Wisdom of the crowd

I opened my Wall Street Journal app this morning to see this:

The campaign in Iowa performed its usual task of starting the long process of winnowing out the presidential field, but it failed to fully resolve this year’s underlying mystery: Why are voters toying with radical change at a time when, objectively speaking, the country isn’t in bad shape?

Why Iowans Entertain Radical Messages from Donald Trump and Bernie Sanders Amid Seeming Prosperity By GERALD F. SEIB

I can answer that.

"Objectively speaking," this time is different.

This time, the country didn't recover from the recession. In every other recession of the 20th century, including the Great Depression, economic growth went back to trend.

This time, no.

Yet only the people seem to know it.

They're not happy.



^*Perhaps the 19th century as well -- I don't know the history.

"9-minute read" - "Recovered or not"

I've mentioned several times that I became a macro aficionado after the crash -- a macro aficionado and a Fed watcher, heaven help me.

Macro is off-topic for kitchen table math but, then again, most of us here:

a) have jobs;
b) are married to someone who has a job;
c) used to have jobs;

and/or

d) are the parents of children who have jobs, don't have jobs, or will need to get a job one day.

So: jobs.

I've just come across this "9-minute read" from Third Way, and I think it may be the best I've seen. I say that as a person who has read approximately a gazillion articles, studies, blog posts, and white papers on the subject of unemployment in the wake of the Great Recession at this point.

According to Third Way, depending on how you measure unemployment, we are either nine-tenths, two-tenths or just over halfway to a full jobs recovery.

Recovered or Not: What’s Really Happening with U.S. Unemployment?

Meanwhile the Hamilton Jobs Gap Calculator says we are still 2.5 million jobs short.

Mark your calendar

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.

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.

Ireland

We've been to Ireland!

First time ever.

Five days in Dublin --- incredible.

On the way back to the airport, our taxi driver explained the euro, the Germans, and the Irish people's bailout of the banks: "The German banks were in here handing out loans to people they knew couldn't pay them back. It was like going to the races and betting a thousand dollars, and if you won you got $1,040, if you lost you got $1,000."