4 ms·

Paraphrasing article: US monetary policy has failed consistently because it is predicated on a rise in inflation caused by decreases in the unemployment rate, b

Paraphrasing article: US monetary policy has failed consistently because it is predicated on a rise in inflation caused by decreases in the unemployment rate, but this hasn't occurred - probably because the unemployment rate (or how its measured) doesn't correctly capture the change in spending power in the labour market. /Paraphrasing It's kinda the same in my country - for the statistical purposes of the official Statistics Department unemployment rate, you are no longer unemployed if you a) work 1 hour a week or b) have actively stopped seeking employment. I guess it's designed that way according to international best practice or something, but it means we have rather odd situations where the unemployment rate decreases, but the amount of people seeking income support increases.

qppo 6y ago
US monetary policy has not "failed" pretty much since Nixon. Janet Yellen's tenure is really the only blemish, but only because she didn't raise rates when we could have. I think you're confusing the "Dual Mandate" of the Fed to minimize inflation and maximize employment with some misplaced belief in economics. Every American economist of the last century has realized these are often competing ideals. It's their raison d'etre, without it the Fed doesn't exist.
- 0xB31B1B 6y ago
  Yea, the point is that all the evidence we have shows the connection between inflation and employment has weakened since the 70s and is pretty tenuous right now. It theoretically exists, but its unclear what is going on in a world of both increasing automation and decreasing or stagnant productivity per worker.
- freeone3000 6y ago
  And yet somehow they have in fact kept inflation at less than 2% while bringing unemployment to near zero (well, pre-pandemic, as the rest of the article, this year's numbers are screwy). That's weird, right? What's up with that?
  - qppo 6y ago
    That has more to do with globalization and how we measure inflation and unemployment than monetary policy. If you look at markets that aren't influenced as highly by global trade (like housing, healthcare, and education) they are greatly inflated.
- EdwardDiego 6y ago
  I was trying to paraphrase the original article, so hold no strong opinion on this as it's largely outside my sphere. :)
KMag 6y ago
There isn't one unemployment rate in the U.S., there are actually 6. What the news usually calls the unemployment rate is the U3 rate. [0] You're suggesting the U6 is a better measure, which makes sense to me, but I'm not an economist. What I've read recently though, is that workers' expectations of inflation also play a big role in inflation. [1] The idea is that low unemployment means workers are confident and have leverage to demand pay raises that meet their inflation expectations. We may have broken inflation expectations. The Brazilians did an amazing psychological hack with the creation of the Real to fix their inflation expectations to get their inflation in check. (Though, they had the opposite problem, workers expecting very high inflation.) [0] https://www.investopedia.com/articles/investing/080415/true-unemployment-rate-u6-vs-u3.asp https://www.investopedia.com/articles/investing/080415/true-... [1] https://www.economist.com/schools-brief/2020/08/22/why-does-low-unemployment-no-longer-lift-inflation https://www.economist.com/schools-brief/2020/08/22/why-does-...
- EdwardDiego 6y ago
  Cheers, I don't know much at all about economics, especially not US economics, was just trying to paraphrase the article for the person I replied to, but cheers for the link, always good to learn something new :)
ashtonkem 6y ago
Here in the US we have different unemployment numbers to track different kinds of unemployment. The most common number is the U3, which measures all the people who want to get back to work. That number is a good way to track all the labor that could easily be pulled into the market if the right jobs were available. Shorter term shocks might move this number around, as people get laid off and find new employment. There is also the U6 rate, which includes a lot of people that have fallen out of the market, and those who have taken up part time work because they couldn’t find full time work. You have to look at both to get a good picture of the employment situation. There are a lot of cases where the U3 might drop, a good thing in normal times, because the economy is so bad that a lot of workers have either given up on finding work, or have taken up part time work since they can’t find a full time job. Both rates are useful, but focusing on only one will certainly lead you astray.

qppo 6y ago

US monetary policy has not "failed" pretty much since Nixon. Janet Yellen's tenure is really the only blemish, but only because she didn't raise rates when we could have. I think you're confusing the "Dual Mandate" of the Fed to minimize inflation and maximize employment with some misplaced belief in economics. Every American economist of the last century has realized these are often competing ideals. It's their raison d'etre, without it the Fed doesn't exist.

0xB31B1B 6y ago
Yea, the point is that all the evidence we have shows the connection between inflation and employment has weakened since the 70s and is pretty tenuous right now. It theoretically exists, but its unclear what is going on in a world of both increasing automation and decreasing or stagnant productivity per worker.
freeone3000 6y ago
And yet somehow they have in fact kept inflation at less than 2% while bringing unemployment to near zero (well, pre-pandemic, as the rest of the article, this year's numbers are screwy). That's weird, right? What's up with that?
- qppo 6y ago
  That has more to do with globalization and how we measure inflation and unemployment than monetary policy. If you look at markets that aren't influenced as highly by global trade (like housing, healthcare, and education) they are greatly inflated.
EdwardDiego 6y ago
I was trying to paraphrase the original article, so hold no strong opinion on this as it's largely outside my sphere. :)

KMag 6y ago

There isn't one unemployment rate in the U.S., there are actually 6. What the news usually calls the unemployment rate is the U3 rate. [0] You're suggesting the U6 is a better measure, which makes sense to me, but I'm not an economist. What I've read recently though, is that workers' expectations of inflation also play a big role in inflation. [1] The idea is that low unemployment means workers are confident and have leverage to demand pay raises that meet their inflation expectations. We may have broken inflation expectations. The Brazilians did an amazing psychological hack with the creation of the Real to fix their inflation expectations to get their inflation in check. (Though, they had the opposite problem, workers expecting very high inflation.) [0] https://www.investopedia.com/articles/investing/080415/true-unemployment-rate-u6-vs-u3.asp https://www.investopedia.com/articles/investing/080415/true-... [1] https://www.economist.com/schools-brief/2020/08/22/why-does-low-unemployment-no-longer-lift-inflation https://www.economist.com/schools-brief/2020/08/22/why-does-...

EdwardDiego 6y ago
Cheers, I don't know much at all about economics, especially not US economics, was just trying to paraphrase the article for the person I replied to, but cheers for the link, always good to learn something new :)

ashtonkem 6y ago

Here in the US we have different unemployment numbers to track different kinds of unemployment. The most common number is the U3, which measures all the people who want to get back to work. That number is a good way to track all the labor that could easily be pulled into the market if the right jobs were available. Shorter term shocks might move this number around, as people get laid off and find new employment. There is also the U6 rate, which includes a lot of people that have fallen out of the market, and those who have taken up part time work because they couldn’t find full time work. You have to look at both to get a good picture of the employment situation. There are a lot of cases where the U3 might drop, a good thing in normal times, because the economy is so bad that a lot of workers have either given up on finding work, or have taken up part time work since they can’t find a full time job. Both rates are useful, but focusing on only one will certainly lead you astray.