A Evans-Pritchard on Yellen

[piece-itpete]

Why not $20/hr?

Pete

[donquixote99]

Originally Posted by piece-itpete

Why not $20/hr?

Pete

That would be immoderate.

[mpholland]

Oregon and Washington will have minimum wages of 9.10 and 9.32 as of January 1. I don't think 10 would do much to help.

[whell]

Originally Posted by donquixote99

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

It would have zero to a slightly negative effect on employment, and will drive some inflation. Increase wages leads to increased cost of goods sold which leads to higher prices for consumers, so the lowest paid keep chasing ever higher cost of living. Or worse, businesses reduce payroll to manageable levels in reaction to the min wage increase. Seems self-defeating to me.

http://www.washingtonpost.com/blogs/...-minimum-wage/

[donquixote99]

Originally Posted by mpholland

Oregon and Washington will have minimum wages of 9.10 and 9.32 as of January 1. I don't think 10 would do much to help.

Other states, not so.

[donquixote99]

Originally Posted by whell

It would have zero to a slightly negative effect on employment, and will drive some inflation. Increase wages leads to increased cost of goods sold which leads to higher prices for consumers, so the lowest paid keep chasing ever higher cost of living. Or worse, businesses reduce payroll to manageable levels in reaction to the min wage increase. Seems self-defeating to me.

http://www.washingtonpost.com/blogs/...-minimum-wage/

That assumes:

1) employers do choose to pass on the cost in price increases, which they may or may not chose to do, depending on their market power.

2) demand for labor is highly price-elastic, which again depends on other conditions.

[Charles]

Originally Posted by 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.

IMHO, you should have posted the following comments by Evan-Pritchard...one of my favorite writers BTW.

"So there we have it. The next chairman of the Fed is going to track the labour participation rate. Money will stay loose. Markets have been spared again. The Brics can breathe easier.

This leaves me deeply uneasy. We are surely past the point where we can keep using QE to pump up asset prices. My view is that emergency stimulus should henceforth be deployed only to inject money directly into the veins of the economy as an adjunct to the US Treasury, by fiscal dominance, as deemed necessary.

That would take an intellectual revolution. Is Janet Yellen game for such incendiary ideas?

Perhaps."

Personally, I think that one of the reasons the economy remains in the doldrums is due to a lack of faith in the system by the middle class. I, for one, am loathe to assume ANY debt until I can see some fiscal stability coming out of Washington. And I don't see QE as fiscal stability, and agree with Evan-Pritchard that at some time it must end, or be deployed in a manner which seeks to end it.

Evan-Pritchard certainly paints Ms Yellen as one who appears capable of thinking outside of the box. Hopefully, he is correct.

It was a great article.

Chas

[Dondilion]

Originally Posted by whell

injecting that kind of capital into the economy - tax cuts - won't be popular in today's political climate.

Tax cuts?

You not serious?

[whell]

Originally Posted by Dondilion

Tax cuts?

You not serious?

Like I said. Not likely in today's political climate.

[finnbow]

Originally Posted by whell

Like I said. Not likely in today's political climate.

Thankfully.