I guess I’ve missed this guy through my interwebs travels. But, he’s pretty spot on, today.
For me, it’s been pretty difficult to find someone who competently writes about economics, even in supposed conservative circles. Sure, there are a few, but, their writing is rarely highlighted. So, I thought this fellow was worth a plug.
Yesterday’s news that the economy added 248,000 payroll jobs, while the official unemployment rate dropped to 5.9 percent, generated the expected hosannahs from much of the establishment press.
One utterly predictable such writeup came from the Associated Press. The headline at Christopher Rugaber’s report, “SURGE OF HIRING CUTS US JOBLESS RATE TO 5.9 PCT,” utterly ignored the fact that much of the 0.2-point drop was attributable to 97,000 Americans leaving the workforce (the official rate would not have changed at all from August if a still-unacceptable 100,000 people had instead entered the workforce). The most troubling aspect of Rugaber’s dispatch was how he shielded the Federal Reserve and left-dominated economics community from its relatively recent irresponsible decision to accept an unacceptable benchmark as the best the economy can do.
The particular paragraph involved reads as follows:
The jobless rate now stands at the lowest level since July 2008, in the middle of the Great Recession, and is getting close to the roughly 5.5 percent that the Federal Reserve considers consistent with a healthy economy.
Rugaber used “healthy economy” instead of “full employment.” His use of “healthy economy” obscures the fact that policymakers will be satisfied if the economy’s unemployment gets to a level many of the same people would have considered appalling not all that long ago.
What follows are excerpts from a recent column posted at my home blog. It runs down the history of full employment, explaining how utterly absurd the “new normal” definition of 5.5 percent really is (links are in original; bolds are mine):
… Full employment is supposed to occur when “all … who want to work and are allowed to work are able to find employment.”
… What unemployment rate represents full employment? The architects of the Humphrey–Hawkins Full Employment Act of 1978 thought it should be 4 percent for Americans age 16 and over. That benchmark is what Richard Nixon used when presenting “full employment” budgets during much of his time in office.
… Forty years later, communications have improved tremendously. Unfilled job listings are available within seconds at any number of web sites attempting to match employees with employers. Applicants send resumes online instead of through the mail. One would therefore expect that the full-employment unemployment rate would have fallen, or at the very least remained the same.
… on September 4 … on the ADP Employment Report conference call … economist Mark Zandi, the report’s overseer, told his audience that he expects that the economy will continue to generate 200,000 or more private-sector jobs each month as far as the eye can see, and that this serendipitous consistency will bring the U.S. economy to full employment by the end of 2016.
… when the call opened up for questions, I asked him what he thought the unemployment rate would be at the end of 2016 when we hit full-employment nirvana.
I was stunned at the answer: 5.5 percent.
… When I mentioned that his full-employment unemployment rate was quite a bit higher than I was used to seeing by about 1.5 percentage points, Zandi went further into the land of the absurd. He asserted that full employment was commonly regarded as 5 percent last decade — this 2007 article in the New York Times confirms that — but that the economic damage caused by the recession had upwardly moved that standard to 5.5 percent.
Now, I’ll pick up from his blog, which was omitted in the Newbusters article.
In other words, it’s Bush’s fault — apparently forever — that the rate is now a half-point higher. The economy fell, and it will never entirely get back up. You can’t make this garbage up. This permanent half-point upward move must have been discovered after the Obama administration was done promoting the idea that its 2009 stimulus package would lower the unemployment rate to 5 percent —by the middle of 2013. How convenient.
Now, pay attention on this next part …….
In a far more efficient communications environment, why did the accepted full-employment unemployment rate rise at all?
Part of the answer is that there are many people who believe that the increase never should have happened. That group, strangely enough, includes card-carrying liberals Jared Bernstein and Dean Baker. It also includes the folks at the American Institute for Full Employment. Its president, John Courtney, goes further. In an email, he specifically asserted his group’s belief that “full employment is below the 4%” Bernstein and Baker advocated in late 2013.
It’s hard to disagree with Mr. Courtney, given that a July 2014 table at the government’s Bureau of Labor Statistics showed six states with rates below 4 percent. Only one of them, North Dakota, where the unemployment rate was 2.8 percent and starting wages at Wal-Mart can be as high as $17 per hour, is seeing significant wage pressure. This strongly suggests that the real-world unemployment rate at full employment is about 3.5 percent.
What has really happened is that the left-dominated establishment economics community has lowered the bar for full employment to avoid having to discuss the welfare state’s pervasive work disincentives and their own Keynesian policies’ utter failure to satisfactorily revive the job market.
Nicely done, Mr. Blumer.
Blumer had put up graphic of the unemployment rates prior to the recession, from the BLS
As I recall, leftards were apocalyptic about our dismal economy in the 2000s. Now, they’re celebrating the 5.9%, even after so many millions have left the workforce.
And, yes, about 3% – 3.5% is the optimal unemployment rate. As noted by Blumer and friends, if you get below 3%, then you have some awful wage forcing, and things go bad from there.
I would note, there are other things which force wages up, regardless of the unemployment rate…… sort of. In places like N. Dakota, it’s cold. There aren’t a lot of attractions or amenities. So, you’re going to have to pay people to come there and do things …… like work the oil fields.
It’s refreshing to see people writing about the real economy, rather than the leftard apologist bs one typically sees.