When the unemployment rate drops to 3% and wages don't budge it's pretty clear that basic economic rules don't apply. It is a relief that the fed is beginning to talk about workers' share of the economy and gratifying to learn they think it should improve, but now comes the hard part -- figuring out why and doing something about it. Interest rates and easy money for bankers are their tools but we need to empower workers through strengthening the NLRB and raising minimum wage etc. With Republicans focused entirely on how to increase the share of the economy owned by business our only hope is a Democratic Congress and President.
5
@Sherry
My observation- a hunch- is that while there is job growth, there is job displacement that is not far behind.
There is not much confidence that a better job (or equal) exists if one loses their current work, yes, they will find a job, but not exploiting the skill set that was mastered.
I do not see this dynamic changing anytime soon. Technology will displace, offshore labor will displace.
Trade war threats are not bringing jobs back to the USA, they are being moved to alternate countries not yet on the trade war radar.
There was a "lost" decade at least in wage growth, even bigger if the reduction in fringe benefits are included. With that, a big contraction.
Side note, my former employer, a very successful company with its pension plan handsomely overfunded announced a few years ago that any new hires will not be participating in the pension plan, only the 401K for them. Before it was both. I fully expect them to kill the plan off in the next few years, buy us all annuities. The excess going back to the corporate coffers. (yes, a taxable event, but they are now in a lower tax state)
4
Gee, it only took them 40 years of declining wages, impotent Unions, disappearing benefits and pensions to come to the realization that the wage/price spiral is a 70's distant memory and the employers have won bigly.
10
The war against unions by the right has held wages down. These right to work states are no friend to the workers.
5
"The Economy Can Get a Lot Better for Workers"
Counter-Factual: Has there ever been a time since the dawn of the Industrial Revolution that: "The Economy Can Get a Lot Better for Workers"
No.
1
The economists cited are quite selective in their criticism with the comment: "academics less tethered to an orthodoxy that dates back decades." An orthodoxy that dates back decades is that "growth" is infinite and ever a desirable basis for keeping individuals occupied.
It matters not what engages labor in the economy, just so that individuals are made to work for whatever industry offers as jobs. Pay is the deemed incentive for submission to available jobs...all engaged in lifetimes with job description tasks.
Now, why is such orthodoxy modern? Even as we can now pursue redemptive policies for humans sparing them from the ordeals of prime years of submissive employment with modern means of expanding productivity, economic orthodoxy continues destining humans to pass their prime years in service to job description. The orthodox zeal for full
employment would spare none. And with advancing longevity we'd have all on jobs even longer.
Is such the absurd insight from a modern economic profession?
2
If employers are so desperate to hire, especially in STEM fields, and particularly in IT, why are so many "older" IT people unemployed/underemployed, or completely unable to find jobs or get interviews? Hint, employers are not that desperate to hire Americans of any age.
5
@hen3ry
The barriers to entry to selling IT skills are so low that folks with chronic unemployment and real-life expertise have a series of characteristics:
Hint: they want too much money; they have not kept their skills up to date; they are not prepared to relocate; they think the world owes them a living; they have no entrepreneurial bones in their bodies; and they're still sending out resumes and applying on "Monster"
1
@SteveRR Gee, sorry I want to make a decent wage. Sorry that I'm not rich and can't afford to spend money on some worthless boot camp e-courses. And sorry that you think I honestly believe that the world owes me a living. Get real and start looking at the world. It's not just IT where older people cannot find jobs. It's nearly every STEM field. I lived through that over 20 years ago when I was in biological research.
Oh, and I don't apply on Monster. You wouldn't happen to have any useful hints would you? Or are you just trying to tell me that I should view my hard earned skills and myself as useless because I'm older?
5
Rather than “this time it’s different” it’s more likely that there is simply more slack in the system now because of technological forces / deflationary pressures. But at some point the Philips curve forces surely will re-emerge. This could simply be a “timing thing and a recalibration thing” rather than the fundamental laws are gone. and when this finally does snap back, inflation / interest rates will soar and this will get ugly fast. These are non-linear systems and when they tip, they tip abruptly.
1
As is often the case, things are probably worse than they appear. For one thing, the small and long-overdue bump in wages is probably largely attributable to minimum wage increases in blue states, not in a growing willingness to "share the pie" more equally.
Furthermore, reducing interest rates so that the wealthy can borrow more to speculate more is unlikely to result in higher wages. Unless you're counting on the trickle-down effect.
11
"We are missing ten years of growth..."
And, they haven't looked in the mirror as to the reasons. In 2005, speculators in gold and other inflation hedging walked away with over $10 trillion that should have gone into productive investment.
In 2000, Bush2 began marketing welfare, foodstamps went from $18 billion to $125 billion. Disability went from $80 billion to $250 billion.
That one-two punch knocked out wage growth. Real wage growth has nothing to do with a "hot" economy it has everything to do with productivity.
The Fed's wage tracker just went to 3.9%, nicely following productivity improvement.
