Rising NAIRU?, by Tim Duy: Brad DeLong reads Greg Mankiw and reaches the conclusion that:

Mankiw's broader point is that since we have seen nothing like this before except for the Great Depression, we should be humble and risk averse--and hence have the government stand back and wash its hands of the situation.

Paul Krugman concurs, adding a sense of urgency to the current situation:

Quite. I really don’t think people appreciate the huge dangers posed by a weak response to 9 1/2 percent unemployment, and the highest rate of long-term unemployment ever recorded…

...Right now, I’m reading Larry Ball on hysteresis in unemployment (pdf) — the tendency of high unemployment to become permanent. Ball provides compelling evidence that weak policy responses to high unemployment tend to raise the level of structural unemployment, so that inflation tends to rise at much higher unemployment rates than before. And the kind of unemployment we’re experiencing now, with many workers jobless for very long periods, is precisely the kind of unemployment likely to leave workers permanently unemployable.

And there are already indications that this is happening. Bill Dickens, one of the people has who worked on downward nominal rigidity, tells me that the Beveridge curve — the relationship between job vacancies and the unemployment rate — already seems to have shifted out dramatically. This has, in the past, been a sign of a major worsening in the NAIRU, the non-accelerating-inflation rate of unemployment.

Mankiw said something eerily familiar recently:

This recession looks very different, and much more troubling, than those in the recent past. I wonder how this dramatic change in the nature of unemployment will alter traditional macroeconomic relationships, such as Okun's Law and the Phillips curve.

Some research suggests that the long-term unemployed put less downward pressure on inflation. If that is indeed the case, then the increase in long-term unemployment may mean that we will see less deflationary pressure than we might have expected from the high rate of unemployment. In other words, the NAIRU may have risen, perhaps quite substantially. This is mostly conjecture, however. It seems likely we will see more work on this topic in the coming years.

So Mankiw recognizes the problems posed by protracted periods of economic weakness, yet in his criticism appears to push for more caution while overlooking an obvious reason why the impact of fiscal policy was insufficient to significantly alleviate the recession. It was simply too small - as economists predicted at the time. Indeed, if he is so worried about the risk of rising NAIRU, he should be pushing for policymakers to pull out all the stops.

Mankiw is not alone in seeing the challenges posed by protracted unemployment. From Federal Reserve Ben Bernanke's Congressional testimony:

Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers' employment and earnings prospects.

The difference between Mankiw and Bernanke is that the latter not only recognizes the problem, but could also do something about it. Not that he is inclined to. Of course, he is not alone. Philadelphia Fed President Charles Plosser was quoted today:

“Lowering the interest rates closer to zero could have very disruptive effects on the financial markets,” Plosser said. “If we bought Treasury bills we could un-anchor expectations of inflation because the public might begin to think we are going to buy up the public debt.”

Plosser repeats the credibility story, arguing that additional action as suggested by Joe Gagnon will trigger an inflationary spiral. Likewise, San Francisco Fed President Janet Yellen expressed an unwillingness to adopt a new inflation target:

Janet Yellen, President Barack Obama’s pick to be the Federal Reserve’s next vice chairman, said it would be “risky” to adopt a long-run inflation goal of 4 percent, and that supervision and regulation are “the first line of defense” against risks to the financial system.

She made the comments in written responses to questions posed by U.S. Senator Richard Shelby, a Republican from Alabama, following her July 15 hearing before the Senate Banking Committee. Yellen, president of the San Francisco Fed, is awaiting confirmation, along with Obama’s other nominees, Sarah Bloom Raskin and Peter Diamond…

...She said that while a higher long-run inflation goal would “give the Fed more maneuvering room in the future,” she agrees with Bernanke that such a move “would be a risky policy strategy.” Most policy makers regard 2 percent as a level consistent with price stability.

