This article is part of TPM Cafe, TPM’s home for opinion and news analysis.
This is a companion discussion topic for the original entry at https://talkingpointsmemo.com/?p=1234845
This is a companion discussion topic for the original entry at https://talkingpointsmemo.com/?p=1234845
Thank you. This is spot on.
So what has he done about it ? Except cut taxes for the rich . Oh, he helped keep rates down. Even a blind squirrel finds a nut. Wasn’t Trump bragging about how great the economy was doing?
And yet the US and Bangladesh have about the same unemployment rates – 4%. The problem is that the law on the Federal Reserve mandates “optimal employment”, the meaning of which nobody has figured out. Clearly underemployment, and unstable employment, are not optimal. Any Uber driver will tell you that.
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Economics have argued for a long time about the maximum sustainable employment rate (or minimum unemployment), but there are multiple issues being jammed together here. There’s a minimum sustainable unemployment rate simply because people switch jobs, people get fired, companies go out of business or close a particular location. So some people will always be out of work because of those things unless the economy is completely static. Then there’s the unemployment rate below which (supposedly) wages rise precipitously because employers start bidding wars for one another’s workers. But so many companies have (tacit or otherwise) non-poaching agreements, and so many sectors have “standard” wages that the effect there isn’t as significant as it might have been. And with relatively stagnant economic growth, many employers seem content not being able to hire workers at a premium to prevailing wages, because their competitors aren’t moving that way either.
Remember that the BLS unemployment reports were originally designed to guide companies deciding where to locate new facilities during the depression and then during ww2; the use as an economic barometer came later.
The fed, I think, has been dishonest about this. They were under enormous pressure to get away from the zero lower bound on rates, and completely ignore their own inflation-target data to get there. (There’s also a serious risk with low general rates, because the incentive to take on more risk for higher rates of return is really strong, and leads to really stupid behavior.)
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I wonder how much of a drag on wage growth that the ‘gig economy’ as well as the continued decline in the retail sector contribute to the stagnation of wage growth.
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This a false issues. As long as the Economics use the same data in the same way, over time the information is useful and states the trend of the data as analysed. If the data does not show what AOC and Trump want, then the data that they want should be used in a separate analysis that will show what they want, but to say that a specific analysis is wrong is a false issue, it is a analysis that just don’t say what they want then create another test that will.
Trump doesn’t really care a flip about the unemployed or underemployed. He wants another rate cut to fuel the stock market and benefit the people like him in the investor class, that is, the ones with more money than brains. The wealthy among his base. He has recently said that a rate cut would make the stock market take off ‘like a rocket’. That to him is what a good economy is. In reality, the stock market is more like an over-inflated balloon right now, without further rate cuts. It doesn’t need more people buying stocks with borrowed money just because that money has gotten cheaper. The author calls Trump clever for thinking that rates should be cut. Really? That is about the only thing Trump’s reptile brain instinctively understands as a lifelong debtor and player in real estate. Low rates = cheap money. This is not the Wharton education paying off.
Also, the US is attractive for people who want bonds. In Europe, rates have already been cut so they are even negative in some cases. The US offers a safe haven right now when people who fear a bubble in the markets need it.
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This article gives tRump too much credit. The author seems to think tRump has some kind of intuition in knowing and empathizing with the forgotten worker in this country over the plight of the economic conditions caused by the great recession. All bullshit. The only reason tRump is interested in having the Fed lower interest rates is purely selfish greed as it is with every other decision he makes when it comes to money. Its all about him. Nice try though. The motivation behind tRump has nothing to do with deep understanding of macro-economics or concern for the poor schlubs he’s currently sticking it to with his crazy tariff wars. It has everything to do with his own interest payments on loans to pay off his own debts however.
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But on jobs, sub-normal prosperity and interest rates he has been vindicated.
“sub-normal prosperity” is a vague term having no real meaning and should not even be used to describe today’s junk profit economy. We had 8 years of ZIRP (zero interest rate policy) under Obama. It was necessary to stimulate growth. Since then rates have ‘climbed’ to around 2%. And Corporate America still bitches. Trump tax cut giveaway last year resulted in ‘effective’ corporate tax rates in the low teens. And Corporate America still bitches - “35% highest in world”. Point being if you can’t make a profit while borrowing money at near 0% you should be out of business. But they’re not. Look at all the corporations recording record profits.
Wages and revenue are what matters more than unemployment numbers. Low rates and low inflation are a success for American businesses but an abject failure for the American worker.
Just wait two weeks when the first read on 2nd qtr GDP comes out. Estimates are barely over 1%. And then Trump will demand lower rates again. This will not end well. Hopefully Congress will have the guts to not bail out this false profit economy when the business world comes begging next time. And fuck TBTF!
