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Whilst it devalues debt, I'm not sure I follow it being populist? Since it results in higher food, energy, rent prices etc and wages do not typically keep pace.

by orbit7 4y ago

dmn322 4y ago
The federal reserve defines the "natural rate of unemployment" as being around 5%. This is just a number they made up that happens to be high enough to continuously erode the power of labor. If unemployment starts to dip below that, they raise the rates as quickly as possible. You can look at historical graphs of fed rate vs unemployment to verify. The rates are jacked up, it causes a recession. Unemployment increases. They reduce the rates, we recover from the recession, then they raise them as quickly as possible to stem "wage inflation" (a.k.a. people making more money) and within several months, the next recession starts. The reason the wages don't rise with the prices is because that 5% are getting hired, and the under-employed are getting more hours, and they jack up the rates as quickly as possible as soon as they sense that wages are rising. However with the increased hours, and fewer under-employed there are people who couldn't afford toilet paper who are finally able to, and that increase the prices. That's not a bad thing. More overtime has a much bigger effect than increased egg prices to most people in low wage jobs. And lower unemployment improves their working conditions as well. It's still essentially a transfer of shares to the broke, even if the wages don't directly increase. Also, a lot of the inflation that was happening this go-around was due to rich people with their PPP loans being able to speculate. Taxing the rich at a more progressive rate as was done in the 50s and 60s would be an alternative way to stem inflation besides using the fed rate. But of course they haven't touched that one in a while. It's not just trump and sanders that are populists looking for lower fed rates from the central banks. In most countries I think you'll find that the populist parties (i.e. the party with most representation among the poorest) tend toward pushing for lower interest rates and more government spending. You'll also find that those representing the rich tend to push for austerity. There's a reason for that. And it's not that the populists are all working together. You can tell they have much more disparate values than the centrist globalists who want high rates.
- JumpCrisscross 4y ago
  > federal reserve defines the "natural rate of unemployment" as being around 5% Source? The natural rate of unemployment, like the neutral interest rate, floats with economic conditions and cannot be directly estimated.
  - dmn322 4y ago
    Right, they use their super scientific model that was definitely arrived at in a very scientific way that just so happens to keep the number hovering at 4 or 5%. There's nothing real stopping us from cruising around with unemployment at 2 or 3%. Other countries do it. It's been like that in the past in the US. And the invention of the concept just so happens to coincide with a complete de-correlation between productivity gains and wage gains. It's also based off of a dogmatic assumption that you can't have low unemployment and low inflation, and a failed economic model. Anyway, as for a source, the 2nd paragraph of the wikipedia article on NAIRU states it's generally 5-6%. You can pretty readily google it and see that it's been between 4-6%. https://www.ft.com/content/facf6989-7cd2-3724-a6d4-dfe7c755175f https://www.ft.com/content/facf6989-7cd2-3724-a6d4-dfe7c7551... "Among a certain set, the big debates in the 1960s were about whether the government should target an unemployment rate of 3 per cent or 5 per cent." Guess which one they picked. Economics, as it intersects with politics, is not a science at all. Not even close. It's the result of people with agendas funding grants with hopes that someone will show the results they want, and then them cherrypicking those results. If you throw enough money into it, you can find a "scientific" justification for anything. The more academic side of it has some merit... but for the most part it gest brushed aside because it's not telling the people making the policy what they want to hear.
- avn2109 4y ago
  Great clear-eyed and cynical take here, I like the spirit of this comment if not all the details/conclusions, but can you provide a link/source for "You can look at historical graphs of fed rate vs unemployment to verify" and the "federal reserve defines the "natural rate of unemployment" as being around 5%" claims? I think both of these are probably roughly true-ish but by brief Googling I couldn't verify either one.
rsync 4y ago
Nit: it devalues fixed rate debt. I’m not sure if poor or “working class” demographics have enough exposure to fixed rate debt to make inflation a net gain. If they are homeowners, likely it is: most people knew better to take out ARMs this time around. Not a homeowner? Tough to conclude that rising rates is a net win here …

