Media Matters Action Network

Wells Fargo: Americans Will Have To "Get Used To" High Unemployment

May 31, 2011 3:02 pm ET by Jamison Foser

Wells Fargo says Americans will just have to "get used to" high unemployment:

It is common knowledge that today's unemployment rate, currently at 9.0 percent, is unacceptably high. This is because most Americans are used to a "normal" unemployment rate of around 5.0 percent, when the economy is firmly anchored in expansionary territory. But, as we noted in a recent special report, Cyclical vs. Structural Unemployment: The Debate Rages On (found on our website), American workers will unfortunately have to get used to a higher "normal" unemployment rate in the post-Great Recession era. By our calculations, the "normal" unemployment rate in the U.S. labor market is currently around 7.0 percent.

Despite recent jobs gains, unemployment remains at stratospheric levels — and Wells Fargo's message to unemployed workers is 'get used to it.' And that new "normal" unemployment rate Wells Fargo has announced? It's awfully high. Unemployment didn't reach seven percent for a single month from July 1993 through November 2008 — and now it's supposed to be the "normal" rate. And what's worse is that the closest we've come to this (bad) new "normal" over the past two years is 8.8 percent. In short: seven percent unemployment is bad — and we aren't even close to having it that good.

So ideally, policymakers and those that influence them — like, say, huge investment banks — would focus on job creation. And yet Wells Fargo seems primarily concerned with inflation:

A higher "normal" unemployment rate has several implications for monetary and fiscal policy. On the monetary policy front, if structural issues in the labor market persist much longer than policymakers anticipate, and excessive monetary policy actions aimed at reducing the unemployment rate continue, the unintended outcome will be higher-than-expected inflation in the medium term.

The unemployment situation is significantly worse than merely "bad" — and Wells Fargo is concerned that "excessive" attempts to reduce unemployment may cause "higher-than-expected inflation." But while unemployment is remarkably high by historic standards, and has been for quite some time, inflation is quite low, and has been for quite some time. Princeton economist Paul Krugman, whose Nobel Prize in economics indicates he might know a thing or two, suggests that it would be good if inflation were to go "back up to the 4 percent rate that prevailed during Ronald Reagan's second term," helping to create jobs and "reduce the real burden of debt."

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