The Indelible Bonobo Experience

From the beginning, it was or at least should have been obvious that the financial crisis had plunged us into a “liquidity trap,” a situation in which many people figure that they might just as well sit on cash. America spent most of the 1930s in a liquidity trap; Japan has been in one since the mid-1990s. And we’re in one now. (via Not Enough Inflation - NYTimes.com)

• Economists who had studied such traps — a group that included Ben Bernanke and, well, me — knew that some of the usual rules of economics are in abeyance as long as the trap lasts. Budget deficits, for example, don’t drive up interest rates; printing money isn’t inflationary; slashing government spending has really destructive effects on incomes and employment.
• The usual suspects dismissed all this analysis; it was “liquidity claptrap,” declared Alan Reynolds of the Cato Institute. But that was four years ago, and the liquidity trappers seem to have been right, after all.
• And it’s worth mentioning another issue on which the inflation non-worriers have been vindicated: how to measure inflation trends. The Fed relies on a measure that excludes food and energy prices, which fluctuate widely from month to month. Many commentators ridiculed this focus on “core” inflation, especially in early 2011, when rising food and energy prices briefly sent “headline” inflation above 4 percent even as the core stayed low. But, sure enough, inflation came back down.
• So all those inflation fears were wrong, and those who fanned those fears proved, in case you were wondering, that their economic doctrine is completely wrong — not that any of them will ever admit such a thing.
• And, at this point, inflation — at barely above 1 percent by the Fed’s favored measure — is dangerously low.
• Why is low inflation a problem? One answer is that it discourages borrowing and spending and encourages sitting on cash. Since our biggest economic problem is an overall lack of demand, falling inflation makes that problem worse.
• Low inflation also makes it harder to pay down debt, worsening the private-sector debt troubles that are a main reason overall demand is too low.

Youth unemployment figures are a lens with which to see the diversity of Europe’s economies. They also show how much the world has changed since the financial crisis. Globally, nearly 290 million young people are neither working nor studying, calculates The Economist, almost a quarter of the planet’s youth. (via http://econ.st/14Vge2p)

austerity hasn’t been the path to prosperity. It’s been the path to perma-slump. (via Spain Is Beyond Doomed: The 2 Scariest Unemployment Charts Ever - Matthew O’Brien - The Atlantic)

Here’s the story of Spanish unemployment in three acts. During the boom, joblessness was relatively high due to persistent structural problems. Then it shot up fast and faster as Spain’s building bust and then Lehmangeddon hit in 2008. But it has kept climbing up since the panic abated, albeit at a less catastrophic pace, due to the toxic combination of too tight money and budgets.

In other words, unemployment is a trap people fall into, but can’t fall out of. Indeed, the rate of new unemployment has stabilized at a terrible, but not quite-as-terrible, level, as you can see with the flat blue, red, and green lines. But the steadily rising purple line shows us that the rate of job-finding for the jobless has collapsed. 
That is what a permanent underclass looks like.