Baker's question is more than fair, it boils down to the global impact of the Reinhart Rogoff paper. And its clear enough that 4 years later none of the major economies are seeing significant job creation & wage growth. And when we compare today's economy to that of FDR's first term, the differences are quite glaring, 1934-1936 GDP growth was extremely vigorous, so was job growth and to a lesser degree wage growth.
In Europe, R&R's work and its derivatives have been used to justify austerity policies that have pushed the unemployment rate over 10 percent for the euro zone as a whole and above 20 percent in Greece and Spain. In other words, this is a mistake that has had enormous consequences.Impact in the US
In the fall of 2009 the U6 unemployment rate was 17.1%, representing about 28 million people, today the U6 rate is 13.8% representing about 22 million people. If the US immediately returned to New Deal are spending levels on infrastructure (about 5% to 6% of GDP or 750 to 900 billion dollars) we would have seen as much as an additional 17 million jobs created, instead of the 4 million jobs created (I used a multiplier of 2.5).
This level of job creation would have brought down U6 unemployment to about 5%, representing 7.7 million people. Instead today we have 22 million people who would take a full time year round job if offered. If we follow this rather back of the envelope style of economics, the impact of the Reinhart Rogoff paper appears to be 14.3 million are unemployed in the US because of the austerity policies adopted over the last 4 plus years.
Impact on Social Security solvency
Whats possibly just as ironic, in 2011 the CBO scored the 75 year Social Security shortfall as .6% of GDP, in today's 15 trillion dollar economy thats 90 billion. 20 million jobs created, at $36,000 each, would add 89.2 billion in additional FICA to the Social Security Trust Fund in one year.
So not only did the the Reinhart Rogoff paper cause the unemployment of 14 million people in the US, I will also argue that the R&R paper fueled the recent Social Security is going broke in 2033 hysteria. And since both Reinhart & Rogoff worked for Pete Peterson's Peterson Institute, and Mr Peterson is a major proponent of adopting the chained CPI, along with his group Fix The Debt, it may be argued that the R&R paper was used as a tool that enables Chained CPi being put on the table as a legitimate SS fix.
14 million don't have a job today because of the policies that the R&R paper enabled, and in Washington DC people are considering adopting the Chained CPI for SS benefits, impacting scores of millions currently receiving Social Security benefits, as well as the 40 or 50 million Boomers who will retire over the next 15 or so years.
BTW if you've been following the saga of the R&R Scandal you might find this as very cool:
Dean Baker:And finally the Facebook page of the UMass, Amherst Econ Dept, please show them some love, they are very proud of a certain student. And rightfully so.
It is not an accident that this work came from the University of Massachusetts. The economics department at the UMass stands largely outside of the mainstream of the profession. You would need scuba gear to find it in standard departmental rankings. None of its faculty are fellows at the National Bureau of Economic Research, a credential that is a virtual prerequisite for employment at elite departments.
UMass has followed a different path that is not likely to gain it plaudits from the mainstream of the profession. It owes its current status to a group of progressive faculty, led by Harvard Professor Sam Bowles, who left some of the country’s top departments in the early 1970s to form a progressive department at UMass. While the original group has all since retired or moved on, the department continues to maintain its character as a center for progressive economics. [Disclosure, many of the faculty and grad students at UMass are friends and colleagues.]
As a result, the economists at UMass are less willing to adhere to the norms of the mainstream of the profession. They are more willing to challenge the received wisdom from the top economists in the profession without according them the deference they typically receive from less established economists.
12:11 PM PT: How much unemployment? The answer seems to be 14 million people, and that might be a conservative estimate.