Whilst it devalues debt, I'm not sure I follow it being populist? Since it results in higher food, energy, rent prices etc and wages do not typically keep pace.

by orbit7 4y ago

Whilst it devalues debt, I'm not sure I follow it being populist? Since it results in higher food, energy, rent prices etc and wages do not typically keep pace.

dmn322 4y ago

The federal reserve defines the "natural rate of unemployment" as being around 5%. This is just a number they made up that happens to be high enough to continuously erode the power of labor. If unemployment starts to dip below that, they raise the rates as quickly as possible. You can look at historical graphs of fed rate vs unemployment to verify. The rates are jacked up, it causes a recession. Unemployment increases. They reduce the rates, we recover from the recession, then they raise them as quickly as possible to stem "wage inflation" (a.k.a. people making more money) and within several months, the next recession starts. The reason the wages don't rise with the prices is because that 5% are getting hired, and the under-employed are getting more hours, and they jack up the rates as quickly as possible as soon as they sense that wages are rising. However with the increased hours, and fewer under-employed there are people who couldn't afford toilet paper who are finally able to, and that increase the prices. That's not a bad thing. More overtime has a much bigger effect than increased egg prices to most people in low wage jobs. And lower unemployment improves their working conditions as well. It's still essentially a transfer of shares to the broke, even if the wages don't directly increase. Also, a lot of the inflation that was happening this go-around was due to rich people with their PPP loans being able to speculate. Taxing the rich at a more progressive rate as was done in the 50s and 60s would be an alternative way to stem inflation besides using the fed rate. But of course they haven't touched that one in a while. It's not just trump and sanders that are populists looking for lower fed rates from the central banks. In most countries I think you'll find that the populist parties (i.e. the party with most representation among the poorest) tend toward pushing for lower interest rates and more government spending. You'll also find that those representing the rich tend to push for austerity. There's a reason for that. And it's not that the populists are all working together. You can tell they have much more disparate values than the centrist globalists who want high rates.

JumpCrisscross 4y ago
> federal reserve defines the "natural rate of unemployment" as being around 5% Source? The natural rate of unemployment, like the neutral interest rate, floats with economic conditions and cannot be directly estimated.
- dmn322 4y ago
  Right, they use their super scientific model that was definitely arrived at in a very scientific way that just so happens to keep the number hovering at 4 or 5%. There's nothing real stopping us from cruising around with unemployment at 2 or 3%. Other countries do it. It's been like that in the past in the US. And the invention of the concept just so happens to coincide with a complete de-correlation between productivity gains and wage gains. It's also based off of a dogmatic assumption that you can't have low unemployment and low inflation, and a failed economic model. Anyway, as for a source, the 2nd paragraph of the wikipedia article on NAIRU states it's generally 5-6%. You can pretty readily google it and see that it's been between 4-6%. https://www.ft.com/content/facf6989-7cd2-3724-a6d4-dfe7c755175f https://www.ft.com/content/facf6989-7cd2-3724-a6d4-dfe7c7551... "Among a certain set, the big debates in the 1960s were about whether the government should target an unemployment rate of 3 per cent or 5 per cent." Guess which one they picked. Economics, as it intersects with politics, is not a science at all. Not even close. It's the result of people with agendas funding grants with hopes that someone will show the results they want, and then them cherrypicking those results. If you throw enough money into it, you can find a "scientific" justification for anything. The more academic side of it has some merit... but for the most part it gest brushed aside because it's not telling the people making the policy what they want to hear.
avn2109 4y ago
Great clear-eyed and cynical take here, I like the spirit of this comment if not all the details/conclusions, but can you provide a link/source for "You can look at historical graphs of fed rate vs unemployment to verify" and the "federal reserve defines the "natural rate of unemployment" as being around 5%" claims? I think both of these are probably roughly true-ish but by brief Googling I couldn't verify either one.

rsync 4y ago

Nit: it devalues fixed rate debt. I’m not sure if poor or “working class” demographics have enough exposure to fixed rate debt to make inflation a net gain. If they are homeowners, likely it is: most people knew better to take out ARMs this time around. Not a homeowner? Tough to conclude that rising rates is a net win here …