I would think that, despite having to endure a higher inflation target, Yellen would be eager to have more maneuvering room. After all, there is not a lot of working room for conventional policy in a liquidity trap. Yet Fed officials seem to prefer the idea that unemployment becomes a long term challenge rather than a short run cyclical issue over the risk of inflation. Like fiscal policy, monetary policy is now limited by imaginary obstacles.

It is worth noting that the long term challenge may already be upon us. David Altig puzzles over the implications of a shifting Beveridge curve, suggesting that extended unemployment benefits may have a role. He then hones in on the possibility of a skills mismatch:

Now I realize that a few anecdotes don't make facts, but I have been in more than a few conversations with businesspeople who have claimed that the productivity gains realized in the United States throughout the recession and early recovery reflect upgrades in business processes—bundled with a necessary upgrade in the skill set of the workers who will implement those processes. This dynamic suggests that the shift in required skills has been concentrated within individual industries and businesses, not across sectors or geographic areas that would be captured by our most straightforward measures of structural change.

To be honest, I hear this complaint too, but have trouble swallowing it. I believed it in the mid and late 1990's, but now? The eight million people dropped into unemployment are all unemployable? Firms are willing to lose profits than do the unthinkable, on the job training, actually invest in their employees? I also have heard the opposite story, of overeducated temporary Census workers desperate for employment, completing assignments in a fraction of the expected time, not realizing that their productivity would only be rewarded with a shorter stint of employment. And if we are experiencing all these magical productivity gains and a shortfall of workers, then wages should be rising quite smartly. But from one of the articles cited by Altig:

Here in this suburb of Cleveland, supervisors at Ben Venue Laboratories, a contract drug maker for pharmaceutical companies, have reviewed 3,600 job applications this year and found only 47 people to hire at $13 to $15 an hour, or about $31,000 a year.

You get what you pay for. To put this into perspective, the average national wage for Wal-Mart was $11.24/hour in 2009. I would hope, however, that Ben Venue Laboratories pays better benefits.

I would really appreciate a good story that explained why we should be happy about high productivity growth if real wage growth is not surging. The lack of the latter makes me question the reality of the former.

Putting my skepticism aside, if a skills mismatch is really a problem, then the solution is to ramp up activity until labor shortages raise wages and force employers to reach deeper into the barrel and in turn bring more people into the labor force to gain those missing skills. Better to do it sooner than later. If the productivity gains are real, the wage gains should not be inflationary. This was the story of the 1990s. Otherwise, policymakers sit and wait as the potential structural rigidities deepen, thereby ensuring a higher NAIRU in the future. And, driven by fear of inflation, this appears to be exactly what policymakers intend to do.

Posted by Mark Thoma on Tuesday, July 27, 2010 at 12:33 AM in Economics, Fed Watch, Monetary Policy | Stumble, Digg, del.icio.us, Reddit, Tweet, Share, Like | Permalink Comments (40)

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Michael Pettengill said...
Here is the problem. No one can afford to consume the economy to full employment.

Besides, we need to invest in capital because too much capital infrastructure has depreciated and is failing and what is needed in major investment, which should be done with slack labor.

But with unemployment so high, the deficits are so high, we can't afford the huge cost of all the labor that would need to be hired to invest in repairing infrastructure.

And internationally, we are facing the high probability that China will invest so heavily in sustainable energy capital for its own needs that it was develop the technology, capacity, and economies of scale to take over the African and Latin American sustainable energy capital infrastructure markets. But to compete, the US needs to gain experience and economy of scale by huge investment in sustainable energy capital. But that requires higher hundreds of thousands to millions of workers, and with high unemployment, we can't afford the cost of all those added workers.

Clearly, the solution is to increase homelessness - then the railroads and town police forces will be hired to deal with the homeless hopping the rails and swatting in camps all over the nation.

Reply Tuesday, July 27, 2010 at 12:48 AM

Sasha said in reply to Michael Pettengill...
"No one can afford to consume the economy to full employment."

