Welcome to the Vitus Capital Blog!
Notes to myself, possibly of interest to others.
-- Bill Northlich

Thursday, April 5, 2012

In other words, the cost of too little growth far outweighs the cost of too much…

Most forecasters suggest that as the recovery slowly grinds on, unemployment will fall to about 7.5 percent by the end of 2013, from the current 8.3 percent…. [T]he consensus forecast is highly likely to be wrong. Unemployment could fall to 6.5 percent, or rise to 8.5 percent. Each of these possibilities needs to be considered…. If unemployment falls to 6.5 percent, there’s no overwhelming reason for concern…. [I]nflationary pressures are unlikely to build unless the jobless rate drops to 5 percent…. Even if inflation does accelerate, the Fed has ample power to reverse course by raising interest rates to slow growth…. [I]f we find ourselves with 8.5 percent unemployment fully six years after the recession began. Europe’s experience in the 1970s and 1980s demonstrated that persistently high unemployment can become entrenched, leading to further unemployment in the future -- a process economists call hysteresis. Skills atrophy, hope fades and people lose contact with the networks that can help them find work. If this occurs with the millions of U.S. workers who have been without jobs for more than a year, it will be costly and very difficult to undo.

In other words, the cost of too little growth far outweighs the cost of too much…
--- Betsey Stevenson and Justin Wolfers, Bloomberg, via DeLong

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