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The Fed plans to sharply boost unemployment

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Re: The Fed plans to sharply boost unemployment

#171

Post by lamontcg »

thunky wrote: post #168
lamontcg wrote: post #165

Earlier quoted context omitted.

I don't know what made you think I suggested that this would be painless FX rates are also the result of twisting the knob, not the cause. And there's a lot of other factors in inflation, but the wage inflation is the one that has the Fed worried. The Fed knows everything else is cyclical and they weren't worried in the commodities boom and high oil prices in 2010-2014. The reason why they're so worried now is wage i…

But there is no wage inflation overall. In real terms, wages are declining except for maybe the lowest earners [0]. For some reason that's unacceptable. [0] https://www.americanprogress.org/article/wages-and-employmen...

> In real terms

Nominally they are increasing, that is a component of inflation. Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way.

> For some reason that's unacceptable.

I'm not the Fed, I don't support what they're doing, I'm just explaining it.

EDIT: research from the Fed:

https://www.frbsf.org/economic-research/publications/economi...

Wage growth is over 6%. The fact that inflation overall has been running higher than that so real wage growth has been negative doesn't mean there's been no wage inflation.

Inflation is just the rise in prices. You're thinking about the overall effect on society, but that is second/third/fourth order effects.

Nominal wages rising 6%, even though real wages are rising 0% still means an environment with 6% overall inflation, which exceeds the Fed's target of 2%.

Re: The Fed plans to sharply boost unemployment

#172

Post by paulmd »

pclmulqdq wrote: post #164
paulmd wrote: post #159

Earlier quoted context omitted.

Both of those moves are sensible given the circumstances. What was not responsible was dropping rates 75bps in 2019, the “mid-cycle adjustment” period referenced here. The economy was already roaring and it was widely acknowledged even at the time that this was unnecessary and a concession to political pressure. https://www.forbes.com/advisor/investing/fed-funds-rate-hist... Those politically-motivated cuts left the…

Another overlooked irresponsible move by the Fed in recent times was when Yellen's Fed was very slow to raise rates coming out of the 2008 recession (the Federal reserve held rates near 0 until 2016 ), which gave certain segments of the market a lot longer to grow with free money than they should have had. That move, in turn, also gave the fed a lot less flexibility during Trump's trade war and the following crisis.…

Yep, I agree. There definitely seems to be a subtext here of "the fed is super antsy about being up against the zero interest rate 'bound' and now that it has a chance it's going to push as far away from it as it can get before the next big thing hits". Controlling inflation is obviously front and center but the Fed needs to get back to a little more historically normal interest rates too.

Is it entirely the fault of the 2019 rate cuts? No, but, we'd have been starting the 2020 games from a position of at least 2.25% interest (perhaps more like 3% if rate increases had continued) instead of 1.5%, that's 50-100% more room for the Fed to maneuver. What's more, it was a blatantly political and obviously stupid move even at the time, and widely acknowledged as such even at the time. There was no need for stimulus in 2019 when the economy was already roaring and it was "pro-cyclical", ie the opposite of the usual "anti-cyclical" policy.

(Also there's technically no reason that zero has to be a bound... the fed can pay you to take money, if it comes down to it. But all kinds of weird things start happening near zero and I think nobody really wants to fuck around and find out there.)

Anyway, we can also blame congress... the Fed has been begging for a decade for more active fiscal policy from Congress rather than forcing everything to be done via monetary policy. And that means more spending when times are tough, and less spending when times are good. When you're in the situation we were in 2008, it's irresponsible not to spend and leads to overexertion of monetary policy to compensate. But absolutely everything was stonewalled during the 2008-2016 period besides military spending. If Congress had engaged in more sustained stimulus and infrastructure spending during that period, the rates probably could have been pulled up a lot sooner (which is of course the balance to the spending).

And in contrast right now is probably not the ideal time for tons of spending either... but I think we are going to get the wonderful experience of "stagflation", inflation during a recession, so addressing one problem worsens the other. And there's really not any obvious tools to deal with that combination, besides just slowing the economy and letting inflation burn out.

Re: The Fed plans to sharply boost unemployment

#173

Post by PaulDavisThe1st »

pclmulqdq wrote: post #151
PaulDavisThe1st wrote: post #149

Earlier quoted context omitted.

Current economic metrics are all over the place following the worst global pandemic in a century. It's true that the metric(s) typically used to define/measure growth are down as you describe, there are lots (and lots) of related metrics that say something quite different. I think overall it's most accurate to suggest that we're in a strange time indeed, not just a repeat of the last 3 or 5 recessions.

