But Diamond’s particular areas of expertise -- labor markets and pension programs, notably -- are unusually salient right now. I reached him at his home in New Hampshire to get his take on the continuing economic crisis:

Ezra Klein: It’s late-2011, and unemployment is still above nine percentage points. Would you have predicted that in 2007? Or has the severity and persistence of the crisis taken you by surprise?

Peter Diamond: I don’t think I had fully registered the points that are in the Reinhart/Rogoff book. This isn’t just a more severe recession, it’s a different kind of animal. And it leaves us with a couple of real dilemmas. Some are very hard to deal with, and some would be easy to deal with if the political process worked better.

Let’s start with the hard to deal with. Small business needs lots of borrowing. The borrowing comes from a large extent from banks. It comes from a large extent out of own wealth or family wealth. After the kind of housing bubble we’ve had, banks are weakened, and households underwater can’t help small businesses get going. We’re having an extended period in which small businesses aren’t contributing to growth the way they normally can. We would like to clean that up, but the catch is that there’s debt that won’t fully be paid off. We need to recognize that.

EK: And the easier problem?

PD: Infrastructure spending is not a vehicle for dealing with a normal recession. But once you recognize this recovery will be slow, you realize this is a time when we should be doing major spending on infrastructure. And a lot of the infrastructure investments are stuff we’re going to have to deal with eventually, so doing it now doesn’t actually add to the trend debt problem, and doing it now means we’re doing it with otherwise unused resources, both in terms of labor and capital, so that makes it cheaper for the economy.

At the same time, we have a debt problem. Not a debt crisis, but a debt problem. And we have to worry about the affect addressing it will have on the recovery. My particular take is, this would be a great time to restore actuarial balance to Social Security. Plans to restore Social Security inevitably phase in slowly because you don’t want big surprises in people’s pensions. And if we do the kind of fix that my book with Peter Orszag described, we have a huge drop in the debt-to-gdp ratio. In the evaluations we did of the proposal in 2005, we looked at 2050 and we knocked 25 percent off the debt-to-gdp ratio relative to paying all the scheduled benefits.

EK: What can the Federal Reserve do?

PD: The Fed doesn’t have the kind of clout it had when interest rates were higher, and you could bring them down. What has been talked about is some more quantitative easing as a way of addressing interest rates. You’ve also heard people like Paul Krugman call for the Fed to commit to higher inflation. Some people propose this by having the Fed commit to a price-level target. I don’t think that’s a good way to think about it. What I think they could do is say that higher inflation would not be a problem for awhile. But that goes back to my earlier point about who takes the loss on the debt: what happens then is that homeowners are doing better, and the banks are doing worse. So we’re helping with one problem and hurting another. I think it’s probably a good idea nevertheless. The other question that has been raised is whether the Fed can lower the interest rate on the money banks keep at the Fed. I think it’s interesting, but I don’t have a firm view on it.

But I’m seriously disappointed in the three dissenting bank presidents on the Federal Reserve’s Open Markets Committee. Given the seriousness of the social cost of the level of unemployment we have and the impact on the labor market down the road, the phantom of inflation we can’t deal with seems to be no reason not to try to help.