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Tilting at Windmills

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February 15, 2006
By: Kevin Drum

STALKING THE FED....New Fed chairman Ben Bernanke testified before Congress today, and Max Sawicky is not happy that he seemingly cares only about inflation to the exclusion of everything else:

Wages were hardly mentioned. (Rep. Harold Ford, Democratic champion, at one point referred to wages being "under control." Whew! Thank god for that.) We are told that cost pressures are worsening and monetary tightening is on the agenda. This is code for suppressing possible wage gains and preventing dangerously low levels of unemployment (sic). Rep. Ford will be happy, but you will not.

It's worth noting, as Max does in passing, that inflation is not the only thing the Fed is supposed to be concerned about although an awful lot of reporters seem to believe this. Rather, its statutory mission is to conduct monetary policy "in pursuit of maximum employment, stable prices, and moderate long-term interest rates." Maximum employment, of course, would have the happy effect of raising median wages, which for most of us would be a good thing indeed. Now we just need to get the Fed to agree.

Kevin Drum 7:19 PM Permalink | Trackbacks | Comments (137)

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Law firm associate wages are up.

Posted by: Ugh on February 15, 2006 at 7:24 PM | PERMALINK

We have to keep wages down, or the terrorists, or maybe it was the socialists, no wait, the liberals (gasp!) win.

Posted by: K on February 15, 2006 at 7:37 PM | PERMALINK
Maximum employment, of course, would have the happy effect of raising median wages, which for most of us would be a good thing indeed. Now we just need to get the Fed to agree.

Granting that, for the moment, it would also increase aggregate demand and therefore, at least in the short term, drive inflation. The chronically unemployed aren't reliable voters, and are even worse as campaign contributors, so Congress isn't likely to push too hard on the Fed to emphasize the "maximum employment" aspect of its mission at the expense of the "stable prices" aspect, which affects, people who do vote and give campaign contributions more reliably.

Posted by: cmdicely on February 15, 2006 at 7:39 PM | PERMALINK

I'm trying to think of a time when the fed might have pushed for maximum employment, or even considered employment as a counterweight to its inflation-fight mission, and I can't think of one, at least not going back to the 70s or so. Can anyone else?

Posted by: paul on February 15, 2006 at 7:45 PM | PERMALINK

Rep. Harold Ford, Democratic champion, at one point referred to wages being "under control."

So much for the Democrats being the party of the working class.

And Ford is considered to be one of the up-and-comers; his winning the race for Bill Frist's seat in the Senate is considered one of the keys to the Democrats regaining power in that chamber.

And you wonder why sometimes I believe that it doesn't make a bit of difference which party controls Congress?

Posted by: dr sardonicus on February 15, 2006 at 7:51 PM | PERMALINK

Kevin Drum >"New Fed chairman Ben Bernanke testified before Congress today, and Max Sawicky is not happy that he seemingly cares only about inflation to the exclusion of everything else..."

"We the people..." are going to hear a lot about "Inflation as target number 1" in the next coupla years

This is ALL about getting ahead of the consequences of the dollar ceasing to be the planets` reserve currency (and the dumping of large amounts of dollar holdings onto the global markets); too many dollars chasing too little demand in monetary babble

REMINDER : Syria & Iran have both recently moved much of their financial assets away from the U.S.A. and related dollar denominated assets and started focusing on Euro ones; many will follow as this idea picks up cred

ALSO : Late next month (March) Iran will be opening an oil trading exchange (to compete w/those in London & New York - both of which are owned by an American corporation) and the trades will be, eventually, denominated in currencies other than the dollar (Euro to start with)

Once the abandonment of the dollar begins the Inflation genie will be out of the bottle & "We the people..." will see the (rigid) global financial system attempt to deal with serious disruptions

Gonna be an "interesting", to say the least, experience

Buckle in folks !

"There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things." - Niccol Machiavelli

Posted by: daCascadian on February 15, 2006 at 7:52 PM | PERMALINK

I predict within a month Ben Bernanke will jump off a tall building after leaving a suicide note complaining about the stress from his job and the pressure of performing after being set up to fail.

Posted by: MillionthMonkey on February 15, 2006 at 7:53 PM | PERMALINK

A little inflation I can live with. It won't last long. Demand will kick in fairly quickly and lots of people will start buying lots of stuff. I know I don't buy as much stuff as I did in the 90s. I am the engine of capitalism and I can't buy as much stuff now. That tells me that maybe our economy ain't doin' so well. And I am very securely employed. My father, God rest his soul, always said, "If you want a healthy and robust capitalist economy, you must have a healthy and robust middle class." The middle class is the group that buys all of the stuff. If the middle class isn't doing well, capitalism isn't doing well.

Posted by: Babba on February 15, 2006 at 7:53 PM | PERMALINK
A little inflation I can live with. It won't last long. Demand will kick in fairly quickly and lots of people will start buying lots of stuff.

Demand kicking in isn't what stops inflation, its a source of inflation, when it increases faster than supply can respond.

Posted by: cmdicely on February 15, 2006 at 8:00 PM | PERMALINK

Deficit spending and war,nothing works better to drive GDP growth which is influenced by capital goods orders say like those for defense-related goods and that has also helped employment.
It's all good,now get out there and spend.

Posted by: TJM on February 15, 2006 at 8:00 PM | PERMALINK

paul >"I'm trying to think of a time when the fed might have pushed for maximum employment..."

That would be before Nixon going to China (and all the foreign exchange hocus pocus of the early 1970s)

Remember WAGE and price controls ? (all control wages and not prices)

Inflation eats the rich (at least those with lots of monetary assets) so to speak

"Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist." - John Maynard Keynes

Posted by: daCascadian on February 15, 2006 at 8:05 PM | PERMALINK

Considering I'm down about $150k in student debts, I could really use a good dose of hyper-inflation right about now.

Of course, as soon as my debts were inflated away (so that $150k would buy a loaf of bread), I'd definitely want a return to price stability.

Posted by: Tom P. on February 15, 2006 at 8:28 PM | PERMALINK

Inflation eats the rich (at least those with lots of monetary assets) so to speak

Posted by: daCascadian on February 15, 2006 at 8:05 PM | PERMALINK

It eats everyone and the new rich know how to buy foreign investments so that attitude is very "eat your nose to spite your face".

------------
Considering I'm down about $150k in student debts, I could really use a good dose of hyper-inflation right about now.

Posted by: Tom P. on February 15, 2006 at 8:28 PM | PERMALINK

Unless you have a fixed rate loan- your interest rate would go up to.

Posted by: McA on February 15, 2006 at 9:00 PM | PERMALINK

"...inflation is not the only thing the Fed"

I missed the logic here. The Federal Reserve was formed precisely to keep the monetary unit stable. It may coordinate with government, but its only aim is to keep the dollar stable.

Posted by: Matt on February 15, 2006 at 9:27 PM | PERMALINK

Mc Anus >"It eats everyone and the new rich know how to buy foreign investments..."

Ah ha !

More outgassing from The Orifice

It eats more of those that have then of those that have not (differential effects); creditors lose, debtors win

Yea, buying less & less as their currency declines against all others; the tredmill moves faster & faster

neither savvy nor wise

"The human race has one really effective weapon, and that is laughter." - Mark Twain

Posted by: daCascadian on February 15, 2006 at 9:34 PM | PERMALINK

Kevin really is confusing me.

Let say Kevin wants us all to have bigger houses, then according to Kevin, the Bureau of Weights and Measures should shorten the yardstick, thus fooling all the carpenters into building larger houses.

So, Kevin and Max get together and run the Fed. They announce that in two days, the dollar will be deflated by exactly 5%, and they go ahead and do that by manipulating the bond market.

Fine, how does that help? I just get out my calculator, like everyone else in the globe, and recompute prices.

Perhaps Kevin wants to smooth out the distribution of income. How does the Federal reserve, with only its power in the bank note market, effect this?

Posted by: matt on February 15, 2006 at 9:36 PM | PERMALINK

You know: if energy prices stabilize in the coming years (and that admittedly is a big if) deflation not inflation may be the threat.

The boomers have been one of the several most spendthrift generations in American history, as well as one of the largest (in relative terms). As they retire, they will be spending less, and replaced in middle age (the peak earning and spending years) by a smaller, more indebted, more frugal generation that will almost certainly be taxed at a higher rate (to pay for boomer entitlements). There could be massive excess capacity (especially abroad), and perhaps a real risk of deflation out of China.

Arguably, the housing and refi boom (or if you prefer bubble) is what kept this economy from slipping into Japanese-style deflation after the dot com crash, and the housing/refi boom seems to be in its twilight phase as well.

One wonders what happens in the event of high energy prices as well as limited consumer spending, other than recession.

Posted by: The Blue Nomad on February 15, 2006 at 9:49 PM | PERMALINK

At this point in time, we should be happy if the Fed can just control inflation. They are sitting on a time bomb, as Krugman pointed out the other day, and it will go off in our lifetime. The alternatives are pretty obvious: The federal government can cover its deficit by raising taxes, selling off the National Parks and related public treasures (already proposed in Congress), offer usurious interest rates to lenders foolish enough to take the bet, or print money. Come 2010/12, the temptation to print money is going to be extremely strong.

Posted by: Knut Wicksell on February 15, 2006 at 10:00 PM | PERMALINK

Matt: The Federal Reserve ... only aim is to keep the dollar stable.

Bzzzt! Wrong, but thanks for playing.

The Fed is explicitly chartered to balance inflation, employment and growth.

Posted by: alex on February 15, 2006 at 10:10 PM | PERMALINK

I also liked this irony-loaded piece by Stirling Newberry on Bernanke.

