Paul Krugman Loses Sleep

“All participants anticipated that unemployment would remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks; a few indicated that more than five to six years would be needed for the economy to converge to a longer-run path characterized by sustainable rates of output growth and unemployment and by an appropriate rate of inflation.”
--Federal Reserve Open Market Committee minutes , quoted in Paul Krugman's "Who Will Stop the Economic Pain?" (NYT, 2-21-09, posted at Alternet.)

Isn't that last sentence a doozy? I always thought that "converge" meant two things coming together. Now it's "converge to." What does that mean?

Krugman points out that eventually housing will have to catch up with population growth and autos will have to be replaced. (He quotes economically reliable website called Calculated Risk saying that it will take 27 years to replace the current fleet of autos at present day sales rates.) My independent car mechanic tells me that business has never been better. Few people are buying new cars. I have been watching the papers and Internet ads for new cars and the prices appear to be stalled at the same level for months. One new crack in the wall: dealers even have started listing the prices of the Prius and the hybrid Civics, Accords, Camrys and Altimas.

I like Paul Krugman. I'm finishing his last book, The Conscience of a Liberal this week, and he's got a lot of good prescriptions. I'd like to be optimistic, but I can't be. I'm not nearly at the mindset of the Cormac McCarthy of The Road, but I am pretty close to James Howard Kunstler:

We can't promote more mortgages for people with no income. We can't crank up a home-building industry with our massive inventory of unsold, and over-priced houses built in the wrong places. We can't ramp back up the blue light special shopping fiesta. We can't return to the heyday of Happy Motoring, no matter how many bridges we fix or how many additional ring highways we build around our already-overblown and over-sprawled metroplexes. Mostly, we can't return to the now-complete "growth" cycle of "economic expansion." (Diary entry for February 9, 2009, "Poverty of Imagination.")

And I'm not sure that the fleet will be replaced one for one, as Krugman submits. Unemployed people will use their cars less, and the cars will last longer. Fewer people will think of rolling over their cars every three or four years. More people will turn to public transportation. The baby boomers will have entered retirement with a whoosh and with reduced savings and investments. The kids will start moving back in with their families. The houses larger than we needed if they are paid for, will start sheltering the down and out relatives or sons and daughters, and won't be sold.

If the unemployment goes on for two or three more years, the changes in average life will be massive. If economic and environmental struggle spreads, if physical events like flooding and drought begin to seriously impact our world, fewer and fewer young people will think of the future as something positive and full of possibility.

Recovery from the psychological trauma may take much longer than the pessimists on the open market committee project for the economy. Keep your fingers on the suicide and domestic mayhem pulse, keep watching for the people living in their cars in the parking lots overnight.