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I agree completely with those who have said the author gives #45 far too much credit for having a good reason to cut rates. I doubt that thoughts of underemployment have ever entered the Dotard’s propecia-addled brain. I think he is terrified of an economic slowdown, let alone a recession, because it will torpedo his reelection prospects and expose the absurdity of his claim that he has brought us the “best economy in the history of the world.” He thinks cutting interest rates will heat up the economy and raise the stock market to new heights, and that’s as far as he can “analyze” it. He cares only about the most superficial indicators of growth, and gives not a whit whether working class people are suffering as long as they buy what he is selling.
And by the way, the studies of why people voted for #45 have shown that they are not the working people who are struggling economically the most – among white voters without a college education, #45’s core constituency, they tend to be the better-off. The best predictors of whether a person is likely to support #45 are being white, lacking a college degree and having racist or xenophobic attitudes,
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What will happen in the next downturn when something needs to be done to soften the blow? If rates are already low, rate cuts will not be an option.
Also, stocks are high now because there are no other alternatives for investors. If a downturn happens while everyone is over-invested in stocks, we are back in 1929.
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Suggesting that Trump is onto something is risky business. Clearly he sensed a vein of anger and grievance in the country tying it successfully to immigration and the loss of racial dominance. We should note that he also promised to recreate dying industries and jobs as a solution. We should not over credit Trump with anything but a narcissist’s ability to sense weakness. There is a subtle alliance the author, and Trump, make between full employment and wage growth assuming that the latter is dependent on the former. While it should be the case that wages rise as labor becomes more scarce that will be a transient solution that will release if and when slack appears in the labor market. The other variable which is more significant is rising productivity which tends to align with rising skills. It is interesting that Trump and the author focus only on those labor markets that appear to respond not to skills but to availability of labor, low skilled labor. It is the case that ups killing workers to enter higher productivity work has lagged. It is interesting that a couple of the states (Kentucky and Tennessee) Trump won on the argument the author suggests–tighter labor markets raise wages–have instituted robust training and upskilling programs to address the productivity issue.
The need to blame others is a very good observation. I wonder how much of that was made worse by the fact that there was never an investigation into the banks that led to the crisis. That, to me, was one of the two failures of the Obama administration.
Combine that refusal to investigate with the campaign stories of Hillary’s speeches at Goldman Sachs and it becomes very easy to paint the Democrats as no longer the party of the people, but that of the bankers and elites. Not true, but some narratives are easier to write (with some assistance from Bernie).
The other big failure was not investigating the WMD lies. This is another topic entirely so I won’t rant on now. But, I think it would have weakened the GOP substantially.
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This is all fine and dandy. To be honest I am not even sure what they are saying, but to me it is not how many people are working, but what they are working at that drives wages. Flipping burgers is not going drive up wages. Lowering interest rates will not drive up wages, if those tax cuts have done nothing then giving those people my money for free is going for nothing.
Face it folks the problem is the money is in too few hands.
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The author gives Trump way too much credit for sensing rates were too high. On the campaign trail…Trump railed constantly that the Fed was artificially maintaining low rates to help Obama.
Once elected Trump demanded lower rates to keep the party going. His opinion and policies change with the Wind.
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Completely agree and I think it’s telling the article doesn’t address that point. Interest rates are already half of what they were in 2008 when the last crisis hit, there’s already very little room to lower if and when we have a recession and if they lower rates before that even less room. Another issue no one brings up is the effect all this has on retirees, whose numbers are growing and continue to grow. We have had over ten years of very low interest rates which hurts people living on fixed incomes.
Thanks to falling a falling birth rate and decreased average life spans for some groups, the US dependency ratio is pretty low for an advanced economy, just over 50. China’s even lower age dependency ratio of around 40 is set to skyrocket. Unfortunately, we are also entering the AI age. My wife has an AI and as a team they have put roughly 50 other back office people in various companies out of a job. And it’s her employment that keeps the profits. An economy has to do more than create jobs the AI still has problems with.
I strongly agree with your [liquidity trap] observation and find it a bit odd that it gets so little discussion. (https://novaworkboard.wordpress.com/2017/12/04/liquidity-trap-monetary-policy-and-fiscal-policy/). Not long ago both the Fed and ECB were moving ahead on quantitative tightening to finally create a bit of room to maneuver in the next recession, but it’s like pedal-to-the-metal easing these days.
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Totally agree. This article has merit, but any implication that Trump has an actual strategy or plan is wishful thinking. He is a knee-jerk guy, he wants to keep the ‘expansion’ going under his watch so he can take credit for it. NO long term thinking whatsoever, hence the willingness to blow up the deficit.
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As primatologists point out, Trump is an alpha male bumping along from one confrontation to the next. No morality system or goals beyond the present opportunity or present fight. All the males around him are supposed to be submissive betas, which suits people like Miller and Pence just fine. After Mulvaney’s shivving of Acosta, you have to wonder if there might also be gamma males. In any case, lots of chest-beating. The best chest-beating. So much chest-beating. The best leader in history, that’s what I hear people are saying.
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