Posted by: PW on February 15, 2006 at 10:12 PM | PERMALINK

I dont understand how maximum employment has any effect on the median wage. Isn't maximum employment minimizing unemployment to the natural rate, which I think is 6%?

Maximum employment is affected by minimum wage, because the minimum wage is essentially a price floor and keeps market forces from setting the equilibrium price of labor, which causes a surplus of labor.

There is a very delicate balance between unemployment and a fair minimum wage.

Posted by: andy on February 15, 2006 at 10:29 PM | PERMALINK

andy >"I dont understand..."

You are correct !

You don`t

Thanks for agreeing

"...It is in the religion of ignorance that tyranny begins..." - Benjamin Franklin

Posted by: daCascadian on February 15, 2006 at 10:39 PM | PERMALINK

Lobbyists have full employment and higher wages.

Who cares about anyone else?

Certainly no one in the nation's capital.

Posted by: save_the_rustbelt on February 15, 2006 at 10:43 PM | PERMALINK

"New Fed chairman Ben Bernanke testified before Congress today, and Max Sawicky is not happy that he seemingly cares only about inflation to the exclusion of everything else"

Whatever happened to the Humphrey-Hawkins Full Employment Act ?
.

Posted by: VJ on February 15, 2006 at 10:52 PM | PERMALINK

well, yes, the statutory mission of the federal reserve says a lot of things. but the people running the federal reserve are concerned solely about controlling inflation. they believe that they can do this by controlling the money supply, which makes no sense outside of the mythical state of "full employment."

Posted by: rufustfyrfly on February 15, 2006 at 10:57 PM | PERMALINK

I have read reports that since the federal reserve was created in about 1913 the value of the dollar has decreased by 95%. So much for fighting inflation.

Posted by: ima bankster on February 15, 2006 at 11:07 PM | PERMALINK

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Posted by: david on February 15, 2006 at 11:24 PM | PERMALINK

Kevin really is confusing me.

Are you really this stupid, or is this just a strawman?

Posted by: johnnyboy on February 15, 2006 at 11:38 PM | PERMALINK

It was decided by some intelligent individuals many years ago that extreme, long lasting, extensive depressions such as that suffered during the 30's and several cycles before in the history of the nation that the dollar would be removed from the gold standard or not directly related to gold by a set amount. It was assumed that some level of inflation would occur constantly do to this. This system has worked for many decades now. The fed must manipulate the interest rate to either slow down the economy (less monetary liquidity) when they percieve inflation a problem or lower interest to raise monetary liquidity which stimulates the economy. It's a difficult prospect because:
-there is a delay, the interest rate change won't affect the economy initially,
-changing the fed interest rate might not cause a ripple effect causing other business and consumer interest levels to change which would dull it's effects,
-the economy might not respond due to other factors, like deficit spending and borrowing.

The fed rate was moved so low to stimulate the economy during the time of the 3 major economic issues (1999-2000 stock drop, 9/11, Iraq war) that it had become so low (almost 0%) that it was thought that even though the economy was not exactly on fire that the rate had to be raised up to a level whereupon if something happened it could be lowered again and have some effect. It was considered that it's level was so low that it might fail as a control device or taking it lower, into negative land, would be useless.

It's a difficult balance, stimulate the economy but not enough to cause inflation-slow it down but not enough to drive it into depreciation.

Posted by: MRB on February 15, 2006 at 11:47 PM | PERMALINK

GDP growth which is influenced by capital goods orders say like those for defense-related goods and that has also helped employment.

...and by capital goods orders like say those for incredibly expensive medical technologies and for the pharmaceuticals production capacity to fuel massive new orders of government-subsidized drugs for seniors under Plan D.

Why was it again that we "can't afford" rising health costs?

Posted by: brooksfoe on February 16, 2006 at 12:03 AM | PERMALINK

Well, we know that there's a basic relationship between inflation and monetary supply: ie, if you borrow/print more money, it's value goes down, and prices go up.

But if you use interest rates to increase the cost of money, that slows inflation. Right?

But what if that rate increase has no impact on the amount of borrowing/printing going on?

Posted by: osama_been_forgotten on February 16, 2006 at 12:12 AM | PERMALINK

The thing is:
Interest Rate is a single rate, which impacts all other forms of interest.

Inflation is an imperfect measure of the rise in prices of certain goods, cherry-picked and weighted for maximum PR benefit.

Using one to regulate the other is an apples-to-oranges proposition, at best.

For one, they don't include Energy prices - because they're "too volotile" - but energy prices are probably the main leading indicator of inflation in other sectors, since energy is the input to the physical sector of the economic machine, which cannot function without a steadily increasing supply.

Worse still - Energy prices are among the most manipulated of all markets; everytime a mullah sneezes, it lights off a buying frenzy.

So really, these very smart people at the Fed don't seem to grasp these basic facts. So what are they really regulating when they change interest rates? Short-term stock prices?

Posted by: osama_been_forgotten on February 16, 2006 at 12:18 AM | PERMALINK

paul >"I'm trying to think of a time when the fed might have pushed for maximum employment...."

William McChesney "leaning against the wind" Martin?

Posted by: bobbyp on February 16, 2006 at 12:22 AM | PERMALINK

I missed the logic here. The Federal Reserve was formed precisely to keep the monetary unit stable. It may coordinate with government, but its only aim is to keep the dollar stable.

Matt, if you actually read the post, you will note that Kevin has helpfully included a snippet of the Fed's charter, which specifies that its mission includes promoting full employment as well as keeping the dollar stable.

You are a victim of precisely the brainwashing which Kevin is describing in this post.

Posted by: brooksfoe on February 16, 2006 at 12:25 AM | PERMALINK

I missed the logic here. The Federal Reserve was formed precisely to keep the monetary unit stable. It may coordinate with government, but its only aim is to keep the dollar stable.

Flatly incorrect. Here's how the Chicago Fed sees its mission:

The fundamental mission of the Federal Reserve System is to foster the stability, integrity and efficiency of the nation's monetary, financial and payment systems in order to promote optimal macroeconomic performance.

In case you missed it (again), a low unemployment rate is obviously part of that "performance".

Posted by: bobbyp on February 16, 2006 at 12:31 AM | PERMALINK

Damn, brooksfoe. There you go "paying attention" again.

Drat.

Posted by: bobbyp on February 16, 2006 at 12:34 AM | PERMALINK

Don't you think that higher wages would actually raise the unemployment level? Supply and demand being equal - to moderate expansion. Full employment can only come with a reduction of wages. The key is to find the right wage at which the # of unemployeed are offset (hopefully) by the number of people we raise out "working poor" status; or who choose not to work because the cost of commuting, day-care, food-on-the-go...etc. consumes nearly their entire paycheck.

Posted by: jimfio on February 16, 2006 at 12:44 AM | PERMALINK

jimfio...why is it the only lesson you've learned from Republicans is the one about how higher wages are bad from poor people? What about the other Republican lesson, that the economy is not a zero-sum game?

For example, what if unrestrained competition drives wages down so low that workers no longer have enough money to spend or invest, harming the economy overall? How do you explain the numerous periods in which unemployment has fallen while wages have risen, without corresponding rises in inflation - viz. the 1950s, the 1990s...?

The economy is an incredibly complicated thing. Reducing it to two forces operating in a balanced equilibrium is either a mistake or a propaganda trick. For answers to questions like "can you have rising wages and higher employment", your best bet is to consult economists who study the question, rather than making up simplistic answers on your own.

Posted by: brooksfoe on February 16, 2006 at 1:27 AM | PERMALINK

so none of you has read the wonderful "wall street" book by Doug Henwood huh?

figures.

Posted by: almostinfamous on February 16, 2006 at 2:37 AM | PERMALINK

Maximum employment, of course, would have the happy effect of raising median wages, which for most of us would be a good thing indeed

I don't know why you think that's true. With millions of entry-level entrants into the job market every year, maximum employment is compatible with a stagnant wage distribution at the low end, stable prices, and low long-term interest rates. With decreasing costs of lots of consumer goods, stagnant wages translate into increased earning power. If wages, costs, and interest rates all rise, no one is actually able to afford better housing or anything else, so real wealth can decline.

But for happier news, let me recommend two articles in the current Science: The path forward for biofuels and biomaterials by Ragauskas et al, p 484, vol 311; Ethanol can contribute to energy and environmental goals by Farrell et al, p. 506 vol 311. I just got it, but it's dated January 27.

Posted by: republicrat on February 16, 2006 at 3:02 AM | PERMALINK

Inflation eats the rich (at least those with lots of monetary assets) so to speak

Inflation cuts the ability of the rich to buy leisure goods, but it cuts the ability of the poor to buy food. Inflation also reduces the investment power of accumulated capital, which reduces the rate of real investment and halts or reduces new construction, which has its most dramatic effect in the reduced employment of lower and middle classes.

Posted by: republicrat on February 16, 2006 at 3:12 AM | PERMALINK

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Posted by: david on February 16, 2006 at 3:41 AM | PERMALINK

With decreasing costs of lots of consumer goods, stagnant wages translate into increased earning power.

With decreasing costs of the majority of consumer goods, you would by definition have deflation. We don't have deflation. Furthermore, it is REAL wages that have declined slightly over the past 5 years, and this figure takes inflation (or its absence) into account already. So the "increased earning power" you're referring to doesn't exist, for the median wage-earner.