3
@John Huppenthal uh, no. Wage growth has flatlined because “productivity” has increased. People are working longer hours for the same pay
1
Vulture capitalists have no interest in seeing that workers get a greater share of the profit their labor produces because insecure workers are more manipulable and find it harder to organize. How do you go to a union meeting or a city council meeting when you're working your second or third job? Even writing a letter to the editor or filing a complaint about harassment means likely termination. Ditto renters. Homeownership allows people to participate in the direction of a community or a state and that isn't in the oligarchs' interest. If you can keep people in constant desperation and fear, you have them where you want them. I'd say the economy is working well for the Bezos and Koch cabals.
15
In service and knowledge ventures, payroll is often the biggest operating expense. Thus there is no way to substantially increase compensation (pay AND benefits) without also increasing prices.
"Profits" do not offer a solution, beyond rhetoric. Typical operating profit margins across most industries, averaged over decades, can fall in the single digits. Recent average profit of the S&P 500 is about 10%, in a growing economic cycle. That profit supports both future investment and pays returns to investors, including pension funds.
Reducing executive pay also has little real potential effect. Shifting to retail, where pay disparities are some of the highest, provides some examples. Take the $24 million Walmart paid its CEO, and double that for the rest of the execs. Now divide $48 million among 1.5 million US workers (ignore the other global employees), and each one gets an extra $32. Per year.
Economics with real numbers sure sounds dismal compared to political wishful thinking. The only sustainable way to increase wages is through increasing productivity, no matter how much the Fed or other government entities try to "steer' the economy.
1
@Bob Krantz
You say the "only sustainable way to increase wages is through increasing productivity." Well, for the past 20 years productivity has increased but wages have not and resulted in further increased profits for corporate treasuries and the investors.
Corporations have tried every possible way to keep workers' wages low in order for profits to increase. Decreasing interests rates will mostly fill the pockets of the vulture corporations and the oligarchs because it gives them the opportunity to create debt to make money on the stock market market and in their quest for more business.
Corporate debt is now at unsustainable levels even though it has never been used to increase workers' wages.
You had it partially correct, but the truth is that increased productivity was never meant to benefit the workers and their wages. I call it excessive greed.
12
@Underdog
Wages have been increasing just fine for those skilled workers who are responsible for the productivity increases [see Pew Research Aug 7 2018].
If you're a minimum wage drone then the only way you get an increase is when the government mandates it - you then promptly lose your job to automation.
Will we ever wake up to the fact that trickle down is a trick?
The rich get richer and we never see a dime. Sure Trump wants interest rates low. His buddies can borrow even more in pursuit of even more. If it affects wages at all, it will be in states where he needs votes. So he can continue making America great with fossil fuel and sanctions on solar cells.
14
The two megatrends that are affecting labor's share of income are automation and globalization of labor. Automation has been around for decades, but it is accelerating with the advent of smart technology. At the same time, the internet has enabled work, including white collar work, to be outsourced to capable people who will work for a fraction of the typical American salary. Companies today have all the leverage over workers and they are using it.
9
Labor hasn’t been getting its share for decades because neoliberal globalization was designed to and did destroy the political and economic power of unions.
Manufacturing was the most or among the most heavily unionized sectors of the economy, and unions in this sector were especially powerful and militant. Neoliberal government from both parties allowed investment bankers and CEOs to off-shore manufacturing, which didn’t just lower labor costs in those particular industries.
By decimating the membership and thus the power of manufacturing labor unions, those who control capital were able to end the sharing of the increased productivity dividend with labor. And now capital’s economists are acting surprised that unorganized labor has been unable to keep up? Seriously?
I’m not a socialist; just a New Deal Democrat. Bernie Sanders may call FDR a socialist, but the guys on Wall Street would do well to note that FDR saved capitalism from itself.
New Deal unionism and regulation balancing banker and CEO power gave us the most productive and equitable compromise between capitalism and socialism we’ve seen in history. Abandoning New Deal politics and policies have landed us knee-deep in fascism - to quote Meg Whitman on our president’s political affiliation.
19
from Karen Shaw Petrou:
the more pressing financial stability issue, in Petrou’s view, is how a decade of artificially low rates have cut off America’s youth and shrinking middle-class.
“When you are putting money in the bank and your interest rate is 25 basis points (0.25%), it will take you until your late middle-age to save enough money for a house,” Petrou said. “The economy is cheating them out of their future.”
Petrou, who is writing a book about income inequality, said part of the problem is outdated models used by the central bank to set policy.
“The U.S. isn’t the middle-class country its models believe it to be,” she said of the Fed, adding that its current models lead to policy catering mostly to the richest 10%.
14
@Bill This is a non-sequitur argument. Low/zero risk interest rates have always been low. The issues with homeownership rates have been as of late a combination of a huge rise in the cost of said home coupled with stagnant wages with respect to overall growth of the economy. It used to be that there were plenty of starter homes affordable to the people at even the 30th percentile of incomes. That's no longer the case; part of this is definitely supply constrained, but the overall trends of the labor share in the economy aren't helping.
