Andy Harless

The bad part of the U.S. employment situation, as we well know, are the droves of unemployed looking for jobs in a market where almost no one's hiring. The good part is that those that have jobs continue to enjoy pay increases almost as big as during the late 1990s boom.

I wouldn't break out the champagne and noisemakers just yet. The data from the surveys that the author cites are seasonally adjusted, and the pay data from employment report are notoriously noisy and subject to composition effects (e.g. if most people losing jobs are low-wage workers, then average wages appear to go up).
Looking at the seasonally unadjusted data from the Employment Cost Index (ECI, to which the author links but apparently refers only to the adjusted data), the change in the latest quarter was the same as in the previous quarter. The first quarter looked particularly bad because there was a seasonal expectation of wage growth; the second quarter didn't look quite as bad, because there was less seasonal expectation, not because wage growth actually picked up. In strange times like the present, I'm particularly distrustful of seasonally adjusted data. The 12-month rate of wage growth from the ECI is continuing to decline. Until I see a more substantial trend reversal, I would say that wages are still a problem.

Job Losses Are Not the Problem

What is the “true” unemployment rate? (It’s a bit of a tangent, but since a few people have mentioned it, I thought I would address this.) I don’t think there is any “true” unemployment rate. There are a number of different possible ways of defining “unemployment.” One is not more “true” than another. Having an argument about what is the “true” unemployment rate is like having an argument about whether soccer or American football is the “true” football. You could have a reasonable argument about which is a better game, and similarly, you could have a reasonable argument about which is a more useful definition for unemployment, but it doesn’t mean that people who define it differently are lying.

Unemployment by the broadest definition has always been higher than the unemployment by the “official” definition. The difference is larger now than in the past, mainly because an unusually large number of people are working part-time that would prefer to be working full-time. These people don’t count as unemployed under the official definition, because they actually are employed, just not as employed as they want to be. So it is probably true that the official unemployment rate is giving an overly optimistic reading, compared to what a similar reading would have meant 25 years ago. This is not the result of some kind of conspiracy; it’s just that times change, and some measures don’t have quite the same implications as they did in the past.

I use the official definition for convenience, so that I won’t have to explain why I’m using a different definition. I don’t think it would affect my argument much overall if I took into account the “underemployed.” On the one hand, there are jobs that switched from full-time to part-time, and these might be considered “shadow job losses” that I’m ignoring, so maybe job losses are more of a problem than I’ve said. On the other hand, a significant fraction of the new jobs being created are probably part-time jobs, so arguably they shouldn’t be included in job creation: in that respect I’m understating my case that lack of job creation is the main problem.

A double-dip recession? "Simply out of the question," says Lakshman Achuthan of the Economic Cycle Research Institute, whose Weekly Leading Index was on pace for its highest annualized growth rate in 38 years. Achuthan said the recovery is moving at the strongest pace the U.S. has seen since the early '80s.

In the story he refers specifically to a double dip in the 4th quarter. I agree that is highly unlikely, with the stimulus still revving up and the inventory cycle coming off a bottom. But a second dip in 2010 or 2011 seems fairly likely to me. Where is the continuing demand going to come from once the stimulus peaks out and the inventory cycle stabilizes?

Job Losses Are Not the Problem

Jeff Nielson, I'm guessing that your "weekly layoffs" statistic is from initial unemployment claims. This is not the same thing as job destruction, because, among other things, (1) some of the jobs are eliminated by attrition and buyouts rather than layoffs, (2) some people who lose jobs are not eligible for unemployment insurance; and (3) some people who leave jobs don't become unemployed but choose alternative activities such as school or family. The unemployment claims data are not directly comparable to the payroll employment data, so you can't just subtract one from the other to get the number of new jobs being created. The Business Employment Dynamics (BDM) data, to which I link in the article, is a single data set with a consistent methodology.

However, I never did "claim that unemployment is 'not a problem'." Unemployment is certainly a problem; it's just that the reason there is so much unemployment (I still assert) is primarily the slow rate of new job creation, not the rate at which jobs are being lost.

I grant you that the subsequent quarters of BDM data (since the beginning of this year) will likely show more job destruction than the data currently available, but I expect they will also so show less job creation. Perhaps they will indicate that I'm overstating my case in saying that "job losses are not the problem," but I am fairly confident that they will support my view that job losses are not the biggest problem.

While stocks are pricing in 4% GDP growth for 2010, corporate bonds and Treasury markets are betting 2% growth is more likely. David Rosenberg sides with the latter, and cautions that even if stock markets are right, it's already priced in.

I doubt stocks are really pricing in 4% growth. What they're pricing in, I would suggest, is a lack of competing investments. 2% growth means easy money for some time to come, which means continued low yields on high-quality bonds. Add to that the perceived risk of inflation (which would be good for stocks at least until people realize it's happening), and there is a strong case for buying stocks even if their returns are expected to be meager by historical standards.