It seems self-evident that full employment has an upward effect on wages; if millions of new entrants were joining the workforce every year and there were already high unemployment, the trend on wages would be downward. That's not to say that wages would actually rise under full employment. Other factors might keep wages in check, including the tendency of globalization to put American workers in competition with lower-paid workers abroad.

Posted by: brooksfoe on February 16, 2006 at 3:54 AM | PERMALINK

'ima bankster' posted:

"I have read reports that since the federal reserve was created in about 1913 the value of the dollar has decreased by 95%. So much for fighting inflation."

You mean this ?:

http://bigpicture.typepad.com/comments/images/dollardown_1.jpg
.

Posted by: VJ on February 16, 2006 at 4:40 AM | PERMALINK

At the end of the Clinton administration, unemployment was down to levels last seen in the 60's and inflation was nobody's worry. Was it a coincidence that the government was running a surplus?

Taxes were a bit higher then, but so was the stock market.

Damn those terrorists!

Posted by: bad Jim on February 16, 2006 at 4:49 AM | PERMALINK

I have read reports that since the federal reserve was created in about 1913 the value of the dollar has decreased by 95%. So much for fighting inflation - posted by ima bankster

Well, based on what I learned on my economy classes, I believe that a healthy economy "fights" inflation, but never strives to "destroy" it. From what I understand, zero inflation is an unattainable goal, as it would presume a perfect match in aggregate supply and demand, and it's preferrable to have a small inflation than a deflation, which is a sign of economic deceleration - higher supply than demand means idle capacity, which might mean economic losses in opportunity costs and unemployment. A little inflation, on the other hand, means unmet demand, which means economic opportunities for growth.

What a Fed needs to do regarding inflation is to avoid a spiraling inflation (I don't know if that's the term in English, but that's how we call it in Portuguese). This is dangerous, because it puts the economy in an inflationary feedback cycle: prices rise, people rise their prices to cope with it, which makes other people do it, and etc. etc.

So - take it from someone who lived in a country that had a 80% monthly inflation rate in 1993 - seeing an accumulated inflation of 95% in a hundred years might not be so bad. I say 'might', because there might be ways to measure this and I'm not familiar with them if they exist.

Posted by: Brazil Connection on February 16, 2006 at 7:58 AM | PERMALINK

What a waste of time, all this talk of "inflation". The Fed WON'T EVEN define "inflation", or "money" for that matter. (Yet, Fed staffers steadfastly explain "inflation" is the "money" part of "cost of goods" increases.) Why didn't anyone ask Bernanke yesterday what the value is of a subjective measurement of an undefined term? How can one track "inflation" without first defining "money"?
Rumsfeld & Chertoff won't use email & the most powerful central bank in the world can't agree on a definition of money. Oh yeah, and we're the leaders of the world.

Posted by: bailey on February 16, 2006 at 8:06 AM | PERMALINK

bad jim,

Not too worry. Things are getting much better quickly. We are at the front edge of an acceleration in hiring that promises to drive the unemployment rate to 4.3% or lower by the election.

GWB will be able to point to over 7.5M net jobs created since the supply-side tax cuts of 07/03 as well as remarkably steady 4% GDP growth, the strongest period since the mid 80's.

He might also be getting a break with inlation if the Oil market starts focusing on fundamentals and political progress continues in IRAQ. Supplies are at very high levels despite lower refinery capacity due to planned maintenance. After hitting $69 crude dropped to $57 yesterday and could easily fall another 15%. Exceptionally warm weather continues and demand is already down 1.7% in '06 after being down 1.8% in '05. The spike in inflation due to higher energy costs could reverse out in time for the '06 elections.

By letting the market react to prices GWB may have set up the GOP very well for '08. With decreasing demand and increasing supply prices could easily fall back to $40 or lower over the next two years pusing inflation back to 1%. By 2008 total demand could easily by 5% lower than in 2004 and we could have 1M more supply from the Tar Sands alone.

I've got to think Karl Rove will be very happy if in Nov 06 YTD GDP is > 4%, Unemployment is

Posted by: rdw on February 16, 2006 at 8:14 AM | PERMALINK

Matt, RE: "How does the Federal reserve, with only its power in the bank note market, effect this?" Not as easily as the Presidency could, but if it were truely independent it could 1. demand its banks tighten lending policy, and 2. greatly negate the Administration's profligate fiscal policy by open-market selling of the 10 year back up to a 5% yield.

Posted by: bailey on February 16, 2006 at 8:14 AM | PERMALINK

cmdicely: Granting that, for the moment, [maximum employment] would also increase aggregate demand and therefore, at least in the short term, drive inflation.

The direct correlation between employment and inflation is straight from textbook economics and has a great deal of validity, but I think that in the current economy one must ask if an increase in real wages would necessarily translate into an increase in spending.

Americans are already red-lining the spending; in my opinion, were wages to increase we would see a corresponding increase in savings rather than spending, at least until the savings level had normalized.

Or, more probably, a relatively minor increase in spending and a relatively major increase in savings - and thus only minor inflationary pressure.

daCascadian: Once the abandonment of the dollar begins the Inflation genie will be out of the bottle & "We the people..." will see the (rigid) global financial system attempt to deal with serious disruptions

Gonna be an "interesting", to say the least, experience

1) Please use periods.
2) I agree with your conclusion; without the massive offsetting currency flows of the "Jobs Creation Act" - which repatriated over $300 billion dollars from foreign subsidiaries to U.S. companies in 2005 - the sheer weight of the trade deficit will badly sink the dollar in 2006; our heavy dependance on imports will manifest this depreciation as inflation.

The only question is, will it be a gradual depreciation of 20-50% across the year, or at some point will there be a "rush to the door" resulting in a currency collapse and, well, God knows what.


Posted by: S Ra on February 16, 2006 at 8:16 AM | PERMALINK

You're missing the point--it's a distinction without a differnce. Essentially all economists agree that the Fed would achieve no lasting increase in employment by tolerating higher inflation. Rather, it would achieve a temporary increase in employment and permanently higher inflation. That's Econ 101. Whether monetary policy is too loose or too tight at a given time is, of course, a different question.

And to kvetch--who's the nincompoop who says the Fed won't define money or inflation. You could bother to look up the definitions: M1, M2 and M3 have defintions, so does the consumer price index, the core index, the core PCE, etc. And there are oodles of methological documentation and information on the BEA and Fed websites.

Posted by: Matt on February 16, 2006 at 8:37 AM | PERMALINK

The direct correlation between employment and inflation is straight from textbook economics and has a great deal of validity,

No it doesn't. The Phillips curve has been debunked as predicted by Laffer. We initiallt had the misfortune of Jimmy Carter prove high inflation was a trade off for low unemployment by giving us high unemployment and high inflation AT THE SAME TIME. In older text books this was not supposed to happen.

Those text books have been replaced.

Inflation was then argued by many that Inflation is a monetary phenomon and not the result of too much growth. Reagans economic policies of supply-side tax cuts combined with the Feds high interst rates were to slow the monetary aggregates will stimulating growth. It worked beautifully.

Reagan cut inflation by 2/3s, long term interest rates by 2/3's and unemployment by more than 50%.

Two weeks ago JP Morgan raised 1st half growth estimates to 4% (and yesterday suggested another increase might be necessary) based on very strong hiring AND solid wage increases driving stronger than expected consumer spending.

More workers & higher wages = higher incomes = higher spending. This is a very good economic scenario. Politically the timing is perfect. Housing starts came in at up 14.5% this morning. The GOP will have the economic wind at their backs in November.

Posted by: rdw on February 16, 2006 at 8:39 AM | PERMALINK

Lehman Brothers:

One of their economist just said the strong housing number will probably cause them to raise 1st Qtr GDP estimates from 5.5% to 6%.

The economic data following the 2003 supply-side tax cuts has been fabulous and it keeps getting better. This will be the world fastest economic growth since the last major supply-side tax cuts under Reagan.

This ia a disaster for liberal economists.

Posted by: rdw on February 16, 2006 at 8:43 AM | PERMALINK

The only question is, will it be a gradual depreciation of 20-50% across the year, or at some point will there be a "rush to the door" resulting in a currency collapse and, well, God knows what.

With 5% GDP growth and lower inflation the dollar will be stellar. The increase in imports was almost totally due to the price of Oil which is now the lowest it's been since last May. We also have very high inventories, gulf production returning to normal, and demand rnning lower by 1.7%. With lower prices and lower volume imports US imports will drop in 2006.

Further, the headline trade data disguised the 5.7% increase in exports which is very healthy. Unreported is the series of trade deals GWB has signed and is negotiating. Today he discusses Free Trade with the President of Columbia and next month he makes a trip to India to further advance trade.

If Oil prices continue to fall we could see a dramatically lower trade deficit by November.

Posted by: rdw on February 16, 2006 at 8:53 AM | PERMALINK

The economic data following the 2003 supply-side tax cuts has been fabulous and it keeps getting better. This will be the world fastest economic growth since the last major supply-side tax cuts under Reagan.

This ia a disaster for liberal economists.

Posted by: rdw on February 16, 2006 at 8:43 AM

But are ordinary Americans seeing their slice of the pie (the part for labor, besides government and capital) increase as well? I agree with what Mr. Drum proposed some time ago: if you want to make economic growth to be good for the population as a whole, you need, at least in the long term, bring this growth to the labor slice as well. From what I was following on your news, this is not what is happening so far, as your economic growth was being siphoned to corporate profits - i.e., the capital slice. Is that how it is working out, or am I mistaken?

Posted by: Brazil Connection on February 16, 2006 at 8:57 AM | PERMALINK

inflation:

At $57 crude is now about 10% lower than the average prices of the L/H of 2005. As we get into June, campaign season, we may start to see negative inflation.