That's nonsense - basically the lump of labor fallacy. We're in a disequilibrium (or an undesirable equilibrium, since multiple equilibria are possible).

"But with unemployment so high, the deficits are so high, we can't afford the huge cost of all the labor that would need to be hired to invest in repairing infrastructure."

The Fed could buy long term treasuries and hang on to them. Also high end tax rates could be raised to pay for this, which would be deficit neutral and still have a stimulatory effect as high end taxes have a much lower multiplier (0.3-0.4) than spending (1.0-2.5).

"Clearly, the solution is to increase homelessness - then the railroads and town police forces will be hired to deal with the homeless hopping the rails and swatting in camps all over the nation."

Being a history buff, I like this approach. We could also say, have the unemployed in Oklahoma move to California to pick fruit. Maybe I could write a book about their experiences.

Reply Tuesday, July 27, 2010 at 07:15 AM

cm said in reply to Michael Pettengill...
"town police forces will be hired"

On whose money? The city of Oakland, CA has just laid off some 80 officers in the middle of a rising crime wave.

Reply Tuesday, July 27, 2010 at 09:50 AM

ken melvin said...
First, I doubt unemployment has much if anything to do with inflation. Hasn’t for a long time, if ever. How could it when everything in Wal-Mart, Target, Ace, Best Buy, …. Is made in China? One can correlate almost anything. We have ‘structurally’ high unemployment and there’ll almost certainly come a time when we also experience inflation, but please spare me the one about unemployment causing inflation; especially, when one in five or one in six are unemployed. Wal-Mart’s paying $11.50? In the late 70s, I paid techs $17.50. Labor’s a burden for Wal-Mart? Is that how the Walton’s wound up with $120 billion? The shower curtain built in China for $3 and sold at Wal-Mart for $30, labor costs?

“And the kind of unemployment we’re experiencing now, with many workers jobless for very long periods, is precisely the kind of unemployment likely to leave workers permanently unemployable.” No! No! No! They are and will be unemployed because there are no goddamned jobs! Okun’s ‘rule of thumb’ was proposed in what 1962? Long before automation and offshoring. Phillip’s , from the 50s, was based on history, the history before 1950!

“…. it also erodes skills and may have long-lasting effects on workers' employment and earnings prospects.” Out Damned Spot. When the Genentechs of the world want to train high school grads as bio techs, no problem (not that they’ve adversity to availing themselves of a good excuse). Again, when labor was needed, it was trained

Reply Tuesday, July 27, 2010 at 05:01 AM

Sasha said in reply to ken melvin...
"1962? Long before automation"

No. All the talk back then was about things like NC (numerically controlled) machine tools and other factory automation. It was done with relays before computers became cheap enough. Even mainframe computers were starting to make significant inroads in reducing clerical work for large companies.

Overall I agree with your points, but technological displacement is nothing new. We've had it at least since the beginning of the industrial revolution, and always the answer has been better economic policy that trained and/or created jobs for those displaced. The offshoring that you mentioned, or at least offshoring as in trade deficit, is another story.

Reply Tuesday, July 27, 2010 at 07:22 AM

ken melvin said in reply to Sasha...
Sasha, i was there. There can be no comparison between what happened before 1970 and what happened after. A 1980s milling machine could replace 4 NCs. In this same period, true for offices, the production floor, engineering, ... Thru the 70s and 80s, the replacement factor was 4 to 1, and more.

Reply Tuesday, July 27, 2010 at 07:41 AM

Sasha said in reply to ken melvin...
I appreciate the value of boots on the ground knowledge. BTW, when were you there? I ask because I'm thinking of changes in the 50's and 60's.

"A 1980s milling machine could replace 4 NCs."

Would that also eliminate 3 operators? Also, in the 50's or 60's how many manual milling machines and operators did an NC milling machine replace?

"Thru the 70s and 80s, the replacement factor was 4 to 1, and more."

