Unemployed reality

David Leonhardt is shrill.

One question more than any than other is crying out for an answer: Why has Mr. Bernanke decided to accept widespread unemployment for years on end, even though he believes he has the power to reduce it?

The Fed’s own forecasts suggest that the unemployment rate won’t fall below 5 percent for perhaps another five or six years. Mr. Bernanke believes the Fed “retains considerable power” to reduce unemployment faster, despite the fact that its benchmark interest rate is zero, as he’s said before. Yet he has been hesitant to use that power.

He is in a tough spot, to be fair. Several other voting members of the Fed’s monetary policy committee — and some prominent members of Congress — oppose aggressive action, because they worry it will set off inflation. But these critics always worry about inflation. They have been wrong again and again over the last two years. More important, they don’t have enough power to keep Mr. Bernanke from pursuing the policy he thinks is best.

So the Fed’s decision to permit high unemployment for an extended period rests on his shoulders.

As he has explained many times, the Fed has alternatives. It could announce that it would keep its benchmark rate at zero for a few years, which would probably hold down long-term rates. It could say that it was comfortable with higher inflation for a limited period of time, given how low inflation has been since 2007 and how high unemployment is. Above all, Mr. Bernanke could make clear that he considers years of widespread unemployment to be unacceptable.

He has not done so, and he has yet to offer a satisfying rationale.

Instead, he has said that more aggressive action brings risks. And it does. Low interest rates have the potential to spark inflation, by enticing millions of households and businesses to borrow money and causing the economy to overheat. Higher inflation could, among other things, increase borrowing rates for the United States government and worsen the deficit.

But it’s worth keeping in mind that just about every decision involves some risk. Simply stating that more aggressive action brings risks is not a good argument against that option.

He goes on in shrill fashion.