Bob Nelson

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How Low Can Unemployment Really Go? Economists Have No Idea

By: Bob Nelson
Posted in: Economics

It’s an uncertainty that has huge economic consequences.

merlin_134669253_de0684f0-ce3a-44f4-b209The new Federal Reserve chairman, Jerome Powell, testifying on Capitol Hill on Tuesday.
Erin Schaff for The New York Times

For the last few months, there has been cacaphony in the econonoblogosphere concerning wages and, and as a result, inflation. There is a hint of a beginning of a glimmer of wage increases... so of course some economists are screaming "inflation!!". At the same time, the indices of inflation are answering, "NO!!" Perhaps some economists are taking positions for partisan political reasons (oh!! unthinkable!) or... as this article says, we really don't know...

Here are two things most economists can agree upon: They want an economy where everyone who seeks a job can get one. Yet for the economy to be dynamic, some people will always be unemployed, at least temporarily as they move between jobs.

There exists, in theory at least, some magic number for the unemployment rate that keeps those priorities in perfect balance, a bare minimum level of joblessness that makes room for people to move around yet ensures that nearly everyone who wants to can find work without inflation bubbling up. Economists, as they are prone to do, have created an acronym for it: Nairu, or the non-accelerating inflation rate of unemployment.

The problem is, it is looking more and more as if we have no idea what this magic number is — an uncertainty that has huge economic consequences.

Does the 4.1 percent jobless rate in January represent something lower than this “natural rate” of unemployment and presage damaging inflation, as mainstream estimates have long suggested? Or could it fall more — maybe a lot more — putting more people to work without negative side effects?

This "crisis of knowledge" has been simmering since the collapse in 2008. Interest rates fell to the ZLB (Zero Lower Bound), (so close to zero that some practical consequences of Fed policy are below zero), where the usual "laws of economics" work about as well as the laws of classical physics work at a Black Hole Horizon. That is to say... they don't work at all...

Trying to stimulate the economy, the Fed purchased enormous quantities of bonds, multiplying its balance sheet by several hundred percent. "Inflation!!" screamed some economists... but it didn't happen. Were those economists incompetent? Blindfolded dogmatists? Or just normal people operating in unknown waters? Some of the alarmists have since recognized that the ZLB "changes the rules". We may assume that those people are honest. Some continued to incessantly scream "Inflation!" while no such thing happened, year after year. We may assume that they are either incredibly stupid, or blindly dogmatic. Donald Trump appointed one of these people to the Fed...

The most accurate fortune-teller throughout this period has been... you guessed it... Paul Krugman. He had previously worked on the stagflationary period of recent Japanese history (1990s), where all the "usual economc rules" were wrong... because the economy was at its ZLB.


Original article

The Upshot

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Bob Nelson
1  Bob Nelson    2 weeks ago

There's no doubt that employment is rising... but there's a great deal of doubt that employees' pay is rising...

Dean Moriarty
2  Dean Moriarty    2 weeks ago

Inflation is currently running at over two percent and low risk investments are paying far less in interest right now. In just two years your savings will lose over four percent of its purchasing power if held in traditional low risk investments such as banks or the Treasury.

Additionally the government intentionally reports a lower inflation rate than the actual rate of inflation.

3  badfish    2 weeks ago

Unemployment currently sits at 2.6% where I live. We are seeing a spike in wages across the board in every profession. We are currently having to pay our hourly employees more to keep them. Our commissioned mechanics are in such high demand that we are preemptively raising the shop hour pay. 

Some of this may be regional but I am hearing similar things from those in Houston and Dallas.

It Is ME
4  It Is ME    2 weeks ago

How Low Can Unemployment Really Go? Economists Have No Idea

As low as the REAL  "Great Depression" ?

Obama's FAKE cry of the "Greatest depression"..... was a joke.

5  Surfs_Up    2 weeks ago

this is what happens when one slowly chokes an economy for 40yrs or more and then suddenly release it with no strings.

Boom :)


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