Put another way, in a macroeconomic environment where desired savings exceeds desired investment at all positive real interest rates, the equilibrium real interest rate is zero (or less than zero), which makes the value of even a small expected real return infinite. It's more complicated, of course, when you consider risk and duration issues. ("Time and chance happeneth to them all.") But it's fair to say that we're in an environment where historical yardsticks for expected equity returns need at least to be reinterpreted.

Krugman's Wrong: U.S. Credit Problems Aren't Similar to Ireland's

Jasper, the threat of a depreciating currency would certainly drive up the interest rate demanded by private sector creditors. But under a floating exchange rate system, there's no such thing as the threat of a depreciating currency, because the depreciation will happen as soon as people expect it to happen. It never has a chance to become a threat.

In this case, though, I don't think the behavior of private sector creditors even matters, because the creditors will mostly be sovereigns who have other objectives besides maximizing their investment returns.

Krugman's Wrong: U.S. Credit Problems Aren't Similar to Ireland's

hanumanhojo, It's not a matter of black and white, self-contained or not self-contained. There are degrees of self-sufficiency. The US is not entirely self-sufficient, but imports are only about 15% of GDP, so even if import prices rise dramatically, it would not have a huge impact on the domestic inflation rate. (See my earlier post to which I linked.) And the dollar is never going to become "funny money" as long as the prices of our domestic product are kept under control. (My expectation is that the weak economy will keep them under control for quite a while.)

Moreover, as long as it's physically possible for them to produce oil at a rate that will satisfy the demand, it won't be in the interests of oil producers to charge prices high enough to kill the US economy. (I think the 2008 experience will be pretty fresh in their minds.) We may (though, given the weak world economy, I doubt it will happen soon) get to a point where oil production capacity is strained, but that is a completely different problem than what Ireland is facing today, and it's not just a US problem.

Krugman's Wrong: U.S. Credit Problems Aren't Similar to Ireland's

Just for the record, I didn't come up with the title for this article ;)

Visualizing Job Losses and Gains in U.S.

This is cool. I hadn't realized how much regional variation there has been in this recession. If you look at February 2009, it looks like the region between the Mississippi and the Rockies is not experiencing a recession. The 12-month comparison is probably a bit misleading, though. I imagine a lot of oil patch jobs were created between February and July of 2008, and I bet the region has lost a lot of jobs subsequently. I expect that by July 2009 almost the whole country will be red.

Money Hoarding Creates Deflation Risks

For people on fixed incomes, the consequences depend on just how many blue chips you think the Fed needs to throw into the pot. Some similar proposals have come from economists who think it would be sufficient to announce a target based on, say, an average 3% annual inflation rate over 5 years. In that case, it’s really not much of a problem for people on fixed incomes: it’s the same thing they’ve been dealing with already for the past 50 years. (Note that a 3% average probably means something like 1% for the first two-and-a-half years and then 5% for the rest, but those balance out for the fixed income recipients.)

Personally I don’t think 3% is enough. But I wouldn’t make it too extreme in the other direction either. I think everyone will agree that, say, average 10% annual inflation over 5 years, is unnecessarily high, as well as too big a hardship for people on fixed incomes.

But somewhere in the middle there’s a place where people on fixed incomes ought to take one for the team. We can have a depression, which would have – is already having – disastrous consequences for a lot of people; or we can balloon the national debt like crazy, which won’t be good for future fixed income recipients and which at some point starts to pose serious risks to stability, as well as complicating future problems with entitlements; or we can choose a policy that balances the pain, in which case people on fixed incomes are going to have to take some of it.

To Monetize or Not to Monetize: Who Cares?

Long John Silver, the reason it doesn't result in inflation is that nobody spends the money. The money goes into "circulation" in the sense that, whoever had the T-bills before now has the newly created money (or if you want to think of it as the Fed buying directly from the Treasury, then whoever the Treasury pays or buys from now has newly created money, which otherwise would have had to be withdrawn from elsewhere in the economy via borrowing). But I put "circulation" in quotes for a reason: the money doesn't literally circulate; it just gets held as an asset by some person or institution. We can surmise that they are not going to spend it, based on the fact that they were already holding T-bills with zero yield. They could easily have converted those to cash and spent the cash, but they chose not to. Since cash is more or less the same as T-bills now (both yielding zero, both safe, both highly liquid), if they were holding the T-bills without spending, we can surmise that they will hold the cash without spending.

In Case of Emergency, Break Glass

milkchaser, you may have read Bastiat more closely than I have, but my understanding is that he implies that it is almost never the case. The overall argument of his essay seems to be that, in quite a wide range of circumstances, it is simply wrong to cite employment creation as an advantage for something being proposed. He doesn’t say, “When people reason like this, they are sometimes right but often wrong.” He says, “When people reason like this, they are wrong.”

It seems to me that, a few years ago, just about everyone in the US was “among those who never lack for money.” A decade or two ago, when I had few net assets and was barely making ends meet in terms of overall cash flow, I still had no trouble getting my hands on money when I wanted it. The situation may be different today for those without significant savings, given the problems with credit markets, but I would venture to say that even now, a great many Americans who are far from rich are nonetheless able to find money without any difficulty.