Yes, and that the strange time we are in includes a recession. The NBER has never failed to call a recession on 2 quarters of negative growth in the past, including during the very same pandemic we are now exiting, which was also a pretty strange time. Past recessions have involved other circumstances, too. It's literally called a recession because it is a time when the economy is receding. If I had said "depression"…

Unfortunate (for your case) that you cited the NBER. Their definition of a recession begins as follows:

> Q: What is a recession? What is an expansion?

A: The NBER's traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The committee's view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.

https://www.nber.org/research/business-cycle-dating/business...

By that definition, even Forbes agrees that we are not yet in a recession.

https://www.forbes.com/advisor/investing/are-we-in-a-recessi...

Re: The Fed plans to sharply boost unemployment

#174

Post by the_optimist »

marcosdumay wrote: post #144
nilsbunger wrote: post #140

Earlier quoted context omitted.

It’s pretty tightly linked. Lots of loans don’t happen when interest rates go up. On the consumer side , car loans, mortgages , etc. on the biz side, capital loans and lines of credit. All of this significantly reduces purchases and money in our pockets, thus putting downward pressure on gdp and demand.

> Inflation is high because demand exceeds supply. That's the part that is wrong. It's wrong by definition, because demand and supply are the same thing. It's also wrong because inflation is an unrelated phenomenon. Raising interest rates does normally (not always) reduce the economic output. Nobody is disagreeing on this.

Marginal demand > marginal supply, so price is bid up. This is not even 101 stuff.

Re: The Fed plans to sharply boost unemployment

#175

Post by onlyrealcuzzo »

UtopiaPunk wrote: post #104
onlyrealcuzzo wrote: post #68

Earlier quoted context omitted.

Or we could just automate more and innovate, instead of spending most of our time & energy & capital on leveraged speculation that the Fed will continue to endlessly pump up asset prices...

As an anti-capitalist, I would love a society where everyone benefited from unpleasant jobs being automated away. However, under capitalism, only the owners will benefit. That's because automation turns labor into property. That means the owners of property, capitalists, benefit. If the value of automation were distributed differently it'd be great. If workers owned a company such as in a worker-cooperative structure…

We have a 5000+ year history of automation creating jobs, not destroying them.

Any jobs displaced will result in a multiple of new jobs created with the new opportunities it unlocks.

Re: The Fed plans to sharply boost unemployment

#176

Post by paulmd »

lamontcg wrote: post #171
thunky wrote: post #168

Earlier quoted context omitted.

But there is no wage inflation overall. In real terms, wages are declining except for maybe the lowest earners [0]. For some reason that's unacceptable. [0] https://www.americanprogress.org/article/wages-and-employmen...

> In real terms Nominally they are increasing, that is a component of inflation. Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way. > For some reason that's unacceptable. I'm not the Fed, I don't support what they're doing, I'm just explaining it. EDIT: research from the Fed: https://www.frbsf.org/economic-research/publications/economi...…

> Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way

Actually you can not just analyze but neutralize it that way. If everyone agrees to a wage that is indexed to inflation, and then starts numerating prices in that inflation-indexed currency... suddenly you don't have inflation anymore.

https://en.wikipedia.org/wiki/Plano_Real

Maybe the US is starting to get to the "inertial inflation" situation, with workers demanding wages accounting for expected future increases and companies starting to structure costs along those expectations as well.

Re: The Fed plans to sharply boost unemployment

#177

Post by thunky »

echelon wrote: post #87
jmoak3 wrote: post #31

Earlier quoted context omitted.

Wages are too high, because our entire economy is built on the backs of available race to the bottom international labor. Demographics and the security situation is changing this, and the establishment (for better and worse) is absolutely freaking out. The world as we have lived it the past 30 years cannot exist if people doing labor can command a decent wage by USA standards, we’re going to have to recalibrate for a…

Some of those on /r/antiwork seem to expect to build careers from McJobs and Starbucks. Instead of seeing these as part time jobs for high school and college students, their expectations are that these jobs can support an apartment rent in a big city without roommates. These types of complaints seem irrational or misguided. Many of their complaints do seem grounded in truth, however. America's low hanging fruit blue…

> their expectations are that these jobs can support an apartment rent in a big city without roommates

Why shouldn't they? Somehow, with all of our progress, life gets more difficult.

Didn't it used to be possible for cashiers to support themselves?

