By doing nothing about unemployment, America’s officials are playing with fire
Should we just throw up our hands, and say that having 12 million or so adults who should be working out of work, and roughly $1 trillion per year of output we should be producing not getting produced, is just a fact of life? Or should we be using unconventional policies to deal with an abnormal situation?
The key is fixing the housing market. Banks should be forced to take a haircut. We, the taxpayers, have bailed them out and made them whole and yet they refuse to take a hit. They do not understand the concept of shared sacrifice.
There is a glut of foreclosed homes that is impeding solution. There are investors who have approached banks offering to take these foreclosed homes off the banks’ hands at a discount. But the banks will have none of it. They want full value and would rather wait for the market to recover no matter how many generations that might take.
Yet as the economic outlook has suddenly darkened in recent weeks I detect an unfamiliar mood among policy makers: policy fatigue, a sort of learned helplessness. Officials acknowledge that we are replaying the events of one year ago when a promising springtime expansion petered out over the summer, but this time they have no faith. Over the last few months, each hopeful sign is trumpeted and then sadly overtaken by the next set of bad news.
In a global economy this volatile, the American economy is going to have a rocky month here and there. But American government officials are doing themselves no favours. Congress risks making a large unforced error by doing nothing about housing. The economy is simply too vulnerable at the moment for politicians to make those kinds of mistakes.