Tipping point and equilibrium

What Gives? Has the Market Stopped Loving Inflation? by David Glasner

Low Inflation Is the Same Sort of Problem as Deflation by Dean Baker

Crisis Withdrawal Syndrome by Krugman

Oh, since I’m praising Dean, let me say that while it’s true that he has for a long time been making the case that low inflation is a problem even if it’s not actual deflation, his implication that I’m saying this for the first time is a bit unfair. In the European context, in particular, I’ve been beating this drum for a while.

 Krugman has emphasized deflation and the liquidity trap and the press have echoed what the Fed and Bernanke say about deflation being a bad thing. Baker has made the fair point that sup-par inflation is just as bad as deflation.

We'll see if Japan can get out of deflation and if the U.S. or Europe can get out of low inflation.

More Thoughts on Job Creation in the Recovery by Dean Baker

That being said, as the NYT points out, other countries have done better. Germany stands out in this respect, having seen a sharp rise in its employment to population ratio since the beginning of the downturn, and a decline in its unemployment rate of 5.4 percent, in spite of a recovery that has been no stronger than in the United States. 

Part of Germany's story is a slower rate of growth of its labor force, but the main part of the story is work sharing and other policies that encourage employers to keep workers on the payroll, even if they work fewer hours. These policies have been remarkably successful in shielding German workers from the worst effects of the downturn. 

So to sum up, the main reason that so many people are unemployed four years into the recovery is weak GDP growth. This was predictable given the nature of the downturn. Given the weakness of this growth, the U.S. has done a pretty good job creating jobs. However other countries, most notably Germany, have done much better in translating weak GDP growth into jobs and they provide important lessons to the United States.