Posted by: rdw on February 16, 2006 at 9:00 AM | PERMALINK

General inflation is caused by monetary expansion, it is not caused by "full" employment, whatever the hell that actually means. Also, rises in the general price level is not inflation, it is the symptom of inflation.

Posted by: Yancey Ward on February 16, 2006 at 9:30 AM | PERMALINK

Inflation erodes the value of fixed rate investments, specifically bonds. Most bonds are held by wealthy individuals, banks, insurance companies and institutional investors. I don't know too many poor people with a big portfolio of bonds. That is why the Fed has such a bias towards keeping inflation in check, as opposed to keeping employment high. Full employment benefits the middle class and poor. I, for one, would rather have a job and a little inflation, than to be unemployed and have no inflation.

Look at George W. Bush's and Richard Cheney's personal financial disclosure forms and you will note, not surprisingly, that most of thier wealth is in bonds and fixed rate investments. The Fed's bias towards low inflation is class warfare, plain and simple.

Eat the rich.

Posted by: Stephen Kriz on February 16, 2006 at 9:35 AM | PERMALINK

I see rdw couldn't spin the viet nam war so he's moved on to Larry Kudlow talking points. Supply side drivel from an ex-reagan coke head.

Posted by: Neo on February 16, 2006 at 9:36 AM | PERMALINK

The great economy has NOT transcended to great comfort among the people for a long list of reasons.

My own theory at #1 is the combination of the collapse of the asset bubble AND the collapse of the world trade centers was a disater for sentiment. We are are war and good men are dying on our behalf. All Americans feel these losses.

A distant #2 but still powerful negative is Crude above $60. We're at the pump every week and $2.50 sucks as does our heating bills.

In my mind these has been the dominating emotional factors.

In reality our eocnomic performance has been terrific. Stocks have at least been 'normal' the last cople years and GDP boffo especially considering crude pricing. All things being equal the DOW has a good chace of setting post bubble highs based on exceptionally solid economic fundamentals. Corporate profits are high while cash flows and balance sheets are exceptionally healthy.

What I see today are several trends, which if they continue, set up sentiment very well.

Crude is not being priced on fundamentals so any forecast is really risky. But looking at fundamentals they scream for a big drop. "IF" US demand drops another 1.7% this year after dropping 1.8% last year and we see 3.6% GDP growth each year we're seeing an increase inenergy efficiency of over 10% in two years. That's fantastic and that's before all of the hybrid models are rolled out, ethanol really takes hold and the industry improves mileage in every vehicle it sells.

The market is working and it suggest good things for crude pricing AND inflation. Eventually the general public will see it. Wholesale unleaded is down about $.40 in the last 3 weeks.

Hiring has clearly accelerated and the data suggest it will continue. Unemployment is now below 5% and will stay there. It may hit 4% by year end. 4% feels and sounds bettere than 5%.
We now see signs everytime we walk into Home Depot "help wanted". They're not going away. We'll be seeing more all the time.

Housing has been the one steady bright spot and it's not a bubble. Prices increases will drop from silly levels but not fall. Population growth and demand remains strong. Fortunately for the construction industry demand is rotating back to commercial which is coming out of a recession.

These are all very strong positives but the biggest issue may be Iraq. Chances are very good we'll be reducing our troop level by 20% or more and pulling more of them out of harms way. A permanent govt will be in place and they'll be assuming more control every month. This has already become much less of an issue and should stop being a drag.

The stock markets won't get a reallt healthy rally until this depression in sentiment is gone.

Politically however the GOP is holding aces. I say this because the Dems had much more to work with in 2002 and 2004 and did nothing. The deficits are a powerful issue but it's hard to play. If you want to lower the deficit you have to increase taxes or cut spending. Neither of those two things is an easy sell.

Posted by: rdw on February 16, 2006 at 9:37 AM | PERMALINK

OT

"One of Saddam's son-in-laws also explained how Iraq hid its biological weapons programs from U.N. inspectors, according to the tapes from August 1995."

http://www.usatoday.com/news/world/iraq/2006-02-15-hussein-attack_x.htm

Hmmmmm, Interesting.

Posted by: Lurker42 on February 16, 2006 at 9:39 AM | PERMALINK

I, for one, would rather have a job and a little inflation, than to be unemployed and have no inflation.- Stephen Kriz

That makes perfect sense. How high do you think your inflation should be without the risk of economic stagnation or spiraling inflation rates? And how high it is today?

Posted by: Brazil Connection on February 16, 2006 at 9:41 AM | PERMALINK

rdw: had the misfortune of Jimmy Carter prove high inflation was a trade off for low unemployment by giving us high unemployment and high inflation AT THE SAME TIME. In older text books this was not supposed to happen. Those text books have been replaced.

No, stagflation is explained just fine by Keynesian models. It was caused primarily by the oil price shocks of the 1970's. Propagandists used the fact that this was a new experience to claim that the old models didn't work, and to try to substitute their brand of "voodoo economics" (thanks to GHWB for that term).

Reagans economic policies of supply-side tax cuts combined with the Feds high interst rates were to slow the monetary aggregates will stimulating growth. ... Reagan cut inflation by 2/3s

What killed inflation was Paul Volcker's high interest rates. Remember Paul, the Fed chairman appointed by Carter? Of course he wouldn't have had to raise interest rates so much if he wasn't simultaneously fighting Reagan's utterly irresponsible deficits at the same time. Loose fiscal requires even tighter monetary. This explains the severe recession that marked much of Reagan's first term.

Not that Reagan always screwed up. The alarming deficits convinced him to agree to tax increases that at least started us back to fiscal responsibility.

GWB shows no such inclination towards responsibility.

Also, when the current account deficit hit 4.5% in 1985, the Reagan administration helped negotiate an international deal to bring down the value of the dollar. By 1989 the CAD was a reasonable 0.5%.

The CAD is now 6.5%, and GWB again shows no inclination towards Reagan's sense of responsibility. Or even awareness that a problem exists.

Thanks for playing "Let's Make an Economic Myth".

Posted by: alex on February 16, 2006 at 9:43 AM | PERMALINK

Supply side drivel from an ex-reagan coke head.

Not quite. Coke heads all had something in common. The biggest asses on the block. I'll take a pot head over a coke head anyday. It's one thing to be stupid. It's another to be stupid and an assh*le.

But quite right, Reagan is a God, and Kudlow, in his recovering phase, is a very good economist.

The supply-siders are in heaven and should be. The data has been outstanding. Despite Katrina and $65 Oil our economic performance has been stunning. Even the 1.1% GDP of the 4th Qtr can't distort the great news. If as JP expects that number will be revised up to 1.7% and the 1st Qtr comes in above 5% the 3-year period AFTER the supply-side tax cuts will be the strongest growth cycle since Reagans cuts in the 80's.

Moreover, we're set up to extend it another several years. Few people realize how strong and well balanced global growth is today and how active GWB has been in pursuing trade deals. He's going to India again next month to continue trade talks.

In terms of the academic argument within economics supply-siders have won. This data is irrefutable. We are in our 3rd year and GDP and hiring are getting stronger. This is a disaster for liberals.

Posted by: rdw on February 16, 2006 at 9:55 AM | PERMALINK

You guys have really landed on another winning campaign issue, and kudos for that. Let's see now, unemployment is below 5% (and that's counting Katrina), the GDP is growing, currently at 3.5%, inflation is at 2.9% overall to the Consumer Price Index and non-farm payrolls added 2 million jobs in the past year. All you need now is that former economic wizard in Jimmy Carter getting on the podium and telling everyone how bad the economy is and it should be a slam dunk.

Posted by: Jay on February 16, 2006 at 10:00 AM | PERMALINK


rdw: you say "this is a disaster for liberals".

Most things since Watergate have been a disaster for liberals.

The world they want just doesn't exist anymore (not that it ever did, but they felt real chirpy when they could bring down a president and force the nation to lose a war for the first time).

This bums them out big time. They cannot cope with the current world as it is,so they moan and groan and complain about everything: GWB, the Fed, house prices going up, house prices going down, etc. All they do is moan and complain, and the more they do so, the more marginalized they will become.

I'm looking for a GOP pickup of 1 seat in the Senate this November, and the House staying as it is.

What a great show that would be in the 6th year of a two-term presidency.

Posted by: Portugal on February 16, 2006 at 10:06 AM | PERMALINK

The CAD is now 6.5%, and GWB again shows no inclination towards Reagan's sense of responsibility. Or even awareness that a problem exists.

Alex, I can't quite make up my mind whether that's because GWB simply doesn't care about policy, or whether they are actually trying to engineer a crisis that will allow them to cut more of the hated entitlements.

After all, this is the party that responded to the extra expense of Katrina by cutting food stamps and Pell grants.

Posted by: Doctor Jay on February 16, 2006 at 10:07 AM | PERMALINK

alex,

Stagflation killed keynsian economics AND the phillips curve. It's now taught as history not as a relevent economic theory.

GWBs deficits are much lower than Reagans and much less of an issue because Oil pricing rather than volume are the primary issue.

However the market works and $65 oil is not permanent. T Boone Pickens was just explaining how the $15 cost of Tar Sands oil will help.
Crude demand was down 1.8% in 05 and is running down 1.7% in 06. At the same time we've had dramatic investment in supply and will see 1M more Tar Sands oil from Canada by 2009.

This 3.5% drop in demand comes before the auto industry has been able to fully react by offering more hybrids, improve mileage on every vehicle sold, burning more ethanol, etc., all certain to start happening in 06 with increaing impacts each year thereafter.