But in the mid-late 90's we had "full employment" and a booming economy. Even the trade deficit wasn't bad until the late 90's, which I think had more to do with the Asian Crisis, the US and IMF handling of it, and Rubin's "strong" dollar policy than with automation.

Reply Tuesday, July 27, 2010 at 09:04 AM

ken melvin said in reply to Sasha...
In the 50 and 60s a US car plant employed 5,000. After 1980, the same plant produced more cars with 1200 employees, and the Japanese car makers had nearly half the market. Today, the engines, instrument panels, bumper assemblies, ... come from offshore. Thus it is that Detroit is in the state it is. No amount of demand, hell it'd need be 4-5 times as great, can offset these factors. The amount of demand of demand required to correct our economy is impossible.

Reply Tuesday, July 27, 2010 at 09:20 AM

Sasha said in reply to ken melvin...
"In the 50 and 60s a US car plant employed 5,000. After 1980, the same plant produced more cars with 1200 employees"

You're talking pre/post 1980, but I'm talking about a meltdown within the last few years. The mid-late 1990's, while egged on by a stock bubble, were a time of genuine prosperity (cue Anne to worship at the altar of St. Bill). Admittedly not for the car industry, or at least not that part of it in the Michigan area ("Roger and Me" was a 1989 film), but for the country as a whole.

I don't mean to minimize Michigan's problems, as I know the situation is dreadful. It reminds me of the South before the New Deal, but without a Civil War that destroyed the economy (or at least without a Civil War that involved guns). Nevertheless it's not the whole country.

"No amount of demand, hell it'd need be 4-5 times as great, can offset these factors."

If you're talking about manufacturing jobs, I agree. Nevertheless reducing the trade deficit will help unemployment, and just as importantly, reduce the financial imbalances that could blow up everything. Historically it eventually happens with a sustained excessive current account deficit - look at the Asian crisis for example.

There is no one magic bullet to fix unemployment, but reducing the trade deficit is one of many approaches that needs to be taken.

Reply Tuesday, July 27, 2010 at 09:44 AM

paine said...
"Like fiscal policy, monetary policy is now limited by imaginary obstacles. "

succinct say no more

nairu rising

runaway inflation looming

unemployable legions
marching down the jobbless trail

headless horsemen for sleepy hollow

Reply Tuesday, July 27, 2010 at 05:04 AM

paine said...
"if a skills mismatch is really a problem, then the solution is to ramp up activity until labor shortages raise wages and force employers to reach deeper into the barrel and in turn bring more people into the labor force to gain those missing skills"

employers will make the unskilled into the skilled or find methods that replace the skilled by the unskilled
only if skilled wages take off

again its
"effective demand stupid "

Reply Tuesday, July 27, 2010 at 05:08 AM

paine said...
burping at the beveridge curve:

what does it mean when this curve changes

in fact like the p curve
what does this b curve itself mean
without a dynamic model or really even with one ??
its a relation between seekers and the sought

counting the musical chairs and the dancers

i guess the seat size matters

if wage diets become strict enough two butts can sit where one alone once could sit
or better the same chair parts could be reused to make many more smaller more delicate chairs

Reply Tuesday, July 27, 2010 at 05:13 AM

reason said...
German policy in the last few years has not been perfect. But I think they have illustrated quite well that long-term unemployment can be reduced significantly by a combination of
1. Wage subsidies
2. Intensive effort directed towards getting them job opportunities.

It remains to be seen whether that will work long term or not.

(P.S. I consider this a poor substitute for a citizens basic income + no basic wage + active social services package, but it is at least better than the status quo).

Reply Tuesday, July 27, 2010 at 06:09 AM

reason said in reply to reason...
oops
that should be .. + no minimum wage + ...

