Long term unemployment in itself isn’t the problem. It’s a symptom of a much larger macro problem in which monetary policy is a major contributor. I think that the magnitude of contribution from the monetary problem is quite underappreciated as economic discussion turns toward the issue of unemployment because while the unemployed are impacted in a very noticeable way, and they are the hardest hit in terms of what is needed for survival, there is not one economic actor that is not impacted by it, from less noticeable ways that include simply cutting back to the opportunity costs of tight money in the long run.
If I could put my finger on the two largest problems from which most other major economic problems are derived, they would be problems with monetary policy and problems with capital markets. I agree with Bernanke at a high level that monetary policy alone likely cannot solve what is perceived as “the problem” in entirety, though it would help in no small way, but I differ with him in the form of additional support needed as I haven’t found any evidence that fiscal stimulus improves conditions in capital markets. Simply put, we are a capitalist society; and as such we live and die by the capital markets. If our capital markets are unhealthy in addition to our monetary policy, our economy will be unhealthy. It is probably worth nothing that if the Fed decided today to fix the monetary framework so we get the liquidity needed, it may not entirely help if the capital markets are still damaged.
Solving the problem of long term unemployment needs both capital markets and monetary policy to be functional. The value proposition in employer-provided training needs to tilt back into positive territory after having turned negative with much lower demand and a tight labor market; and the only way to do that would be to have more lots more demand, and an efficient and expedited pathway for business to get the money to invest in people.
With that said, the focus like a laser beam on inflation, the inflation and bubble hysterics, and the stamping of the fallacious label of “financial stability” on tight money are not only ridiculous ideas, but are also probably the most damaging things we could ever do to our society and ourselves as capitalists. Because what all of those things mean is starving the capital markets of liquidity in addition to whatever damage the Fed’s focus like a laser beam on inflation inflicted in 2008-2009 that I don’t believe was addressed with Dodd-Frank. In fact, I think Dodd-Frank may have exacerbated the problem as likely does IoER (the Fed needs to get rid of that). And I am simply amazed by how none of this has ever occurred to any of the inflation and bubble chicken littles. It gives new meaning to the phrase “think as a brick.” After the capital markets have been hit by the inflation hysterics train, they want to drive spikes in their skulls when we need them more than 100% on their feet. We go from everybody losing to everybody losing even more for years, decades even.