We are set for a repeat of 1980 when under Reagan oil prices collapsed.

If that happens the trade deficit falls dramatically as well.

Posted by: rdw on February 16, 2006 at 10:07 AM | PERMALINK

What a great show that would be in the 6th year of a two-term presidency.

You are more optimistic that I but I do think we'll do just fine. 05 was a bad year for the GOP and it's very fortunate they're so clumsy. Howard Dean and Al Gore are gifts and their current leadership is inept. They badly overplayed their hand of 2 months ago and lost whatever shot they had at taking congress.

Still, they could get a Senate seat or two and a small handful of house seats. This would still a bad year for them as these mid-year elections s/b far more productive.

Mehleman tactical smarts in recruiting 4 very good black statewide candidates in PA, OH, MD and MO could be the key Rove needs for the durable majority.

I am from PA and assumed Gov Rendell was untouchable. He's in the race of his life. Lynn Swann is the real deal and off to a great start. I figured he was being groomed for 2010 when Rendel retires. No, they're playing to win now. In any event, when he 2008 races start Swann will be a major player in that campaign as head of the PA GOP and force the Dems to spend major time and assetsin the state to keep it. This is very important tactically.

The Dems have no idea.

Posted by: rdw on February 16, 2006 at 10:17 AM | PERMALINK

The Fed is explicitly chartered to balance inflation, employment and growth.
Posted by: alex

In other words the perfect Centrist arm of government....except when it isn't. See: Greenspan, Arthur

I've always appreciated Lester Thurow's "involuntarily enrolled inflation fighter" to describe all those who are thrown out our their jobs to preserve the Divine Right of Capital in what our overlords call 'market corrections'.

Posted by: CFShep on February 16, 2006 at 10:22 AM | PERMALINK

Little bit copied from General Glut's Globblog:

The four-quarter moving average in 2005:IV shows the US economy has only just recovered to where it was in 2002:IV: 83.1% of what I'll call "working age men" are employed. That's up a microscopic 0.3% from where we were when I penned the first post with this data in July. And we are still far far below the plateaus of the previous two job booms in the late 90s and the late 80s -- forget about the jobs boom of the late 70s. Even worse, 8 quarters since the most recent trough and we're only up to the nadir of 1992!

Let's come clean. This economy continues with a massive disconnect between the largesse of capital and the scraps thrown to labor. And in case you hadn't noticed, it's too late to get in to the whole real estate agent thing now.

Posted by: Neo on February 16, 2006 at 10:24 AM | PERMALINK

Doctor Jay: I can't quite make up my mind whether that's because GWB simply doesn't care about policy, or whether they are actually trying to engineer a crisis that will allow them to cut more of the hated entitlements.

I gotta admit, that's a tough call. Personally I'll bet on the former, as the latter conspiracy suggests a degree of competence.

Posted by: alex on February 16, 2006 at 10:28 AM | PERMALINK

>>We are set for a repeat of 1980 when under Reagan oil prices collapsed.

Holy, shit. Like Louisiana isn't already toast, eh? Not like we didn't really appreciate the 12 year depression to, ya know, help finance the S&L thingie, the junk bond thingie and all the other myriad wonders of the "Reagan Economy".

"Will the last person leaving Lafayette please turn out the lights. Merci."

>If that happens the trade deficit falls dramatically as well.
Posted by: rdw

Dear Leader on the subject of the trade deficit:
"There's a trade deficit. That's easy to resolve: People can buy more United States products if they're worried about the trade deficit."

Wow. Bet God told him that personally.

Posted by: CFShep on February 16, 2006 at 10:29 AM | PERMALINK

neo,

You don't make any sense economically or any shot at making sense politically.

Instead you display desperation. No one pays attention to workforce participation as an economic issue let along politically.

On top of that participation is absolutely going to drop because the boomers retire long before 'normal' retirement age.

It's nonsensical. Even if it was a point it's far too boring and obscure.

You are also in left field on Real Estate. The levels of appreciation will back off subtantially and should. But this is no bubble. The population is growing and demand with it.

Posted by: rdw on February 16, 2006 at 10:34 AM | PERMALINK

That is because they have their eye on more important matters rdw. Looming issues like Cheney's hunting accident, the outing of one of America's most coveted secret spies, the abuse of Gitmo detainees and the nasty little policy of rendition. Those are the issues that will bring victory in '08.

But Neo is here to save the day. Despite Federal revenues exceeding expectations, an historically low unemployment rate and brisk GDP all following two of the worst disasters this country has ever witnessed, Neo has found the downside. What are liberals for? Well done Neo!

Posted by: Jay on February 16, 2006 at 10:34 AM | PERMALINK

Just when I thought that maybe Bush finally made a good choice for a post....

PS - reminder, that since the Fed etc. influences unemployment (and tries to keep it below certain "dangerously low" levels, that constitutes grounds for compensating those who can't find work (as much as would a federal dam project that flooded neighborhoods.)

Posted by: Neil' on February 16, 2006 at 10:38 AM | PERMALINK

There's a trade deficit. That's easy to resolve: People can buy more United States products if they're worried about the trade deficit."

We buy foreign products because they're much cheaper. That's why inflation is so low and why long term interest rates are so low. This won't change anytime soon. Fortunately the great american jobs machine is functioning and those displaced will find good jobs elsewhere.

Posted by: rdw on February 16, 2006 at 10:38 AM | PERMALINK

Ok guys sorry I was wrong. Oh Jay I see they lowered the requirements for the army again. So what your saying rdw, unemployment is a good thing. Those people I know working 2-3 jobs are really happy?

Posted by: Neo on February 16, 2006 at 10:42 AM | PERMALINK

Wouldn't increasing the money supply by some means other than fiat currency created by covering bank loans be more fair to the general public and give a better way to control inflation? Remember too that any time money is created (ie, is not a hard currency), and ultimately political decision has to be made about how to dispense or allocate it.

Posted by: Neil' on February 16, 2006 at 10:42 AM | PERMALINK

rdw - What do you mean, boomers retiring earlier than normal? Most of us will have to work later than normal (and often, later in the day too.)

Posted by: Neil' on February 16, 2006 at 10:46 AM | PERMALINK

Neil, try and find a job outside of the fast food industry.

Posted by: Jay on February 16, 2006 at 10:52 AM | PERMALINK

rdw is a living example of Mark Twain's observation that there are three kinds of lies: "Lies, damn lies and statistics".

Here is a dose of reality:

> Job growth in the first five years of George W. Bush's presidency is the lowest since they began tracking job growth figures in 1939. If you take out the growth in government jobs, prviate sector employment growth hasn't even kept up with population growth. In other words, any job growth President Doorknob wants to claim, is due to growth in public sector jobs that rdw hates so much.
> Since the Bureau of Labor Statistics doesn't even count people who have become disgruntled and have given up looking for work, the unemployment rate is significantly understated. Most honest economists put the true unemployment rate at between 8 and 10%. No figures are kept regarding underemployment, where people with Masters degrees are flipping burgers at Wendys, but most economists believe the number is significant.
> More Americans are living below the poverty line than when Bush took office.
> Less Americans have health insurance than when Bush took office.
> All the major stock indices are lower than when Bush took office.
> Personal bankruptcies are at an all time high.
> The price of a barrel of oil is nearly double what it was when Bush took office. This cascades throughout the economy, resulting in higher prices for many goods and transportation and portends slower economic growth than what would otherwise occur.
> The massive borrowing to fund Bush's tax giveaways to the wealthy are "crowding out" other productive uses of capital, such as new investments in infrastructure and new equity for potential growth areas like wind power, alternative fuels and environmental clean-up.

In other words, the American economy is a disaster and getting worse and no amount of spin by the Bushistas will make it otherwise.

Posted by: Stephen Kriz on February 16, 2006 at 10:53 AM | PERMALINK

Fortunately the great american jobs machine is functioning and those displaced will find good jobs elsewhere.
Posted by: rdw

Like, um...greeters at Wal-Mart. All other positions will be filled by those holding HB1 visas.

Posted by: CFShep on February 16, 2006 at 10:55 AM | PERMALINK

>>We are set for a repeat of 1980 when under Reagan oil prices collapsed.

Holy, shit. Like Louisiana isn't already toast, eh?

I can't imagine Bush & Cheney's Texas oil buddies will be too happy when these "collapsing oil prices" cut the heart out of their economy.

Posted by: tam1MI on February 16, 2006 at 11:05 AM | PERMALINK

In other words, the American economy is a disaster and getting worse and no amount of spin by the Bushistas will make it otherwise.
Posted by: Stephen Kriz

Give the man a cigar.

Posted by: CFShep on February 16, 2006 at 11:08 AM | PERMALINK

In terms of the academic argument within economics supply-siders have won. This data is irrefutable.

That would be nice for the GOP, except that it hasn't happened. Supply side economics are widely derided in the academy.

Posted by: brooksfoe on February 16, 2006 at 11:12 AM | PERMALINK

The Federal Reserve Board's purpose is to ensure large banks continue to be profitable, regardless of the expense to the people. President Jackson ended the reign of the Second Bank of the US, but there is no viable political power today able to do the same to the Fed.

Why Worry? Worship Warburg.

Posted by: Hostile on February 16, 2006 at 11:18 AM | PERMALINK

No wonder, the "academy" is up to their ears in socialists and communists. People who have spent their entire life in the ivory tower with no sense of the real world. Hey when is my sabbatical? Is it summer break yet?