Reply Tuesday, July 27, 2010 at 06:10 AM

paine said in reply to reason...
wage subsigy can facilitate a wage structure cave in
unless the floor is a rising minimum wage tied to median "productivity" ie value added per hour
and if this leads to a trade gap
forex measures or a ppp price adjustment mechanism for imported products

germany has put its wage force
into a procrustean bed
btw
sharing out hours is a suckers game
spreading the misery a little thinner ...for now

Reply Tuesday, July 27, 2010 at 04:51 PM

cm said in reply to reason...
You must certainly be aware of the recent controversies over Hartz IV, the precariat, and the currently discussed further "reforms" and tighter paternalism for the "beneficiaries"?

Reply Tuesday, July 27, 2010 at 09:54 AM

mlb said...
"if a skills mismatch is really a problem, then the solution is to ramp up activity until labor shortages raise wages and force employers to reach deeper into the barrel and in turn bring more people into the labor force to gain those missing skills"

It seems highly myopic to simply focus on whether everyone has a job. In your above scenario, I do think you would eventually create jobs. However, in the process, you would make upper corporate & banking employees fabuoulsy wealthy (since it is now abundantly apparent that increases in corporate profits are disproportionately funneled to senior executives). Solving the unemployment problem by exacerbating the wealth gap doesn't seem wise to me. I personally believe that a large part of the national angst (as evidenced by Tea Party movement, low Congress approval, poor Consumer Confidence) stems from the wealth gap.

Why do economists focus on such narrow measures of well-being that also do not take distribution into account?

Reply Tuesday, July 27, 2010 at 07:22 AM

Sasha said in reply to mlb...
What's your suggestion?

I agree that the wealth gap has become obscene and should be dealt with, but most unemployed people are more concerned with getting a job than with whether the company's CEO is making a merely outrageous amount of money or an utterly obscene amount. And it is the unemployed who are suffering the most right now, so I weight their concerns the heaviest.

Reply Tuesday, July 27, 2010 at 07:30 AM

Goldilocksisableachblonde said in reply to Sasha...
I think the distribution issue is central to the unemployment problem when we're stuck the way we are today -- concerns about federal deficits/debt inhibiting any attempts to create jobs.

The top 5% income earners are the deficit-neutral solution to the problem. Currently they capture about $5 trillion of annual incomes , and pay a total effective tax rate of about 30%. Raise that to 50% and you get a trillion bucks annually to either create jobs , or redistribute thru health care subsidies or other means. You also get several times the multiplier effect of that trillion out of the general population than what it's generating now , sitting idly in treasuries no doubt.

Even a raise to a 40% effective rate would generate $0.5 trillion annually , a huge chunk of change. Heck , you could use $100 billion each year to reduce the deficit and still have enough for meaningful stimulus/job creation.

The problems of high consumer debt buildup , low current demand as delevering takes place , and multiple asset bubbles , all relate to the distorted distribution of incomes and wealth in recent decades , and particularly since the Bush tax cuts. It's a problem we should be correcting even if their were no unemployment crisis.

Reply Tuesday, July 27, 2010 at 07:54 AM

Goldilocksisableachblonde said in reply to Goldilocksisableachblonde...
Correction:

I just checked some figures on top 5% incomes. In 2005 it was 'only' about $3 trillion. Figure by now maybe 3.5-4.0 , so adjust calcs. accordingly.

Still big numbers.
.

Reply Tuesday, July 27, 2010 at 08:07 AM

Sasha said in reply to Goldilocksisableachblonde...
"I think the distribution issue is central to the unemployment problem when we're stuck the way we are today"

Quite so.

Reply Tuesday, July 27, 2010 at 09:05 AM

mlb said in reply to Sasha...
A few thoughts:

1) I think you underestimate the demoralizing impact of executive pay on the rank-and-file. It is infuriating to watch the government hand the top 10% of employess a mountain of money so that in their infinite generosity they will hire you at a wage that barely exceeds unemployment benefits. We risk not only economic problems but big social problems if that becomes our policy. A little redistribution now could probably spare the eventuality of voting in a slate of leaders that are prepared to undertake massive redistribution. But none of this fits in economometric models so we ignore it.

