A bizarre complacency

Paul Krugman,  November 24, 2009, 1:24 pm <!– — Updated: 6:58 pm –>

Even as the conventional wisdom seems to have converged on the view that despite the continuing willingness of bond investors to buy US debt at low interest rates, the deficit is terrible, scary, awful — you know we’re in herd behavior mode when phrases like “time bomb” start appearing in news stories — a weird complacency has settled in on the state of the actual economy. We’re recovering, everyone says — no need to do anything more.

Yet the outlook is extremely grim — not according to DFHs like yours truly, but according to the consensus of professional forecasters. Here’s what the Philadelphia Fed survey of forecasters says about inflation and unemployment, through 2012 (inflation as measured by personal consumption prices excluding food and energy): 

Federal Reserve Bank of Philadelphia

Disastrously high unemployment, persisting years into the future, combined with inflation consistently below the Fed’s 2 percent target (and I’d argue both that the prediction is too high and that the target is too low).Why is this considered OK, as opposed to desperately requiring action? Bear in mind that the predicted unemployment rate in 2012 — 2012! — is higher than the rate that let Bill Clinton run on “it’s the economy, stupid”.