Posted by: Jay on February 16, 2006 at 11:20 AM | PERMALINK

rdw,

I sure wish I had a piece of this great economy you are seeing. As a poor working slob, though, I'm seeing no pay raise last year and a freeze on new hiring this year. Maybe that is how productivity is zooming. The squeeze is on the expense side (meaning worker pay) to get profit during a flat or even shrinking market.

My problem is that as an American worker I get no benefit from my employer moving my job to India and selling its products in China and India.

Posted by: Tripp on February 16, 2006 at 11:24 AM | PERMALINK

Ivory tower? Sorry, Jay blue collar working class here. Fortunately Al Gore invented the internet so I could arm myself with knowledge.

Now I no longer have to listen to supply side voodoo economics. I can also spot the latest scams from the republicans. It also helps if you watch the Sopranos on HBO. A fine picture of a true republican family.

Posted by: Neo on February 16, 2006 at 11:37 AM | PERMALINK

I appreciate rdw's comments about the Bush economy. I've often wondered: Is it possible that conservatives do not see the Bush administration as the greatest disaster that has befallen the US in years, a disaster that we will be years in recovering from, if we ever do? I see from rdw that it is possible to view Bush's two terms as not a disaster, but as a success.

I'm glad that Political Animal attracts a handful of conservatives to give their side of the story, because it would be difficult to imagine that side otherwise.

Posted by: Daryl McCullough on February 16, 2006 at 11:39 AM | PERMALINK

rdw...

An intelligent discussion is not possible with your ignorance droppings cluttering up the joint.

Please go away.

Posted by: obscure on February 16, 2006 at 11:42 AM | PERMALINK

The Fed offering to fight inflation is like a dope dealer offering to fight drug addiction.

Boy, I don't know where to start with all the fallacies being written in this thread.

Inflation of the seventies was not caused by the oil shocks. In the absence of monetary expansion, the rise in the price of one or more items in a market will necessitate the fall in the prices of other items. A general rise in the price level is a result of monetary expansion and a resulting decrease in the demand for money. History clearly shows that the Federal Reserve was basically "printing" away from the late 60s until Paul Volcker arrived in 1979.

Inflationary booms, the thing people like Kevin seem to desire from the Fed, are always offset by deflationary recessions/depressions. Inflation sets off the boom by inciting previously noneconomic activities. For example, just look around you at all the newly minted homebuilders, real estate agents, mortgage brokers, or, in the late 90s, all of the new stock brokers, internet jockeys, etc. The booms can only be continued by increasing the inflation. Once the credit expansion slows and halts, which it must do, the deflation sets in. It is literally unavoidable, and when it occurs, all of the malinvestments become evident and must be liquidated in order to get actual growth again.

Inflation does not "eat the rich". They are smart and financially savvy enough to largely be able to hedge against such happenings. Inflation ultimately destroys the upper middle class and downwards on the economic scale. Any who doubt this just need to study the German hyperinflation of the 1920s, the United States of the 1922-1941, or Argentina at various times in the last 40 years.

Inflation, during the times of its continuance, does help debtors with fixed-rate debt, but the resulting deflation will trap most of those with debt that grows in magnitude. Why? It is very simple- people do not use periods of inflationary booms to decrease the real magnitude of their debts, they almost always increase it. Creditors will usually have some or all of the debtors assets under lien, and when the defaults start, the creditors don't lose everything, but the debtors usually do (including their jobs). To summarize, the Fed is not chartered to control inflation in order to protect the rich as many of you cynically believe. If the Fed were really preventing inflation, it would benefit all income levels. Your cynicism is more appropriately directed to the recent bankruptcy reform- a reform that will benefit creditors (the rich for the most part) at the expense of debtors (middle class and lower)- almost a rule change in the middle of the game.

In the long run, inflation does not give us a larger, more productive economy (along with the more stable employment and higher living standards) than we would have without it. Indeed, it is almost certain that the economy is smaller than it would have been as a result. Why? The inflation causes malinvestments that must always be liquidated at some point. This is always a net loss of productive capital and wealth. We are fortunate that the truly good investments have still been good enough and of large enough magnitude to overcome this loss and to give us ever rising living standards- but we could have had more of this without inflationary booms and deflationary busts.

Finally, it is not true that before the Federal Reserve, there were not booms and busts. Even the gold standard sufferred inflationary booms/busts. Any monetary standard can be debased. It is human nature to want something for nothing (the very basis of inflation and its cousin, counterfeiting). However, the booms and busts were shorter and less damaging before the present era of government organized inflation.

We have had a fine time the last 19 years, but the boom will be followed a significant bust at some point, and this bust will likely be much worse than the Great Depression since the boom has been so much larger. It is not a question of if, but only of when. If I had to make a hard prediction, I would guess that point will arrive with the retirement of the first wave of Baby Boomers, but it could happen before that.

There is no such thing as the free lunch Kevin and Max Sawicky are looking for. If you are the prudent type, you should educate yourself on the methods of financial self-protection.

Posted by: Yancey Ward on February 16, 2006 at 11:46 AM | PERMALINK

Come 2010/12, the temptation to print money is going to be extremely strong.

Correct me if I'm wrong, but "print money" means "lower the short-term interest rate" and nothing more.

Posted by: obscure on February 16, 2006 at 11:48 AM | PERMALINK

We initiallt had the misfortune of Jimmy Carter prove high inflation was a trade off for low unemployment by giving us high unemployment and high inflation AT THE SAME TIME.

Stagflation doesn't really disprove the idea of the Phillips curve so much as it is yet another demonstration that most economic principles are ceteris paribus rules of correlation in the absence of other influences, not iron laws.

Further, stagflation in the US occurred first occurred during the Nixon Administration (and continued throught the 1970s and into the 1980s), so saying it was brought by Carter's Presidency requires accepting retrocausality as an implicit premise, which stretches credibility.

Posted by: cmdicely on February 16, 2006 at 11:55 AM | PERMALINK

I would guess that point will arrive with the retirement of the first wave of Baby Boomers,

They reach 65 in 2011, correct?

Posted by: Tripp on February 16, 2006 at 12:00 PM | PERMALINK
The direct correlation between employment and inflation is straight from textbook economics and has a great deal of validity, but I think that in the current economy one must ask if an increase in real wages would necessarily translate into an increase in spending.

I don't think an "increase in real wages" would necessarily translate into an increase in spending, I do think an increase in breadth of employment, OTOH, would.

That is, I don't think currently employed people being paid more would necessarily increase aggregate demand as much as increasing the number of people employed would.

But that's largely an intuition based on how I suspect the massive debt spending is distributed, not anything that I've got concrete numbers to support.

Posted by: cmdicely on February 16, 2006 at 12:02 PM | PERMALINK

I read all of your comments, pro and con. None of theme seemed to indicate what exactly the fed can do about employment.

All of the comments are about wages and prices and govrnement taxes and government programs. None of you pro folks even bother to explain what the fed can do about any of this, except allow for greater inflation. And none of you seemd to explain what higher inflation has to to with employment, or income distribution.

Like I say, Kevin could have discussed full employment and the bannanna market, and you comments would all be the same. Where is the connection between the fed and income distrobution?

Posted by: Matt on February 16, 2006 at 12:11 PM | PERMALINK

RDW: We are at the front edge of an acceleration in hiring that promises to drive the unemployment rate to 4.3% or lower by the election.

after 2 1/2 yrs of "the latest jobs reports came out today and the economy created X00,000 jobs, and that was Y00,000 less than economists predicted, but the unemployment rate ticked down 2 points." i have absoluted stopped believed the unemployment rate stat.

Posted by: e1 on February 16, 2006 at 12:16 PM | PERMALINK

absoluted == absolutely

Posted by: e1 on February 16, 2006 at 12:17 PM | PERMALINK

Eat the rich.

Destroy the rich!

Posted by: Hostile on February 16, 2006 at 12:20 PM | PERMALINK

Further, stagflation in the US occurred first occurred during the Nixon Administration (and continued throught the 1970s and into the 1980s), so saying it was brought by Carter's Presidency requires accepting retrocausality as an implicit premise, which stretches credibility.
Posted by: cmdicely

Damn straight.

Anybody wants to step with rdw into The WayBack Machine to the Glorious 80's please form an orderly line to the far, far right.

Watch for falling housing prices, please.

Management cannot be responsible for any boarders who were dropped on their heads as infants. We do have several minimum wage assistants standing by to sponge away the drool.

Be prepared to present your copy of Robert Samuelson's latest delusional incantation that the economy is 'robust' as your boarding pass.

Posted by: CFShep on February 16, 2006 at 12:33 PM | PERMALINK

Supply side economics is a provincial sham to consolidate all economic power to wealthy corporations. Our economy has no problem suppling goods and services. Our economy has a problem consuming all of the goods and services produced. A consumer sided economic theory, the one that saved us from the Great Depression, is the only one that created America's wealthy middle class. Even though the New Deal made the rich richer than they ever dreamed, they lost provincial political and economic control, which they have been trying to regain ever since, and it appears that the second victory of the neo-conmen in 2004 will enable them to turn the US into a new Pottersville.

The return of the two bit blow job will be their greatest achievement.

Posted by: Hostile on February 16, 2006 at 12:34 PM | PERMALINK

>>Where is the connection between the fed and income distrobution?

Okay. I'm game. "[I]ncome distrobution" is inversely related to the sum of the square of Bush's inseam measurement and current futures price for 'bannanna' divided by the cost of bird shot.