2) What makes you think the unemployed aren't concerned about the wealth gap? I think they are very, very concerned.

3) My solution would be to practice a modest amount of redistribution. Implement a wealth tax and raise corporate taxes to fund stimulus.

Reply Tuesday, July 27, 2010 at 11:56 AM

paine said in reply to mlb...
"It seems highly myopic to simply focus on whether everyone has a job"
flap doddle

" the unemployment problem by exacerbating the wealth gap doesn't seem wise to me."
look
if we had full employment and i mean real full
employment that was not subjected to a wage restraining credit policy cycle

the wealth gap would reverse itself as wage share in total domestic income rose over time

if you think wealth needs a peak removal
tax it !!!!

Reply Tuesday, July 27, 2010 at 04:55 PM

Sasha said...
The comments of Yellen and other Fedsters show what a joke the Fed's dual mandate is in practice. The Fed has a banks uber alles policy. And it's the fault of the politicians who make the Fed appointments. The idea that the Fed is non-political is laughable on its face.

Reply Tuesday, July 27, 2010 at 07:27 AM

Andy Harless said...
I don't have a problem with the mismatch story, but you have to view it in context. It's implausible (and not consistent with the data) that the NAIRU would suddenly rise from 5% to 9%. Maybe it has risen from 5% to 5.5%. Maybe 6% within a year or two. If you look at Dave Altig's chart, the number of job openings, after the second quarter jump, is only up to where it was in 2003. The job market in 2003 was weak enough that the Fed was worried about deflation at the time, even though the inflation rate then was higher than it is now. So it's not like this mismatch effect -- assuming it exists -- is enough to nullify the deflationary impact of the recession. It just means that, assuming we recover, we may not be able to reach quite so low an unemployment rate as we did last time around (unless, of course, the Fed allows the unemployment rate to fall below the NAIRU, which in my opinion would be a good idea).

Another thing to note, looking at Dave's chart, is that the jump in job openings has been sudden, coming off an extreme low level. It always takes a while to fill job openings, so when they pop up suddenly like that, it's reasonable to conclude that we're dealing in part with Beveridge curve dynamics rather than a shift in the static Beveridge curve. As those new openings start to be filled, either the unemployment rate will fall or the number of job openings will fall.

Reply Tuesday, July 27, 2010 at 07:49 AM

paine said in reply to Andy Harless...
"I don't have a problem with the mismatch story
... It just means that, assuming we recover, we may not be able to reach quite so low an unemployment rate as we did last time around "

you're model is parked in the middle
of a figmentary fabricated job market
all you need to say --in 2016--
is "oh no we're at 6% unemployment
watch out inflation is about to accelerate
from 1 % to 2%
thru rampant raises hitting
tight job market sub sections

eeeh gads ...wage acceleration"

and i'll still say
as i do now

"put the peddle to the metal
uncle gretel "

Reply Tuesday, July 27, 2010 at 05:01 PM

NKlein1553 said...
From what I understand of it (which is not all that much), the Ball paper on hysteresis is quite good. The topic of hysteresis really deserves more attention than it gets. The notion that there is some long-run "natural," rate of (un)employment that is unobservable always seemed patently ridiculous to me.

I first came into contact with the idea of a Non-Accelerating Inflation Rate of Unemployment (NAIRU) in High School and even then I thought it was a bit of a cop-out. It was just too convenient that NAIRU was always trending upward and estimates seemed to change whenever there was a downturn in the business cycle. According to traditional NAIRU theory, the "natural," (un)employment rate depends on the supply-side features of the labor market such as minimum wages, labor unions, and frictions in matching the unemployed with job vacancies ALONE and macro-economic policy can do NOTHING to affect this natural rate in the long run. Again, this seems to pretty conveniently fit the conservative anti-government agenda. Somehow I find it hard to believe "natural laws," should have an anti-government intervention bias. It also seems to be historically inaccurate. In the roughly three decades of the post-war period demand-side management by the Federal Government resulted in a near continuous full-employment economy. Yet when such management was abandoned over the next thirty years the U.S. economy experienced severe fluctuations in (un)employment levels. Seems suspicious to me.

