I think there’s a lot of sense in Jared Bernstein’s analysis of the latest unemployment situation report which lowered the unemployment rate to 5.1%. Here’s the peroration:
We’re clearly not at full employment so, especially given the absence of price and wage pressures, the correct answer is to hold for now. Either 5.1% is an inaccurate estimate of the “natural rateâ€â€”which is actually lower than that—or the reported jobless rate is biased down by some of the factors noted above.
Either way, for a data-driven Fed, it’s the same answer. For a Fed driven by other stuff—emotions, ennui, nervousness (“let’s just raise the damn thing already and break the suspense!â€), nightmares from the late 1970s, or whatever…well, that’s a different story.
However, I wish Dr. Bernstein (his PhD is in Social Welfare) would keep in mind that it’s not as though our present interest rates aren’t harming anyone. The ultra-low interest rates are killing the insurance industry and pension funds. Those are already causing political upheaval and taxes to soar. Here in Chicago they’re talking about boosting real estate taxes by the largest amount in city history to a truly confiscatory level to pay the pensions of Chicago’s retired public employees. Higher real estate taxes will put some of the poorest Chicagoans out on the street. If the insurance industry collapses it will create substantial economic and social dislocation.
Under the Taylor Rule interest rates should already have been raised. I just don’t know whom to believe.
I ran the numbers yesterday. If we had the same participation rate as in December 2007, the U-3 rate would be 9%. And that’s the lowest it’s been in years. Staggering what’s happened.
And before steve starts in with the demographics argument, that explains, at best, a third of the drop. Less than that given that older folks are the only groups that are participating at a higher rate, as they refuse to drop out of the workforce for a variety of reasons. It’s harder to break out the participation rates by age (or at least it used to be), but the most painful drop has been in the 25-54 range, as those are the prime working years. (The biggest actual drop has been in ages groups below that, but frankly I think it’s worse for a 35 year old to drop out than a 16 year old.)
Oh well, I guess 9% is 5.1% just like Rachel is black, Bruce is a woman, and Jeb is a Mexican.
That 9%, BTW, would match the PEAK of the unemployment rate during the OPEC crisis recession from the 1970s, and is only beat by the back half of the Double Dip recession from the 1980s. And the current crisis, of course.
Among them being they don’t have enough savings to fall back on, what savings they have aren’t earning anything, their houses still haven’t regained their peak value (and may never), and it looks like Social Security won’t pay as much as they’ve been counting on.
Additionally, in many cases they’re supporting their grown children and grandchildren. Good times.
A 0.25% increase in the interest rate is nothing, and it is not the end of the world. The only people who would be concerned are people who are borrowing recklessly, but of course, this could not possibly be anybody in the private business sector.
Reckless borrowing would presuppose reckless lending in a sane world, but of course, professional lenders are mere babes in the woods.
The economy is doing so well but a lousy 0.25% interest rate hike is going to start the next Great Depression.
Odd. You admit that demographics make up part of that number, then ignore it to still make it 9%. Anyway, it would 9% if we were as old as we were in 2007 AND we had a housing bubble. Unfortunately we got older, and we are not in a housing bubble. Since the 80s we have had full employment only when we had massive borrowing and/or we were in a bubble.
Steve
Steve, about a year ago I looked at the full time employment numbers for people aged 25-54 in December 2007 vs December 2013. I found that FT employment in that group had decreased by ~3.5%. No demographic shift involved in that number. I seem to recall you waived that off too. Nothing can cast doubt on the utter magnificence of THE ONE, can it?
(Its really easy to tell everyone else to suck it up when you’re sucking endlessly at the government tit, I suppose.)