It seems to me that, on the present course, we'll never be "back to trend." Or, rather, the slope of the trend line will continue to decline:
source: Quantitative Easing Is Ending. Here’s What It Did, in Charts.
That is one lousy recovery.
A real recovery is a V-shaped curve. Growth spurts up above the trend line, averaging out the dip, and the trend line remains the same. Back to trend.
Here's what Wikipedia has to say on the subject of L-shaped recoveries:
"An L-shaped recession occurs when an economy has a severe recession and does not return to trend line growth[citation needed] for many years, if ever. The steep drop, followed by a flat line makes the shape of an L. This is the most severe of the different shapes of recession. Alternative terms for long periods of underperformance include "depression" and lost decade; compare also "malaise"."
An L-shaped recovery is a bad thing, but the Federal Reserve has signed off on it, so that's what we've got. Where is Milton Friedman when we need him?
While I'm on the subject of desperately seeking Milton Friedman, is it not possible for journalists and pundits and economists and the like to recall the principles of supply and demand when discussing inequality?
As far as I can tell, the single best medicine for income inequality (if you're concerned about income inequality) is a tight labor market. (The other competitor for single best medicine is closing the trade deficit, also unmentionable in polite punditry, it seems.) Ed has finished a draft of his European history textbook, and has been writing about decades when income inequality plunged because countries were experiencing labor shortages.
When lots of employers are bidding on janitors, the price of a janitor goes up.
I'm in favor of labor shortages myself, but we're not going to see another one in my lifetime, not with the Federal Reserve in charge.
The Federal Reserve believes in a little thing called Nairu. Nobody knows whether the Nairu exists or, if it does, what its value is, but the Fed believes in it, so there is nothing to be done.
I ask myself, not infrequently, whether things would be different if the country at large knew that the Federal Reserve fights inflation by raising unemployment.
Interesting. For your consideration:
ReplyDeletehttps://www.desmos.com/calculator/at6iwk5qzp
Based on:
http://www.multpl.com/us-gdp-inflation-adjusted/table
Didn't the Plague create a heckuva labor shortage? Enough of one to bring down the feudal system?
ReplyDeleteHasn't the definition of job changed? Many have a "job" that consists of multiple part-time jobs. Many are now freelancers. People talk about the "gig" economy. Small companies either return back to single employees or they have to grow to a much larger size.
ReplyDeleteI see plenty of work that companies want done, but not enough jobs. Companies are also getting more work out of fewer people. And having a new sort of combo-part time or gig job won't necessarily cause more spending, so unemployment can go down but not have the same effect as years ago. Demand-pull inflation isn't going to happen when people are insecure about their jobs, and people have been insecure for a long time. It now seems to be a permanent condition. Many of us, however, support college cost inflation.
The deep recession of 1980 was famously caused by the Federal Reserve. They were trying to tame inflation, and they definitely did, but at the price of a very bad recession. I remember it well because I graduated college in 1982. It was a time very much like today for new college grads. Most of us either survived on temp jobs (I did a bunch with temp employment agencies) or went to grad school. Interestingly, this article talks about the slow recovery from that recession, and the resulting rise in income inequality. Very much like today
ReplyDeletehttp://bancroft.berkeley.edu/ROHO/projects/debt/1980srecession.html
As far as I can tell, Canada has much less income inequality than the US. I grew up on the border between the US and Canada, and have a lot of Canadian relatives. When I was younger (we're talking 40 years ago), I used to tell my cousins that while Canadians had greater security, US citizens had a higher standard of living. Those times are long gone. I am stunned by how much better the standard of living is for the Canadian middle class than it is here. My niece married a Canadian man. They are staying in the US to finish up their education, but they've done the math and plan to settle in Canada when they graduate.
ReplyDelete"I ask myself, not infrequently, whether things would be different if the country at large knew that the Federal Reserve fights inflation by raising unemployment."
ReplyDeleteThe federal reserve doesn't fight inflation by directly raising unemployment. In fact, the federal reserve doesn't "fight" inflation at all. Using "fight" here implies that inflation is some sort of external enemy.
The federal reserve can (help to) cause inflation by creating too much money. Under some circumstances, this extra money results in the economy expanding. To "fight" this inflation, the federal reserve must stop creating as much money as it had been (or, sometimes, maybe even destroy money). Then things go in reverse and the economy may well contract.
But it isn't like the federal reserve directly picks a desired level of unemployment.
Would folks be less okay with the fed fighting inflation if people knew that it cost jobs? Historically, this depends on the level of job loss. Inflation hurts *everyone* and job losses tend to be more targeted ... the 90% that still have jobs in a 10% unemployment situation may well find this acceptable in exchange for them not getting poorer (or feeling that they are getting poorer) every year because of inflation.
-Mark Roulo
"As far as I can tell, the single best medicine for income inequality (if you're concerned about income inequality) is a tight labor market."
ReplyDeleteYes.
Other things can matter, but that is a big one. The US has imported 10s of millions of poor (and poorly educated) people over the last decades. This had been bad for income inequality in at least two ways:
1) By adding 10s of millions of poor people, inequality gets worse.
2) By adding 10s of millions of folks on the low end who are bidding for jobs, you drive down the income of lots of folks already here.
-Mark R.
The official unemployment rate very much understates the actual number of unemployed. The labor force participation rate has dropped pretty dramatically since 2007. There are a LOT of people who are retirees or SAHP's by choice but whose choice has been made quite a bit easier because of the lousy job market.
ReplyDeleteWhen I quit my last paid position after my 2nd child's birth in late 2005, I never anticipated that I would still be a SAHM 9 years later. But when the economy tanked and good-paying jobs became a lot scarcer, it made the decision to continue that much easier. Saying "thanks but no thanks" to a six-figure job is a lot harder than saying the same to one paying half that or less.
"According to the Hamilton Jobs Gap Calculator, at the current rate of job creation, we will be back to the level of employment we had before the crash in June 2017."
ReplyDeleteAlso ... this is wrong :-)
We didn't have a crash in June 2017!
Maybe: "According to the Hamilton Jobs Gap Calculator, at the current rate of job creation, in June 2017 we will be back to the level of employment we had before the crash."
Yes, I'm in a grammar Nazi mood this morning (except that the grammar here isn't the problem. What would this sort of nit-picking be called?).
-Mark R.
Greaat reading this
ReplyDelete