US unemployment rate drops to 8.5%, lowest in 3 years

[Mise]

We've had a few threads on that that topic (usually from the angle of robots taking our jerbs), and on post-scarcity economics. They were fun

 

[Integral]

For a statistician who knows the correlation between U3 and U6 what you say is correct. However, to a layman like me U6 conveys the depth of the problem better than U3.

In any case IMHO all these U rates are suspect because they do not include many people who have completely dropped out of the labor force. They have become full time students, or housewives etc. because they could not find work. Unfortunately, I know of no statistic that can truly capture that. Is there one?

It's very, very difficult to capture that kind of number, despite the fact that we would like a good measure of it.

I mean, take me for an example! I'm in graduate school. Am I here because I want to be here, or because I couldn't get a job last spring? And how do we differentiate the two on a survey?

U6 does some of that work by counting people who aren't working, but tried at least once in the past 12 months. But if you stopped looking for work over a year ago, even U6 isn't gonna count you as "unemployed"; after that you're considered to have completely dropped out of the labor force entirely.

 

[GenMarshall]

It's very, very difficult to capture that kind of number, despite the fact that we would like a good measure of it.

I mean, take me for an example! I'm in graduate school. Am I here because I want to be here, or because I couldn't get a job last spring? And how do we differentiate the two on a survey?

U6 does some of that work by counting people who aren't working, but tried at least once in the past 12 months. But if you stopped looking for work over a year ago, even U6 isn't gonna count you as "unemployed"; after that you're considered to have completely dropped out of the labor force entirely.

And what about situations for people like myself that wen't back to school and yet are still looking for a job?

 

[Integral]

If you're both looking for work (which it seems you are) and available to work (a bit more complicated, since you're a student as well), I think you count in the ranks of the unemployed. That's my understanding.

--

I am stupefied by the inaction from the Fed on unemployment. If inflation had run for 5% for three or four years straight, heads would be rolling; but unemployment is allowed to stagnate at high levels and no-one bats an eye. There was a terrible resignation among economists at the AEA meetings last weekend.

 

[GenMarshall]

I am stupefied by the inaction from the Fed on unemployment. If inflation had run for 5% for three or four years straight, heads would be rolling; but unemployment is allowed to stagnate at high levels and no-one bats an eye.

I'm just disappointed that the Feds aren't doing anything in regards to help the unemployment get jobs easier. Especially for the long term unemployed. I'm starting to favor a system of a "work-for-your-unemployment benefits" plan to both not have one's skill atrophy and stand out much better to potential employers (especially the ones that discriminate against the long term unemployed and rather have applicants who have a job). Heck, I don't even qualify for the "Welfare-to-Work" program .

I can speak from experience that long term unemployment does take it's toll on a person's psyche. Though going to school does help a bit (I still have anxiety over getting a bad grade since my self-esteem and confidence is already bruised).

 

[Whomp]

Why the Fed and not policymakers? I can see plenty of things policymakers can do but the Fed at ZIRP?

 

[Arwon]

I think he means feds as in the federal government, not the Fed as in the Federal Reserve.

 

[Integral]

I mean both, I suppose.

The Federal Reserve can still do quite a bit even at the ZLB. QE is a remarkably successful policy when it's used with a goal in mind, as opposed to drip-drop batches. If the Fed committed to, say, $100bn of QE per month until nominal income/inflation/whatever-your-preferred-nominal-anchor-is were back on pre-recession trend, our troubles would be over very quickly. QE, an explicit nominal target, a penalty rate on excess reserves, and even currency devaluation (against either a basket of outside currencies or against some basket of commodities) are just a few of the tools the Fed can use.

The ability to charge interest on reserves, meanwhile, means that the downside risks of "inflation spiralling out of control" are minimal.

The trouble with fiscal stimulus is that it inevitably involves large deficits which make people uneasy, but I'm sure there is more that could be done on that end as well.

I simply don't think that the zero-lower-bound poses a significant economic challenge to the Fed, but I admit it appears to have caused significant political-economy challenges.

 

[Cutlass]

I think he means feds as in the federal government, not the Fed as in the Federal Reserve.

No, he's an American monetary theorist. If he say's "the Fed", he means the Federal Reserve.

I am stupefied by the inaction from the Fed on unemployment. If inflation had run for 5% for three or four years straight, heads would be rolling; but unemployment is allowed to stagnate at high levels and no-one bats an eye. There was a terrible resignation among economists at the AEA meetings last weekend.

Conventional monetary policy has shot it's load. And has had little effect. Now you run up against the "hawks" who don't want to do anything, the politicos that are making life difficult without a clue, and uncertainty over what can be done.

Why the Fed and not policymakers? I can see plenty of things policymakers can do but the Fed at ZIRP?

Sure. But they don't want to. A weak economy now benefits the Republicans. And they won the last election.

 

[Arwon]

Cutlass: I meant I think CG meant the feds in general and possibly misunderstood Integral's use of the Fed.

Integral: QE is Quantative Easing, right? Can you explain that? It's never even been on the radar here, because as well as having a stronger economy and less need for monetary stimulus, all things being equal we have higher interest rates than major economies, I presume because of being a smaller and therefore theoretically riskier currency area which finds it harder to attract foreign investment (current cash rate is 4.25% and went no lower than 3% during the depths of the GFC).

 

[Integral]

Arwon: Here's my intro, though it's still littered with acronyms. Professional hazard.

So monetary policy works by affecting the price of assets and the interest rate on assets. Typically the single asset a central bank cares to control is short-term government debt. Within reasonably tight parameters, on any given day the Federal Reserve can announce a target for the interest rate on short-term debt and hit it 100% of the time.

The Fed hence "controls" the short-term interest rate and through a variety of not-very-well-understood transmission mechanisms, this has effects on inflation and economic growth.

Quantitative easing is a natural extension of this concept. QE is Federal Reserve purchases of assets other than short-term Treasury debt. Its purpose is to affect inflation and economic growth by affect the price of those assets, or equivalently their interest rates.

 

[Whomp]

Mohamed El-Erian thinks the Fed has stepped up but without other economic agencies stepping up the outcomes are quite uncertain. That QE3 alone can not produce the outcomes we want. For good outcomes we need other agencies to do their job.

Interview yesterday...
http://www.bloomberg.com/video/83907050/

 

[Integral]

Thanks Whomp; I'll take a look.