Coping with bills due, dreams deferred and the need to plot a new life.
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We can't afford to wait. The longer someone is unemployed, the harder it is to get back to work, a fact as true for the nation as it is for you and me. As the Peterson Institute's Jacob Kirkegaard explains, "It is entirely possible that what started as a cyclical rise in unemployment could end up as an entrenched problem." Past crises have illustrated that lesson: the longer you wait, the harder it is to contain. This is as true for joblessness as it was for subprime mortgages, al-Qaeda and computer viruses.
Right Man, Right Time
By one of those strange Sully Sullenberger collisions of preparation and crisis--the sort that put Depression expert Ben Bernanke in at the Fed at the moment of a flameout of 1930s magnitude--Larry Summers made his reputation as an employment theorist. Summers is the nephew of two Nobel economists and was regarded as the smartest undergrad anyone knew, but as he surveyed his research options 30 years ago, he settled on the then relatively unsexy specialty of labor. The subject tickled his sense of skepticism. "The view that was taking hold at that time, a view that unemployment wasn't a terribly serious problem, was importantly wrong," Summers says. "I thought if you could have areas where there was long-term substantial unemployment, then that raised some questions about the functioning of markets." In essence, Summers saw in unemployment a chance to explore how markets don't work--and to think about policies that could correct for the failures. Perfect training for 2009.
Many of the ideas Summers developed were codified in a 1986 article titled "Hysteresis and the European Unemployment Problem." Even today it's a piece he's proud of: "Ah, yeah, the hysteresis article," he interjects when it's mentioned. Hysteresis is a word that you (and the rest of us) should hope we don't hear too much of in the coming months. It comes from the Greek husteros, which means late. It refers to what happens when something snaps in such a way that it can never be put back together. Bend a plastic ruler too far, drop that lightbulb--that cracking sound you hear is the marker of hysteresis. There's no way to restore what has just been smashed.
The idea that hysteresis happens to economies is one that economists don't like to think about. They prefer to consider economies as yo-yos tethered to the sturdy string of the business cycle, moving up and down from growth to slowdown and back. But from time to time, things do snap. And Summers' argument in 1986 was that unemployment in Europe, the sort that might persist in the face of growth, was an expression of an economy that had snapped. Europe's economy was hit not only by shocks like an oil-price spike, a productivity collapse and rocketing tax rates but also by stubborn unions that made hiring, firing and adjusting payrolls near impossible.