Posted by: CFShep on February 16, 2006 at 12:39 PM | PERMALINK

"However, the Laffer curve quite similar to the favorite policy toy of the Keynesian economists the Phillips curve has basically remained an intuitively perceptive ad hoc relation.[2] Our paper Explorations of the Laffer curve aims at clarifying the theoretical ingredients for deriving such a curve. It is our understanding that the Laffer curve should be interpreted as a reduced-form equation of the economic process, an assertion which is only meaningful if the underlying economic structure is explicitly formulated."

http://www.gmu.edu/jbc/fest/files/Monissen.htm

Posted by: Arr-squared on February 16, 2006 at 1:27 PM | PERMALINK

Hostile,

Unless you have found a magical way to indefinitely buy and consume without producing something in return, then everything you wrote in the comment at 12:34 p.m. is idiocy of the most obvious kind.

Posted by: Yancey Ward on February 16, 2006 at 1:41 PM | PERMALINK

Yancey Ward, you are just pissed off you missed out on exploiting poor women in the Thirties. I have advocated no such thing as indefinite consumption, but I have advocated taxing the rich and transferring a tiny bit of their wealth to the poor to enhance overall consumption, whch increases the wealth of the entire society. Supply side economics only increases the wealth of the already rich, who only use that increased wealth to increase the value of their portfolios rather than increase consumption of bananas.

A two bit blow job by a toothless old woman is the wet dream of naive capitalists.

Posted by: Hostile on February 16, 2006 at 1:55 PM | PERMALINK

Consumption increases wealth? As I wrote, idiocy of the most obvious kind.

Posted by: Yancey Ward on February 16, 2006 at 2:01 PM | PERMALINK

"I have read reports that since the federal reserve was created in about 1913 the value of the dollar has decreased by 95%. So much for fighting inflation."

Which is equivalent to an average inflation rate of 3.3% p.a. Not too bad, IMHO. You definitely don't want the inflation rate so low you risk getting into deflation.

Your point was?

Posted by: Urinated State of America on February 16, 2006 at 2:01 PM | PERMALINK

"Consumption increases wealth? As I wrote, idiocy of the most obvious kind."

Time for you to look up the term "paradox of thrift".

Posted by: Urinated State of America on February 16, 2006 at 2:09 PM | PERMALINK

' Kevin could have discussed full employment and the bannanna market, and you comments would all be the same.'

I expect it from the economic illiterates Kevin attracts, but what's Max's excuse? He's supposedly a trained economist.

Posted by: Patrick R. Sullivan on February 16, 2006 at 2:10 PM | PERMALINK

Yancey Ward, you had better study some American economic history, because you are quite ignorant about how economies work. On the other hand, you may be a general store owner, yearning for the return of a share cropper economy and the two cent blow job.

Patrick R Sullivan, if you read Marx's Communist Manifesto you will find he predicted most everything that has come to pass in Twentieth Century economics: income taxes, corporate regulation, welfare, the Federal Reserve Board. Please stop relying on your second grade educational propaganda. America is rich because it followed Marx's policies, but only after the failure of hands off capitalism.

Posted by: Hostile on February 16, 2006 at 2:27 PM | PERMALINK

Urinated,

I don't have to. I am smart enough to understand that you purchase nothing without having something with which to make the exchange, either a present good, or the promise of a future one. You and others foolishly believe that you can create permanent demand without prior production. This is the basis for the inflation bias you, Hostile, and Kevin desire. When Hostile writes about how we have intelligently created a consumer economy, he/she obviously believes that we grow wealth by having more consumption- this belief is stupidity incarnate. If you haven't produced something to offer in exchange, or taken something from someone who has done so, then you will consume nothing produced by others. In other words, supply creates its own demand, and, logically, it can never be otherwise. If it were, then you would have the magical free lunch- we can all consume, and never have to work or accumulate capital.

Your paradox of thrift isn't a paradox at all. All thrift is just deferred consumption, and people never permanently stop consuming. This "paradox" is always trotted out as the excuse for monetary pumping, always ignoring that the economic downturn that increased thriftiness was the result of prior monetary pumping and other state interventions designed to inhibit the readjustment of market prices and the liquidation of prior bad investments.

Posted by: Yancey Ward on February 16, 2006 at 2:52 PM | PERMALINK

In terms of the academic argument within economics supply-siders have won. This data is irrefutable.


Really rdw! Would you mind giving us a reference to a academic journal that actually states this?

Posted by: Dr. Morpheus on February 16, 2006 at 3:35 PM | PERMALINK

The direct correlation between employment and inflation is straight from textbook economics and has a great deal of validity,

Old textbooks, maybe. Inflation without either job grtowth or increases in GDP have been experienced. Transient inflation sometimes produced transient job growth, but permanent inflation led to job loss or stagnation.

Posted by: republicrat on February 16, 2006 at 3:57 PM | PERMALINK

Yancey Ward, you assume those with accumulated capital earned it. They did not. Capitalists seize the surplus value added by labor for themselves. Our gamed economy allows this, forsaking labor for capital. It then leads to such a large accumulation of capital in such a small number of hands that the economy stops, like it did in the early 1930's. Transferring capital back to the consuming classes allowed the great middle class economic boom of the New Deal. For a modern lesson see present day Venezuela, where the economy is booming because they are freeing up capital hoarded by the ownership class and returning it to the people who actually earned it.

The US econony is only doing well now because of all of the public spending being made on defense contracts. Money that is borrowed. Money that is building non-tangible goods that do not add any value to our economy. How does that jibe with your 'supply creates its own demand'? I know, Bush supplied a war because the defense contractors demanded more blood money.

Posted by: Hostile on February 16, 2006 at 4:21 PM | PERMALINK

Hostile,

You are the one who needs to study history. The Depression was the direct result of the same government interventions you advocate today- inflationary booms incited by the FED followed by the inevitable bust coupled with even more government intervention designed to prevent, at all costs, the cleaning up the malinvestments.

Now, if you wish to redistribute income, that is a different matter, but don't try to sell it as a way to increase total wealth. The act of finally consuming an ever larger fraction of production cannot accomplish this increase you claimed.

Posted by: Yancey Ward on February 16, 2006 at 4:40 PM | PERMALINK
You and others foolishly believe that you can create permanent demand without prior production.

You can, unless you are defining "prior" in a bizarre way, as demand often stimulate supply, so the production is not prior to the demand shift which turns out to be permanent.

This is rather obvious, so I don't see what basis you have for characterizing it as foolish.

If you haven't produced something to offer in exchange, or taken something from someone who has done so, then you will consume nothing produced by others.

This contradicts your earlier characterization which, correctly, referred to promises of future payment, which was correct, but, I suppose you later realized, contradicts your insane comment about "prior production."

In other words, supply creates its own demand, and, logically, it can never be otherwise.

"Logically". You keep using that word. I do not think it means what you think it means.

Logically and empirically it is often otherwise. There may be some idea in economics more insane than the idea that demand is a pure product of supply, but its hard to think of one.

If it were, then you would have the magical free lunch- we can all consume, and never have to work or accumulate capital.

Demand stimulating supply, rather than vice versa, is not and does not require a magical free lunch. You clearly are very confused.

Posted by: cmdicely on February 16, 2006 at 4:46 PM | PERMALINK

cmdicely, I admire your style.

Posted by: Hostile on February 16, 2006 at 4:51 PM | PERMALINK

Conservatives tend to believe that companies will raise their prices to soak up any additional money the public might receive. Since many business leaders are Conservatives they tend to know this for a fact.

So, pay increase --> price increase = inflation!

To stop inflation = stop pay increases.

Stopping pay increases is done by keeping a certain level of unemployment. They think it's a good thing to have people who are ready at a moment's notice to replace some disgruntled worker who wanted a pay increase, but had to be 'let go'.

So, stopping pay increases requires a certain level of unemployment, to keep employees in check.

Of course, if oil prices go up they still don't want pay to increase because that would further exacerbate the 'problem'.

That's when the public is utterly screwed and has no friend in the government.

There is no time when they see pay increases as a good thing. They only see it as a cost to business which must be kept low.

In fact, about 1990 some conservative economists publicly announced that the proper unemployment rate to restrain inflation was 6%.

How they arrived at a specific number is beyond me. But, it says they don't mind the immorality by actively seeking to keep a certain number of people unemployed.

Posted by: MarkH on February 16, 2006 at 5:41 PM | PERMALINK

I am smart enough to understand that you purchase nothing without having something with which to make the exchange, either a present good, or the promise of a future one. You and others foolishly believe that you can create permanent demand without prior production

cmdicely beat me to it, but that is wonderful self-refutation, Yancey.

Shorter Yancey: There is no demand without supply, *cough* or the promise of future payment!

And your lengthy post of 11:46 was filled with similar scrambled eggs.

Having said that, Hostile, I think you'd do well to lose the Marxist angle.

Posted by: obscure on February 16, 2006 at 5:52 PM | PERMALINK

Mr. Yancey Ward, please note:

Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.

--Abraham Lincoln, Annual message to Congress, December 3, 1861

Posted by: Stephen Kriz on February 16, 2006 at 5:58 PM | PERMALINK

***Just an aside for Yancey: There are many scenarios in which consumption drives production. The more bananas consumed the more land banana growers will put into production, eg.

It is foolishness to think that either supply or demand can be isolated and analyzed seperately. The whiff of ideologue is all over you--Hostile too--and your half-baked bromides.

Posted by: obscure on February 16, 2006 at 6:00 PM | PERMALINK

Marx based all of his ideas on statistical historical research. I do not think I have been ideological. I think I am historical. Perhaps hysterically so. I think you suffer from incessant anti-socialist propaganda, preventing you from agreeing with some of Marx's ideas simply because you were taught he was the boogeyman.

I did like that Lincoln quote, though. Thanks Mr. Kriz.

