From Paul Krugman in the NY Times: Deep Hole Economics
If there’s one piece of economic wisdom I hope people will grasp this year, it’s this: Even though we may finally have stopped digging, we’re still near the bottom of a very deep hole.
Why do I need to point this out? Because I’ve noticed many people overreacting to recent good economic news. …
Jobs, not G.D.P. numbers, are what matter to American families. … Growth at a rate above 2.5 percent will bring unemployment down over time.
Suppose that the U.S. economy were to grow at 4 percent a year, starting now and continuing for the next several years. Most people would regard this as excellent performance, even as an economic boom; it’s certainly higher than almost all the forecasts I’ve seen.
Yet the math says that even with that kind of growth the unemployment rate would be close to 9 percent at the end of this year, and still above 8 percent at the end of 2012.
Even though optimism prevails about 2011 over 2010, growth will be sluggish relative to slack in the system — and the unemployment rate will stay elevated for another five-to-ten years.
There is definitely a danger of becoming too optimistic, as well. Even were U-2 unemployment to approach 8 percent within the next two years, this means that U-6 measure of unemployment (includes those underemployed [the architect working at McDonald’s], part-time but seeking full-time, and those who have given up for the moment) shall remain between 16 and 17 percent.
No matter the improved stock market performance, no matter the increased profitability of corporations which have sent jobs overseas and earned more revenue abroad than at home, no matter the unneeded tax breaks to the uber-wealthy,… a real rate of unemployment in the mid-to-upper teens means little prosperity for the nation and its future. Something’s gotta give…