Looking at historical data, Ball finds that "the relationships among unemployment, the natural rate, and inflation appear to be non-linear..." This contradicts the NAIRU theory's prediction that there is some long-run state of (un)employment that is invariant to aggregate demand. In conclusion, (un)employment levels are not independent of the state of aggregate demand in the short-run. Where we are going is where we have been. Government policies that stimulate aggregate demand can take us to a better place.

Reply Tuesday, July 27, 2010 at 08:01 AM

Sasha said in reply to NKlein1553...
"The topic of hysteresis really deserves more attention than it gets."

Indeed, not just for unemployment but for the related topic of trade. I'm a big promoter of currency revaluation to address our trade imbalance (and our unemployment) but I realize that factories have moved to China that wouldn't have been moved if the dollar hadn't been so overvalued in the first place, and we won't get them back unless the dollar becomes absurdly undervalued. History matters.

I want to scream whenever some idiot dismisses frictions and hysteresis as though they were negligible factors, and it's good enough to pretend that the economy moves in a frictionless and memoryless way to a new equilibrium. My apologies if reality is too complicated for simplistic economic models.

Reply Tuesday, July 27, 2010 at 09:17 AM

paine said in reply to NKlein1553...
"The notion that there is some long-run "natural," rate of (un)employment that is unobservable always seemed patently ridiculous to me. "

join the swat team

Reply Tuesday, July 27, 2010 at 05:02 PM

Fred C. Dobbs said...
'Just How Many Baby Boomers Are There?

(December 2002) "Way too many," say the 30-somethings waiting for a promotion behind layers of middle managers with seniority, or the Gen-Xers wondering when "oldies" radio stations will start playing music from the 1980s. But that answer is not precise enough for demographers.

... There were actually 76 million births in the United States from 1946 to 1964, inclusive, the 19 years usually called the "baby boom." ... Of the 76 million born, about 4 million had died by April 1, 2000 (when Census 2000 was taken), leaving some 72 million survivors.' ...

http://www.prb.org/articles/2002/justhowmanybabyboomersarethere.aspx

(When Boomers get layed off, first they
are unemployed, then they are 'retired'.
That's how 'NAIRU' rates will rise.)

Reply Tuesday, July 27, 2010 at 08:06 AM

Andy Harless said...
On a separate point, I must say that Plosser's comment sounds pretty ridiculous to me. Inflation expectations are too low right now. If buying T-bills would raise them, that would be a good thing. But why would buying T-bills raise inflation expectations, anyhow? The Fed has been using open market operations to implement its policy for decades. Are they suddenly to be regarded as dangerous? T-bills mature in a few months, so buying them cannot reasonably be taken as a signal that the Fed will "buy up the public debt." And even if the Fed did start to "buy up the public debt" by purchasing large quantities of longer-term securities, that cannot reasonably be taken as a sign that the Fed will tolerate inflation. If the Fed ends up owning a lot of bonds, it will not want the value of those bonds to be reduced by inflation (as I argue in my latest blog post).

Reply Tuesday, July 27, 2010 at 08:07 AM

Sasha said in reply to Andy Harless...
But the value of all Fed interventions is supposed to go to the banks. It's ok for them to buy $1.25T in commercial securities that aren't worth a bucket of warm piss, to pay par for them, and to violate the law that says they're only supposed to buy high quality securities, but anything that might ease the burden of the federal deficit and be used for stimulus to reduce unemployment is financially unsound! Sheesh, don't you know anything?

