Thursday, June 23, 2011

The Economy: Paul Krugman, "Profiles in Fed Cowardice"

"Profiles in Fed Cowardice"
by Paul Krugman

“Not really a surprise, but still shocking. The Fed predicts disastrously high unemployment as far as the eye can see (pdf):


And in response to this dire prospect, it declares its work done. Notice that the Fed does not buy into the notion that there has been a large rise in the structural rate of unemployment, that 9 percent is the new normal. That stuff off to the right, labeled “longer run”, is in effect the Fed’s estimate of how low unemployment could and should go without causing inflation problems. So the Fed agrees that something should be done to greatly increase demand. But it washes its hands of the problem, even though Bernanke and his colleagues are well aware that nobody else will act.

I’m aware that there are doubts about how much the Fed could accomplish; I share those doubts. But that’s no reason not to try. This display of passivity is awesome. And it’s shameful.”

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