A Evans-Pritchard on Yellen

[whell]

Great article on the Fed Chairperson in waiting Janet Yellen:

http://blogs.telegraph.co.uk/finance...o-create-jobs/

There is little doubt that the she is a dove in today's circumstances. She tracks jobs. Her lodestar is the “non-accelerating inflation rate of unemployment" (NAIRU). When the rate is above NAIRU, she is a dove: when below, she is a hawk.

My guess is that we are still a very, very long way for NAIRU. Yes, the Fed is committed to tapering QE to zero once the jobless level reaches 7pc (and raise rates once it hits to 6.5pc), and yes, this could in theory happen much sooner than the think want since the headline rate has already plummeted to 7.3pc.

But this headline rate is wildly misleading because so many workers have given up searching for a job. They have fallen off the rolls. The labour participation rate has collapsed to a 35-year low of 63.2pc. It is blindingly obvious that the real rate of unemployment is much higher than it looks. Some of these people have been driven out of the work force for ever, left behind by new technologies, but surely not all.

Mrs Yellen tipped her hand in a speech to the labour unions in February, a text now being studied for clues.

Three million Americans have been looking for work for one year or more; that's one-fourth of all unemployed workers, which is down from 2011's peak but far larger than was seen before the Great Recession. These are not just statistics to me. We know that long-term unemployment is devastating to workers and their families. When you're unemployed for six months or a year, it is hard to qualify for a lease, so even the option of relocating to find a job is often off the table. The toll is simply terrible on the mental and physical health of workers, on their marriages, and on their children.

And then the key line:

If the current, elevated rate of unemployment is largely cyclical, then the straightforward solution is to take action to raise aggregate demand. If unemployment is instead substantially structural, some worry that attempts to raise aggregate demand will have little effect on unemployment and serve only to stoke inflation.

I see the evidence as consistent with the view that the increase in unemployment since the onset of the Great Recession has been largely cyclical and not structural.

So the income Fed Head believes that the published unemployment rate is BS, that the real number to focus on is the labor participation rate, and that current Fed pumping may continue. Evan - Pritchard is suggesting something more direct - direct injection of funds into the economy as an alternative to pumping. Unfortunately, the most efficient means for injecting that kind of capital into the economy - tax cuts - won't be popular in today's political climate.

[donquixote99]

There's no shortage of capital. The most efficient way to inject capital into the economy is irrelevant.

What you want is an increase in aggregate demand, which you get by government spending to create jobs and increase income for the middle and below.

[BlueStreak]

Oh, come on now, Don. Everybody knows throwing more money at the rich fixes everything. Why look at the bank bailout.....................................

Oh, ummmmmm........nevermind.

[whell]

Originally Posted by donquixote99

There's no shortage of capital. The most efficient way to inject capital into the economy is irrelevant.

What you want is an increase in aggregate demand, which you get by government spending to create jobs and increase income for the middle and below.

Recent history demonstrated just how much that hasn't worked.

[donquixote99]

Originally Posted by whell

Recent history demonstrated just how much that hasn't worked.

Not so. Recent history is we've cut spending. Nor has there been anything like a real jobs-creation program.

[whell]

Originally Posted by donquixote99

Not so. Recent history is we've cut spending. Nor has there been anything like a real jobs-creation program.

I billion in Stim money didn't do it? The Fed pumping like crazy?

[donquixote99]

Originally Posted by whell

I billion in Stim money didn't do it? The Fed pumping like crazy?

The fed pumping is supposedly good for freeing up capital, which I as said isn't the problem. Demand is the problem.

I think you meant to say a trillion in stim money? A billion is pocket change in terms of the whole economy. In any case, whatever actually found it's way to consumers wasn't enough to do more than bandage things up. Good as far as it went, but....

[merrylander]

You won't get much demand unless they raise the wages of the middle class - what's left of it.

[donquixote99]

Tasking the minimum wage to $10.00 or more would raise all boats....

[d-ray657]

Originally Posted by donquixote99

Tasking the minimum wage to $10.00 or more would raise all boats....

Come on, you raise the minimum wage for Walmart workers, you know that they're just going to hoard it. Whereas a tax cut for the richest just goes straight into the economy. Uh huh.

Regards,

D-Ray