In making the above "joke" I'm really starting to wonder if some of the Fed's reticence is indeed based on them saving up ammo for when another bank bailout is needed. The Fed is in a better position than anyone to know the real situation the banks are in.

Reply Tuesday, July 27, 2010 at 08:54 AM

Steven Hales said...
Mark, you say "Putting my skepticism aside, if a skills mismatch is really a problem, then the solution is to ramp up activity until labor shortages raise wages and force employers to reach deeper into the barrel and in turn bring more people into the labor force to gain those missing skills. Better to do it sooner than later."

Are you now saying that uncertainty about regulation and taxation are holding back decisions or is it just a lack of "animal spirits?"

Reply Tuesday, July 27, 2010 at 09:31 AM

Markel said...
Did you have your glasses on when you randomly chose a sentence to mistranslate as a completely unrelated statement?

Reply Tuesday, July 27, 2010 at 10:45 AM

Fred C. Dobbs said...
The beginnings of globalization were when Corporate
America discovered that skilled labor could be imported
from Europe, where 'socialist society' actually provides
free advanced education to its citizens, providing many
with technical skills of considerable value here.
It followed fairly soon that actually exporting such jobs
could make even more sense, with fewer visa hassles, even
less cost, etc.

Reply Tuesday, July 27, 2010 at 10:55 AM

lark said...
What is laughable, but grimly satisfying, because it confirms all my suspicions, is how the Fed governors poo poo doing anything for the labor market. They care about the financial industry, only. Duh. No dual mandate there. Just good old fashioned financial industry hegemony.

Reply Tuesday, July 27, 2010 at 11:42 AM

Dirk van Dijk said...
Rather than a skills mismatch, there might be much more geographical mismatch than in the past. In past downturns people would move from say michigan to California to get a new job. But if you have been out of work for nine months, odds are you don't have a lot of cash sitting in your bank account any more. If you have to write a check for $30,000 to take the new job and move because your house is underwater, then you can't afford to take the new job.

Reply Tuesday, July 27, 2010 at 12:14 PM

cm said in reply to Dirk van Dijk...
"Rather than a skills mismatch, there might be much more geographical mismatch than in the past."

Bingo. Asia is too far away.

Reply Tuesday, July 27, 2010 at 12:40 PM

cm said in reply to Dirk van Dijk...
But first of all, there is an unemployed-to-jobs mismatch - 5:1.

Surely some jobs cannot be filled for lack of takers, who either can't or won't move on their own, the employer can't or won't pay relocation (or even airfare to bring them in for an interview), or because locals scoff at the offers. That is always happening to some extent and is part of the price/terms discovery process.

In (some parts of?) "tech" and other "career fields", there is a strong preference to hire only people with current or recent "stable" job history ("no job hoppers"), to an extent that the unemployed are mostly excluded. What is apparently lost on employers is that under such circumstances they will have a hard time finding "skill match" candidates without paying a premium. The logic seems to be "there are so many unemployed, the employed must be willing to switch to a lower paid job".

Reply Tuesday, July 27, 2010 at 12:49 PM

Anon said...
http://krugman.blogs.nytimes.com/2010/07/26/mysteries-of-deflation-wonkish/

Here Paul talks about Bounded Rationality. Follow that thread and you are led to a Macro theory that posits a finite set of defined equilibriums for the economy. Hence, we can never find those intermediate states of equilibrium that Keynes thought should exist (with a little help from government).

So, if Congress aims for an intermediate goal of partial recovery via stimulus, Bounded Rationality may not allow us to hold that state. If that is the case, then most stimulus will have multipliers less than one (make things worse, not better). Congress may not be able to find a solution that meets Bounded Rationality until the next election.

I other words, the theory states that Pelosi and Obama cannot find a Bounded Rational solution until a Gingrich look alike presents them with alternative choices.

Reply Tuesday, July 27, 2010 at 12:35 PM