Are Republicans Really Worried That The Economy Is Creating Too Many Jobs?

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Wednesday, 02 March 2011 05:47

That's what the NYT told readers this morning. The NYT said that:

"Republicans worry that the Fed is overstimulating the economy."

For those not familiar with the word "overstimulate," it means that the Fed is causing the economy to grow too rapidly and create too many jobs. This is an interesting position to hold at a time when the economy is experiencing 9.0 percent unemployment. It probably would have been better to just report what the Republicans said rather than directly attribute such an extreme view to them.

The article also quoted Alabama Senator Richard Shelby saying that: "Once price stability has been lost, it’s difficult and very costly to regain," adding that Shelby then invoked the 80s. It would have been useful to point out to readers that the recession brought on by Paul Volcker in 1981 to tame inflation was far milder than the one we are now experiencing.

The unemployment rate rose by 3.6 percentage points from its low in the summer of 1981 to its peak in December of 1982. This compares with a trough to peak increase of 5.7 percentage points in this downturn. Three years after the start of the 1981 recession the unemployment rate was back to its pre-recession level. By contrast, three years after the start of the current recession the unemployment rate stands 4.5 percentage points above its pre-recession level.

In other words, Senator Shelby is warning that if we take stronger steps to reduce the unemployment rate we risk a higher rate of inflation. And, the cost of bringing down this inflation may be less than the costs in unemployment that we are currently experiencing.

This article also presents Federal Reserve Board chairman Ben Bernanke's assessment on a range of issues. It would have been worth reminding readers that Mr. Bernanke did not see the $8 trillion housing bubble, the collapse of which brought on the worst downturn since the Great Depression.