.m. Recommend89 Objective Humble NYT Pick
So then Obamacare must be a "mistaken priority" in your mind. As 3 major US Unions have said, the healthcare takeover will “destroy the foundation of the 40 hour work week that is the backbone of the American middle class" and will "destroy the very health and wellbeing of our members along with millions of other hardworking Americans.” So in one fell swoop Obama and the Dems enacted the largest tax increase in US history, doomed our country to enormous debt for decades, moved full time workers to part time workers, caused a precipitous decline in small business hiring, and increased healthcare costs for all Americans. Yeah, you're right, the Obama Administrations fiscal policy has mutilated our economy. The Dems have been the majority party for 7 years so it's kind of comical when you try to blame the minority party for the Dems failures. Nov. 8, 2013 at 12:32 p.m. Recommend13 Concerned Citizen Anywheresville NYT Pick
Sadly, Ms. Wifely, this is the story of humanity -- not any one economy or country or era.
When times got tough in the Olduvai gorge, our ancestors walked out and over to the Mediterranean and beyond. That's what human beings do.
Often things like welfare and food stamps simple ENABLE people to stay in a dying area -- out of laziness or inertia -- like Detroit or a small rural area with no jobs. Or to cling to an expensive area like NYC or LA, that they truly cannot afford.
Also, it is not "1/3rd" of Americans, or we'd be worse off than in the Great Depression (25% unemployment). Exaggerating helps nothing.
Lastly: many of these changes are WORLD-WIDE. Look at Europe. They reflect our burgeoning technology sectors, which give us wonderful stuff like computers and the internet -- but which make many MANY jobs obsolete. In reply to The Wifely Person Nov. 8, 2013 at 12:54 p.m. Recommend12
Read More Comments Get Free E-mail Alerts on These Topics Recession and Depression United States Economy Credit and Debt Unemployment Ads by Google what's this? Medicare Plans PlanPrescriber Can Help You Find a Medicare Plan. Compare & Save Now! www.PlanPrescriber.com Log In With Facebook
Log in to see what your friends are sharing on nytimes.com. Privacy Policy | What’s This? What’s Popular Now
F.D.A. Ruling Would All but Eliminate Trans Fats
Cut in Food Stamps Forces Hard Choices on Poor
MOST E-MAILED RECOMMENDED FOR YOU
27 articles viewed recently
prorev All Recommendations 1. Motherlode A Father Tries to End the Fat Talk 2. No Riders Killed in First 5 Months of New York City Bike-Share Program 3. Skin Deep Halloween or Not, a Softer Shade of Goth Makeup 4. Video: Eligible to Enroll 5. Detroit Tigers Hire Brad Ausmus as Manager 6. Boston Fans Set for Party After Years of Buildup 7. Fixes Protecting Children From Toxic Stress 8. Maine Governor Candidate Says He Is Gay 9. Ross Douthat Casinos, Pot and the Quest For Consistency 10. Restaurant Is Accused of Selling Bass Illegally
Go to Your Recommendations » What’s This? | Don’t Show What you get for $750,000
Also in Real Estate »
Thinking, and living, outside the box-shaped room Venice's strict rules spur creativity
nytimes.com Real Estate
Ads by Google what's this? Vitamins For Hair Shocking! Here's What Happened When We Tested Vitamins For Hair ConsumersGuides.com
Inside NYTimes.com Opinion » Op-Ed: Why Do Brits Accept Surveillance? Op-Ed: Why Do Brits Accept Surveillance? Television » Chilling Out: Life in a Slow, Cute Lane Chilling Out: Life in a Slow, Cute Lane Sports » A More Earthbound Game for Alabama and L.S.U. A More Earthbound Game for Alabama and L.S.U. Opinion » Measure for Measure: To Imagine Music
When notebooks full of lyrics make a songwriter feel trapped, visual art can provide a calmer context, writes Sam Phillips. Booming » When Nest Emptied, Discontent Entered When Nest Emptied, Discontent Entered Real Estate » Upper East Side: To Live in an Artwork Upper East Side: To Live in an Artwork N.Y. / Region » Newburgh Seeks Renewal Without Gentrification Opinion » Gray Matter: Against Disclosure Fashion & Style » An Unlikely Face on TV or in Fashion N.Y. / Region » Construction Will Go On at City Hall Opinion » Mutiga: Why Zimbabwe Sanctions Boomerang
American and European efforts to undermine Mugabe help rally Africans to his side. Sunday Book Review » A War of Umbrage in ‘Double Down’
© 2013 The New York Times Company Site Map Privacy Your Ad Choices Advertise Terms of Sale Terms of Service Work With Us RSS Help Contact Us Site Feedback
More in Opinion (1 of 29 articles) Op-Ed Contributor: Why Do Brits Accept Surveillance?
Read More »