The New York Times embraces the myth of “the new normal” in an attempt to evade the obvious:
The new normal challenges the optimism that’s been at the root of American success for decades, if not centuries. And if it is here, the new normal could force Democrats and Republicans to rethink their traditional approach to unemployment and other social problems.
Some unusual suspects, like Glenn Hubbard, dean of the Columbia Graduate School of Business and an economic adviser to George W. Bush, are talking about a new, expanded role for the government in addressing the problem. In particular, Mr. Hubbard favors investing more in education to retrain workers whose jobs are never coming back. “If there is a new normal, it’s more about the labor market than G.D.P.,” he said. “We have to help people face a new world.”
For his part, Mr. Gross, also a free-market advocate, believes that it’s time for the government to spend tens of billions on new infrastructure projects to put people to work and stimulate demand.
First, if you believe it is time for the government to spend billions of dollars to put people to work and stimulate demand, you are not a free market advocate. Second, how is spending government money to “stimulate” the economy anything but a traditional approach to unemployment? The problem is debt and adding more public debt to the equation is only going to make matters worse. You would think this would be obvious, given that both Hoover and FDR tried spending billions of dollars to put people to work and what they got was the Great Depression. It is intriguing, but not surprising, to see all of the politicians and media figures so intent on taking the very actions that will cause the outcome they hope to avoid. What is remarkable is that they are doing this with the benefit of hindsight.