Jobless crisis dwarfs debt's urgency, expert says
Economist worried over long-term effects on young unemployed
CHAMPAIGN — The United States faces an unemployment crisis that demands more immediate attention than the nation's debt problem, Nobel Prize-winning economist Peter Diamond said.
Diamond, a professor at the Massachusetts Institute of Technology, said the percentage of the civilian labor force that has been out of work at least six months is "way higher than what we've seen before."
The figure topped 4 percent two years ago and has since come down to 3 percent. But for many previous decades, the figure stayed below 2 percent.
Delivering the David Kinley Lecture on the University of Illinois campus Thursday, Diamond said he's particularly worried about the effects of long-term unemployment on young people.
Eventually, many will get jobs, but studies have shown being out of work so long can harm their lifetime earning potential significantly, he said.
Diamond said the United States has a dynamic economy that remains very weak.
The number of people quitting their jobs usually picks up when the economy recovers — and it did pick up, Diamond said, but the number of quits is "still way lower than what it was before" the recession.
Diamond said many in Washington behave as though the federal debt is a greater and more immediate problem than unemployment.
But the economist contends the country still has time before it has to grapple with the debt.
Diamond said the amount of federal debt held by the public is about 70 percent — one of the highest levels in U.S. history, but not as high as during World War II.
Something must be done about the debt over time, he said, but the amount of federal debt held by the public can go up to about 90 percent without the economy suffering.
"Above 90 percent, economies tend to slow down," he said.
Diamond advocates more government spending on infrastructure, such as roads, schools, waterways, bridges, dams and aviation.
Such investment could "help growth and help unemployment and not hurt the long-term trend in the debt," he said.
Diamond added that when government programs are cut, policymakers need to make sure taxpayers get good value for their money.
It's important to make sure the Securities & Exchange Commission, the Environmental Protection Agency and the Internal Revenue Service can perform their most important tasks, he said.
"You have to give government enough money to do its job," he said, "and the income tax is the place to do that. Our rates are low."
To emphasize the point, he added: "I sure hope income tax rates go up, yours and mine. What this country needs to do cannot be done with the level of revenues we have now."
Diamond said he sees Social Security as "a real problem" but not a crisis. But "the sooner we address it, the better," he said.
Diamond, 72, shared the 2010 Nobel Prize in economics with Dale Mortensen and Christopher Pissarides. He has done extensive economic research on labor markets, Social Security and the income tax.