Friday, November 22, 2013

For Now, It's Always About Jobs

Republicans are wrong about so many things for so many reasons -- you pick it, hate Obama! Tax cuts for the job creators! Obamacare is a jobs killer! Government's the problem! -- that we get almost dumbfounded on a daily basis.

What we also contemplate daily is the undeniable fact that very damned little is being done about jobs. Oh, there's something done around the periphery of society -- usually small, but not always nothing! -- in new approaches to job training, hopes that a housing boom will jumpstart construction jobs, etc. But basically, we're stuck at 7.3% unemployment.

In a Jared Bernstein/Dean Baker post in the NY Times, some really clear thinking was brought to bear on the question of just what level of unemployment is tolerable before it gets so low it will spur inflation. Those are the two points on the scales that the Fed is supposed to keep an eye on. Unemployment too low, the economy overheats, and wages put pressure on prices, leading to inflation. It's a sensible notion and is measured on the Phillips Curve with shows the inverse relationship between the two.

The Fed works by making money cheap by lowering interest rates. Low interest rates spur business investment, business investment spurs employment, employment drives demand, demand puts pressure on prices, prices drive wages up, which spurs demand, and before you know it, the economy is overheated and inflation can get out of control.

(A variety of economists I highly regard think that, with the economy up against the lower zero bound where lowering interest rates can no longer stimulate growth, normal monetary policy can do little to stimulate growth. So the usual routine described here can't work.)

The Fed raises interest rates, stifles investment, increases unemployment, and demand drops, and with it so do wages and prices. The Fed does this with an unparalleled religiosity. Paul Krugman calls it "taking away the punch bowl when the party really gets going." It's not a fiction that the Fed causes most recessions on purpose. Obviously if they could really tailor the medicine to the patient, we'd be able to put an end to recessions. We actually believed we had during the time known as the Great Moderation, under the direction of Maestro Alan Greenspan. (For fun, check out this blog post on the Great Moderation at about the peak of the financial bubble and a year and a half before the fall of Lehman Brothers precipitated the Huge Unbubbling -- wow, I think I coined a term! By the way, the blogger, Mark Thoma, is an ordinarily clearheaded economist.)

The Great Moderation turned out to be a fantasy, as was the deft touch of the Maestro. Thus we arrived at the Great Recession, having our asses handed to us by the housing bubble, or by the easy money party by which the banks and mortgage brokers built the bubble. Pick your poison. One thing is for certain, and that's that Maetro Alan Greenspan did not see it coming, and his easy money policy probably fueled the bubble, but good.

No one took away the punch bowl. People were swilling the stuff right up to the moment the whole house of cards collapsed around them.

We could tell a tale of high and mighty finance and its near-total collapse, but this is about jobs:

That's what a falling house of cards looks like. Add in a dose of "big government is the problem," and you have the bonus loss of government jobs just when the economy can least afford it. (That spike of positive public-sector job growth in 2010 were temps hired to take the Census, nothing more.)

Here's a thought experiment: Push all those red, negative values north of zero job growth and the jobs-per-month figures start to make a difference in GDP. Add a bunch of public-sector-driven infrastructure projects -- and the private-sector jobs making the material and equipment that are required by the infrastructure projects, plus all the food, healthcare, housing, and furniture the workers need and can once again afford -- and drive those positive bars higher and higher, spurring, yep, more demand. That's what's called a RECOVERY, not the limp, pathetic recovery we've instead experienced.

But Obama's a socialist, Obamacare's a job killer, government must be shrunk, no new taxes, no new budgets, no new spending, and did I say Obama's a Kenyan Marxist Muslim who eats jobs for breakfast?

So I was fascinated reading the wonderfully clear-minded and convincing explanation of why Jared Bernstein and Dean Baker figured out that the safe rate of unemployment without inflation pressures may in fact be as low as 4 %. I'm convinced, and I look forward to the day when we'll be able to put those mathematics to work, hopefully with a Fed who can stomach the experiment.

In the meantime, before you go, Ben Bernanke, can we have some actual helicopters dropping free money on the poor and middle-class neighborhoods, please? The rich don't need it and poor will spend it, but fast. It's not enough, but it would sure help.

Job-killin', big-government, winners-and-losers pickin', consumer-protectin', Wall-Street lovin', mean ole Muslim President Obama, who won't let us have our plan, as soon as we think of one.

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