Catherine Rampell has a nice graph that well illustrates the “depth” of the problem.
The following pictures could help assuage the worries of those that see inflation everywhere, and actually believe that “expansionary” monetary policy could harm employment by stoking inflation.
The pictures, depicting all the recessions since 1981, give out one clear information: until nominal spending growth is strong enough to close the “spending gap”, employment does not rebound. Also, higher spending catch-up growth does not ignite inflation.
The picture for the 2007 recession shows that given the size of the drop in spending, the “hole” to be closed is much bigger, and spending growth is far short of what is needed. But many are worried about inflation!
This editorial from the WAPO is really saying: “sorry all you unemployed, but that´s life”
The main point is that unemployment remains well above what it should be; the longer this persists, the more we risk a “new normal” of structural unemployment, which is a fancy term for elevated human suffering and snowballing economic waste. We dare not let this happen. The question, though, is how to generate the new jobs.
Big new fiscal and monetary stimulus is probably not the answer. Federal spending and tax cuts over the past three years, coupled with the Federal Reserve’s easy money policy — including the controversial $600 billion second phase of balance sheet expansion known as QE2 — kept unemployment from rising out of control. The government’s support was truly massive: Even before QE2 and the December 2010 payroll tax cut, the economy had received four times more fiscal and monetary stimulus (as a share of gross domestic product) than in all nine post-1953 recessions combined, according to a J.P. Morgan analysis. But the federal deficit is already huge at 10 percent of GDP, and increasing it substantially could trigger a bond market revolt that would abort the recovery. Indeed, fiscal consolidation is probably necessary to long-term job growth.