Re: The Fed plans to sharply boost unemployment

#178

Post by paulmd »

econ101time wrote: post #15
fxtentacle wrote: post #2

"With an additional million or two people out of work, the newly unemployed and their families would sharply cut back on spending, while for most people who are still working, wage growth would flatline. When companies assume their labor costs are unlikely to rise, the theory goes, they will stop hiking prices. That, in turn, slows the growth in prices." That seems like a pretty whacky theory to me because it assumes…

> That seems like a pretty whacky theory to me because it assumes that companies only increase prices when forced to do so, and not just because they can. I see people post things like this, and I'm forced to conclude that you don't understand supply and demand. Edit: Sure, monopoly pricing is real. But blaming monopoly pricing for inflation is dubious. You'd need an account of 1) how the goods in the CPI basket are…

> 1) how the goods in the CPI basket are monopoly priced

This actually is not as far-fetched as you're implying. for many types of commodity goods (baby formula, chicken, etc) there really are only 2-3 major suppliers left in operation. Agribusiness has taken over and consolidated many types of produce as well.

As we recently saw with baby food - disruptions localized to a single supplier can severely affect the entire product segment - this outcome can only occur in a highly-consolidated market. It wasn't like there was some problem at the baby farm and nobody could make babyfood, this was one supplier that took some lines offline and it caused national shortages.

And it's not just babyfood, it's meat production, meat processing, and many other food products besides. Smithfield controls a majority of the meat market for several types of products too.

"monopoly power" as regulated in the US has never required a literal monopoly situation and that would be incredibly unrealistic in a market economy. In practice, oligopoly pricing is sufficient to be very commanding if the participants decide to collude or to otherwise exert their power.

> 2) why all these monopolies decided to raise prices now instead of 3 or 10 years ago.

because consumers are generally primed to accept it right now, and there are legitimate supply-chain disruptions and increases to allow to you to handwave your increases away (price increases are far outpacing cost increases). If everyone else is increasing prices 20%, and your competitors probably are too... why not increase your prices too, even if you only needed 5-10%?

Never let a good crisis go to waste, and all that.

Re: The Fed plans to sharply boost unemployment

#179

Post by pclmulqdq »

PaulDavisThe1st wrote: post #173
pclmulqdq wrote: post #151

Earlier quoted context omitted.

Yes, and that the strange time we are in includes a recession. The NBER has never failed to call a recession on 2 quarters of negative growth in the past, including during the very same pandemic we are now exiting, which was also a pretty strange time. Past recessions have involved other circumstances, too. It's literally called a recession because it is a time when the economy is receding. If I had said "depression"…

Unfortunate (for your case) that you cited the NBER. Their definition of a recession begins as follows: > Q: What is a recession? What is an expansion? A: The NBER's traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The committee's view is that while each of the three criteria—depth, diffusion, and du…

That is the NBER's definition, which is inside the US. I said originally that the definition *outside of the US* (and outside of the current time - since the NBER has de facto followed the global definition until 2 months ago) is two consecutive quarters of negative growth.

The only reason the definition of "recession" is such a hot button issue in the US is that it looks bad for a political party to preside over a recession. They happen. At least 4 of the last 6 presidents presided over one. Most of them aren't that bad. It's fine to admit that the US economy has receded over the last 6 months, which it demonstrably has.

EDIT: The NBER, by the way, uses many metrics to declare recessions, and they particularly overweight employment and payroll metrics. The US is currently doing very well by those measures, despite the obvious weakness in the economy. I am assuming the NBER also undervalues the effects of inflation because they don't know what to do about it. That is why most of the world uses an objective definition based on GDP growth.

Re: The Fed plans to sharply boost unemployment

#180

Post by thunky »

paulmd wrote: post #176
lamontcg wrote: post #171

Earlier quoted context omitted.

> In real terms Nominally they are increasing, that is a component of inflation. Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way. > For some reason that's unacceptable. I'm not the Fed, I don't support what they're doing, I'm just explaining it. EDIT: research from the Fed: https://www.frbsf.org/economic-research/publications/economi...…

> Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way Actually you can not just analyze but neutralize it that way. If everyone agrees to a wage that is indexed to inflation, and then starts numerating prices in that inflation-indexed currency... suddenly you don't have inflation anymore. https://en.wikipedia.org/wiki/Plano_Real Maybe the U…

Yeah, just because wages are a component of inflation doesn't mean we can't talk about them in real terms. Same for housing, also a component of inflation: if house prices rise/inflate 2% while inflation is 10%, it's fair to say that housing declined 8% in real terms.
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