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> Inflation has been subdued for years and has recently declined further The reality is the free ride on inflation can't last forever and if the Fed fails to p

> Inflation has been subdued for years and has recently declined further The reality is the free ride on inflation can't last forever and if the Fed fails to predict the future it can get pretty grim. Similarly, there are a number of bubble like portents such as resource prices that are showing an excess of capital is being malinvested. Its just one of those situations where you have to hope the professionals predict the future correctly. > Labor participation among prime age adults remains lower than before the recession. https://research.stlouisfed.org/fred2/series/LNS11300060 https://research.stlouisfed.org/fred2/series/LNS11300060 Its pretty clear the 90s it leveled off and now its dropping. It peaked 15+ years ago. It has nothing to do with the recession but rather, frankly. I know it seems that way from the media but the fact is it leveled off ~25 years ago and began to drop ~15 years ago. The difference b/t the highest point and 1990 is very similar to normal noise.

clock_tower 11y ago
From that chart and from what you're saying, it sounds like the labor-force-participation element isn't necessarily bad -- although we certainly do have malaise from other sources. (In particular, there's how the dot-com bubble's about to burst again, for the second time in a generation. "Learned nothing and forgotten nothing," that's us...)
rjpower9000 11y ago
>The reality is the free ride on inflation can't last forever and if the Fed fails to predict the future it can get pretty grim. >Similarly, there are a number of bubble like portents such as resource prices that are showing an excess of capital is being malinvested. The thing is it's really easy for the Fed to slow the economy down, it's a lot harder to get it started again. So it makes sense for them to wait until they actually start seeing inflation before they decide to raise rates. It's hard to say whether the mal-investment is due to the current monetary policy or the lack of better investment options in a bad economy. FWIW, the participation rate for the wider population shows a more significant drop around 2009: https://research.stlouisfed.org/fred2/series/CIVPART https://research.stlouisfed.org/fred2/series/CIVPART This might be due to early retirement, or more young people not finding work. I don't research this data much.
- fweespeech 11y ago
  > It's hard to say whether the mal-investment is due to the current monetary policy or the lack of better investment options in a bad economy. Its probably both, honestly.
AnimalMuppet 11y ago
> > Inflation has been subdued for years and has recently declined further > The reality is the free ride on inflation can't last forever and if the Fed fails to predict the future it can get pretty grim. The Fed didn't actually care about inflation. It cared about avoiding a depression. And it did pretty well after 1940. The recessions were becoming progressively less severe, IIRC. Unfortunately, inflation was growing. In 1981, Reagan and/or events forced the Fed to get serious about inflation, and the result was the double-dip recession of 1981/82. Since then, inflation has been steadily declining (that is, the peak in each cycle is lower than the peak in the previous cycle). However, recessions have been growing more and more severe. Maybe there's some kind of a restriction on economic management/control: You can minimize inflation, or recession severity, but not both?
- fweespeech 11y ago
  With monetary policy, yes. Fiscal policy was supposed to be the other component which is what Bernake kept saying when he was chairman when talking to Congress...the Fed really only has one knob it can turn in a very, very extensive machine. Federal debt via stimulus is far lower risk than the Fed attempting to control recession severity.

clock_tower 11y ago

From that chart and from what you're saying, it sounds like the labor-force-participation element isn't necessarily bad -- although we certainly do have malaise from other sources. (In particular, there's how the dot-com bubble's about to burst again, for the second time in a generation. "Learned nothing and forgotten nothing," that's us...)

rjpower9000 11y ago

>The reality is the free ride on inflation can't last forever and if the Fed fails to predict the future it can get pretty grim. >Similarly, there are a number of bubble like portents such as resource prices that are showing an excess of capital is being malinvested. The thing is it's really easy for the Fed to slow the economy down, it's a lot harder to get it started again. So it makes sense for them to wait until they actually start seeing inflation before they decide to raise rates. It's hard to say whether the mal-investment is due to the current monetary policy or the lack of better investment options in a bad economy. FWIW, the participation rate for the wider population shows a more significant drop around 2009: https://research.stlouisfed.org/fred2/series/CIVPART https://research.stlouisfed.org/fred2/series/CIVPART This might be due to early retirement, or more young people not finding work. I don't research this data much.

fweespeech 11y ago
> It's hard to say whether the mal-investment is due to the current monetary policy or the lack of better investment options in a bad economy. Its probably both, honestly.

AnimalMuppet 11y ago

> > Inflation has been subdued for years and has recently declined further > The reality is the free ride on inflation can't last forever and if the Fed fails to predict the future it can get pretty grim. The Fed didn't actually care about inflation. It cared about avoiding a depression. And it did pretty well after 1940. The recessions were becoming progressively less severe, IIRC. Unfortunately, inflation was growing. In 1981, Reagan and/or events forced the Fed to get serious about inflation, and the result was the double-dip recession of 1981/82. Since then, inflation has been steadily declining (that is, the peak in each cycle is lower than the peak in the previous cycle). However, recessions have been growing more and more severe. Maybe there's some kind of a restriction on economic management/control: You can minimize inflation, or recession severity, but not both?

fweespeech 11y ago
With monetary policy, yes. Fiscal policy was supposed to be the other component which is what Bernake kept saying when he was chairman when talking to Congress...the Fed really only has one knob it can turn in a very, very extensive machine. Federal debt via stimulus is far lower risk than the Fed attempting to control recession severity.