Posted by: Hostile on February 16, 2006 at 6:16 PM | PERMALINK

"Stagflation doesn't really disprove the idea of the Phillips curve so much as it is yet another demonstration that most economic principles are ceteris paribus rules of correlation in the absence of other influences, not iron laws."

The problem was using the unemployment rate, and not payroll growth, as the data set. Taking payroll positions (that's the B tables) one can show that, yes, indeed, inflation and hiring can be traded off in the short term. Figure in the diminishing returns of money and hiring, and there's no problem.

The headline Unemployment number is the most misunderstood number in economics - it is a measure of wage push inflation and potential output for a particular economy. One can have 4.5% unemployment, and still have a crummy economy - because what that really means is not "the labor market is good" but "there aren't alot of people looking for jobs that this economy wants to hire."

Better indicators of the labor market are full time employment demand, and a labor slack indicator which uses the most recent peak of labor force participation. By this indicator unemployment is at a not very pretty 7.1%. When combined with the real cost of living - which would substitute housing prices for rent of equivalent shelter, and you are up to 6% inflation with 7% unemployment.

Several people have written on this - I did some graphs going back to the 1950's showing that the 1960's were the only other time when Labor Slack and Unemployment diverged significantly before the present - which is why people treat them interchangeably when, in fact, they aren't.

Posted by: Stirling Newberry on February 16, 2006 at 11:20 PM | PERMALINK

Hostile,

Let me give you an example of what I'm talking about. You wrote,

you assume those with accumulated capital earned it. They did not. Capitalists seize the surplus value added by labor for themselves.

You apparently take Marx's "surplus value" to make the sweeping claim that it is not possible to legitimately accumulate capital.

Well, why shouldn't an individual make a profit from the labor of others? You are in the position of arguing that a worker is necessarily on an equal footing with any designer/innovator/entrepreneur he works for, with an equal claim to the income produced by their production.

That is a patently absurd claim.

Similarly, you would seem to be claiming that "rent" is illegitimate. Otherwise, how could a landlord rightfully sit on his ass and collect 'profits' in return for 'doing nothing?'

There are a host of nuances involved in real-world capitalistic exchanges, but your over-simplified rhetoric doesn't scratch the surface.

Posted by: obscure on February 17, 2006 at 9:57 AM | PERMALINK

I will admit to being swayed by utilitarianism, which I wish more of our elected leaders would base their policies on.

I am not advocating a seizure of entrepreuners' surplus value added nor have I make a "sweeping claim that it is not possible to legitimately accumulate capital." What I did say is that the market is fixed (gamed) to allow captialists to claim the surplus value added by labor. Our political economy could just as easily fix (game) the market to allow labor to claim the surplus value added by capital.

Just because I consider Marx to have been a very good economist and historian with excellent foresight, does not mean I believe in or even desire a dictatorship of the proletariat. On the other hand, I do not beleive in or even desire a dictatorship of capital, which is a lot closer to the economic system we are moving towards, and it means less utility for the commonweal, which I think should be maximized.

Profiting from the labor of others should be a win-win for both parties. The dictatorship of capital makes it a zero sum game. I do not recall saying anything about rents, which had a well accepted economic theory long before Marx.

Posted by: Hostile on February 17, 2006 at 12:44 PM | PERMALINK

"You and others foolishly believe that you can create permanent demand without prior production. "

No, that's just a straw man you shove in my mouth.

However, you seem to believe that the level of aggregrate demand doesn't matter, or understand the process and risks of deflation.

Posted by: Urinated State of America on February 17, 2006 at 3:07 PM | PERMALINK

Hostile,

Our political economy could just as easily fix (game) the market to allow labor to claim the surplus value added by capital.

Please explain.

Profiting from the labor of others should be a win-win for both parties. The dictatorship of capital makes it a zero sum game.

It isn't 'profiting from the labor of others' per se that is a win-win. It is sharing the wealth created by demand for one's product or service that is a win-win. But there aren't any clear-cut rules here, or simple formulas for determining whether wealth is being shared or not.

The second sentence is a cartoonish charicature. There is no 'dictatorship of capital.' What we have today in the Bush administration is a disastrously short-sighted and corrupt group who believe that wealth should rule relatively unconstrained by democratic institutions.

Sure, conditions for the working class are going to deteriorate under their leadership. But this situation can change as quickly as it came about with the next couple of election cycles. Not that it necessarily will change... the gullibility of the American public is pretty damn discouraging sometimes.

I agree with you that Marx made some valuable contributions to the understanding of modern capitalistic economies. But his insights, in many instances, were shallow and more emotional than rational.

Posted by: obscure on February 17, 2006 at 3:58 PM | PERMALINK

The dictatorship of the proletariat, e.g. Bolshevik USSR, expropriated all the surplus value added by capital for labor under the administration of the state. Any political economy could choose to do this, and any political economy could choose to expropriate all the surplus value added by labor in favor of capital with the blessing of the state, e.g. pre-New Deal America, which prohibited unions, paid a non-living wage, allowed child labor, etc.

There is one thing Marx brought up, and that is the power of capital to influence political economies is infinitely more powerful than labor's. You may think that is an emotional assessment, but I do not think the modern accumulation of huge amounts of capital and its influence on the political economy in the interests of the dictatorship of capital can be denied.

Just as the propaganda of Stalin fooled the people of the USSR into thinking they lived in a wonderful world, the propaganda of wealthy corporations has done the same thing to the people of the US into thinking they live in the best of all possible worlds. Stalin had to use huge amounts of force to achieve his lies. Wealthy corporations need only spend small percentages of their capital to achieve theirs.

I think you and I basically agree that a balance between labor and capital needs to be struck that is fair to both. I think the best way to find that balance is through providing the greatest utility to the largest possible population.

Posted by: Hostile on February 17, 2006 at 5:04 PM | PERMALINK

This is a classic example of Kevin's audience. We start out with a silly comment from Max Sawicky about what the Fed does, and now we're debating with A little Marxist knowledge is a dangerous thing loon.

Btw, Hostile, if it's supposed to be 'from each according to his ability, to each according to his needs', then why all the bellyaching about who gets the surplus?

Posted by: Patrick R. Sullivan on February 17, 2006 at 5:14 PM | PERMALINK
I think you and I basically agree that a balance between labor and capital needs to be struck that is fair to both. I think the best way to find that balance is through providing the greatest utility to the largest possible population.

Yes. I think we basically agree.

Where I see problems is in language like "providing the greatest utility."

First, that's a subjective notion. Second, how would you apply that notion to law without egregious interference in the market?

Regards.

Posted by: obscure on February 17, 2006 at 5:15 PM | PERMALINK

Piss off, Patrick.

You can't read Marx's name without breaking out into hives. Let alone think straight.

No one here is advocating "Marxism"...

So see above.

Posted by: obscure on February 17, 2006 at 5:17 PM | PERMALINK

Yes, obscure, I did admit to having a bit of utilitarianism in me, but how else would you suggest political economies divide up the surplus of both labor and capital? The market is only what the political economy decides it is and not an independent arbitrator. After the New Deal, laws were made regarding corporate income tax, workplace safety and minimum wage. We now have environmental protection laws. Even before the New Deal child labor laws were enacted. Many of these protections of labor against capital are now being dismantled, despite capital's near dominance of the market already. In economics, more is always better. Capitalists always want more, even when they have it all.

I might add that America was a very poor country prior to the New Deal. Moving some of labor's surplus back to the people created great wealth for everyone and made the US the wealthiest nation.

I read somewhere recently, I have not been able to find the link, that chemical corps. were made to stop much of their polluting, and it greatly enhanced their profits when made to recycle their waste instead of polluting with it. Interferring with 'markets' for the good of the commonweal can actually lead to greater profits for capital.

Posted by: Hostile on February 17, 2006 at 5:47 PM | PERMALINK

Better indicators of the labor market are full time employment demand, and a labor slack indicator which uses the most recent peak of labor force participation.

Labor force participation is of limited value in this environment of dramatic demographic changes. Economist have been struggling to revise the number of nonfarm adds needed to hold the unemployment rate steady. It may have fallen by as much as 100K the last 3 years and is undoubtedly still falling.

While all economic data is flawed the monthly unemployment data is the grand market mover for a reason. It tells the real story. It matters that the rate is down to 4.7% and the last 4 months have been fairly stong save one blip that will probably be revised up and push the 4 month average over 230K. It is especially encouraging when the unemployment rate survey sends the same signal as the nonfarms report and as the jobless claims filings.

We are entering an extended period of very low unemployment rates and probably severe labor shortages. The domestic and global economies are quite strong and boomer early retirements will continue to drive down labor participation rates.

Posted by: rdw on February 17, 2006 at 11:45 PM | PERMALINK

I might add that America was a very poor country prior to the New Deal. Moving some of labor's surplus back to the people created great wealth for everyone and made the US the wealthiest nation.

Nonsense: The US was quite wealthy relative to other nations until the depression. Unemployment was 4.2% in 1928 and 23% in 1932.

Posted by: rdw on February 17, 2006 at 11:49 PM | PERMALINK

Most rural people in the US did not have indoor plumbing or electricity prior to the New Deal. Most who lived in the cities worked in sweat shops and lived in squalor.

It is true a nascent middle class did begin to emerge after the progressive movement at the turn of the century. The trust busting initiated by T. Roosevelt and the implementation of the first child labor laws, which would now be called judicial activism, countered the immense power of the early capitalists and led to a better distribution of wealth.

Posted by: Hostile on February 18, 2006 at 9:53 AM | PERMALINK




 

 

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