Friday March 14, 2014, 8:11 pm
It absolutely is dangerous to give up on the long-term unemployed, but the threat of inflation is also something entirely real. Current inflation-rates are low, but the response of inflation to employment is not linear. There is in this, like in so many other things, a threshold-response. Once banks realize that threshold has been passed, there will likely be a sudden and drastic response. The objective of doing things like raising rates is to reduce the impact of that sudden response.
The fear of a "double-dip" a few years ago came from the fact that under the policies in place at the time, had recovery really been as good as reported, that threshold would have been passed and the impact of the sudden response could easily have started a whole new recession, especially with the delay between changes in private lending-rates and the government's and fed's response. For an idea of the impact of that delay, consider this: Canada was judged to be the best place in the world to invest, well above the U.S., for some time PM Harper correctly predicted when the rates would bottom out and had the government's policies change on the correct week. Now imagine a reaction rather than a prediction, and how long it takes to put anything through U.S. Congress, and think of how far the other way things could go if preparations, like raised rates, are not made in advance.
All that said, long-term unemployed Americans may be the greatest unused asset ready to drive the U.S. economy.