What’s Worse: High Unemployment or Inflation?

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The Wall Street Journal has a story today pointing out another long-term problem of high unemployment: it affects not just the finances of the unemployed, but potentially can reduce the future earnings power of their children as well. If Mom and Dad don’t have a job, then they can’t save for college. If they can’t save for college, junior either doesn’t go to college or will have to take on debt. Studies have shown that graduating deep in debt can lead to financial instability for years. The result:

Many families such as the Johnsons—upper-middle-class professionals—are suddenly downwardly mobile. For years, they used rising family wealth to help foot the bill for college, down payments for houses and start-up cash for children’s careers. But pay cuts, layoffs and the decadelong flatlining of the stock market mean many families can no longer help their children.

Invariably, when we start debating jobs programs and stimulus spending, people start talking about the long-term problem of government spending. It raises our national debt, and could cause inflation down the road. But what is often overlooked when inflation is brought up, is that not doing anything about high unemployment can have really bad long-term ramifications for the economy, perhaps even worse than inflation. Here’s why:

First of all, it’s not just upward mobility that is at risk. I wrote a story back in January about high teen unemployment and that what is at risk is not just whether teens will have to cut out trips to the mall. Without entry-level jobs, young workers can’t gain work experience. The result is a lower skilled workforce that results in longer-term productivity for the US economy in general.

And what the Journal and I pointed out is just the tip of the iceberg in terms of the  problem the high unemployment rate creates. The Atlantic had a story in their March issue about the much broader effects that high unemployment will have on American society. Scary stuff.

If it persists much longer, this era of high joblessness will likely change the life course and character of a generation of young adults—and quite possibly those of the children behind them as well. It will leave an indelible imprint on many blue-collar white men—and on white culture. It could change the nature of modern marriage, and also cripple marriage as an institution in many communities. It may already be plunging many inner cities into a kind of despair and dysfunction not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years.

Not sure if anyone has done a study on what’s worse–inflation or high unemployment? Neither is great. And the combination is, of course, horrible. But the problem with the folks arguing against an expanded jobs bill is that they don’t recognize that there is at least a chance that doing nothing is worse. Inflation at least has some positive effects. House prices rise again. Debt becomes more manageable. Wages increase. Yes, our buying power erodes. And higher interest rates can slow growth. But if anyone can tell me an even small upside to high unemployment, I would be interested. That being said, there’s not a heck of a lot the government can do to create lasting jobs, but that’s another story. And a good one at that.

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