When a home costs 10x your wages, it doesn't matter whether your savings account pays .25% or 5%. (And if your bank is paying out 5%, your mortgage is going to be 12%, with possible inflation running 6%. Say hello, the 70s!)
3
@Bill
So, are you arguing for a drastically higher Federal Rate?
Non-Executive pay is pretty much stagnant and has been since Reagan with the brief, and disastrous exception of the 1990's and the fling with the Dot-Com Bubble. That was followed by the Mortgage Scam that brought down a lot of working class people while making the wealthy see more money in their pockets.
Despite all of that, we still hold to the myth that "The wealthy create jobs." No, they don't - consumers create jobs by increasing demand for goods and services above the capacity of the companies to meet sustainable demand. Yes, we are at low unemployment but there are more than a few factors at work. The boomers are retiring as the earliest of them are now in their 70's, a large portion of the workforce is deemed unemployable because the cannot pass a drug test, a lot of the demand is currently replacing worn out durable goods, and the labor force is smaller because the boomers and successive generations did not have as many children as their parents.
Yet, the gap between what the investment economy has and what the wage economy has grows larger by the day. So, what is the Fed to do? Lower the cost of money to the investor class while interest rates for the wage economy remain at almost usurious rates.
18
Marx, who I realize is now very out of favor, always argued with cogency that workers never received anything like their share of the profits in the capitalist system and were never rewarded sufficiently for their highly valuable labor. This is systematic internal flaw of capitalism and a heavy infusion of socialism plus government regulation is needed to fix it.
14
The Fed, other economists and other observers have been “calling out” the decline of labor’s share of national income for decades. It is not like nobody knew. Key factors, not noted in this article, are Republican legislators handing capital an ever larger share of income through fiscal policy and helping companies destroy and prevent unionization. These factors are what has warped the Phillips curve.
7
Powell is totally right, and we need to keep the expansion going/interest rates low as there is research that shows that the economic expansion is finally enabling more Hispanic women and black men— two groups that have had the greatest struggle — finally find jobs.
3
Now the entire Grease Our Palms party will unite with POTUS in hating this guy. To suggest that the hired help be given a larger piece of the pie is anathema to them. They think it's un-American!
4
Lower interest rates is just another form of trickle down economics, and crony capitalism. The markets and corporations have captured the Fed.
6
How does lowering interest rates raise wages for workers?
9
@AJ
Consumers considering low interest rates buy more goods and services, thereby increasing demand for labor.
Say never. He should have said new study show that Philips curve does not work as well as low interest rate got nothing to do with employee's wage. And you all soon be replaced with robots anyway so we need to implement MMT the sooner the better before the unemployed mass rise up and chop off our heads.
1
Low interest rates, however, are a gift to the wealthy. They have created a giant bubble in financial assets. Unless interest rates go up, the wealthy will get even wealthier. On the other hand, those who don't own any investments will find they have to pay a very high price to get into the market, and will probably end up losing money.
16
The obvious cause of the high real unemployment rate (taking into account the underemployed and those who gave up looking), which is about double that of the reported unemployment rate, is AI/automation. AI/automation is good for the GDP so I am not against it but in order for it to make it workable, the government needs to seriously address the issue of loss of jobs that is being caused by AI/automation. The only Democratic candidate who is championing a serious solution to this issue is Andrew Yang. His book The War On Normal People is spot-on. No wonder he is all over the Internet (aka the Yang Gang). Andrew Yang will undoubtedly be the next President of the United States.
2
@Andy I don't know about Andrew Yang being the next president. The DNC will manufacture all the consent they need to elevate their preferred neoliberal candidate. At this time, I assume that's Kamala Harris. The knives will come out for Elizabeth Warren again once the field looks narrower.
It is true that automation has occurred at lower levels with internet sites and manual check-out counters. But it was a one-two punch: the first step was to offshore jobs, or import labor using H-1B and other visas. Now the imported programmers (whose green cards will likely be obtained more easily now that HR 1044 looks like it may pass) are developing algorithms and other artificial intelligence applications to automate the jobs that didn't go in the first round.
At least people who cut hair or remove bedpans are probably safe.
3
Its a rigged economy, balance of power shifted dramatically between workers and business owners and decline of unions and bargaining power and leveraging of global labor market, and consolidation of corporations to cartel or near monopoly status, no-poach clauses in Silicon Valley, abuse of H1 visa status, all enabled by national and state legislatures and court systems that corruptly work for corporate interests and failed to mandate minimum wage increases, so taxpayers subsidize unconscionable billionaires like Bezos and Walton Heirs.
The wealth is now concentrated by greedy executives and worker productivity gains are unrewarded, benefits eroded, cost of education and healthcare skyrocketed. Massive personal debt levels and bankruptcies. Falling life expectancies. Economy only works for the overlord class, and economists, think tanks and corporate media and AM propagandists all united in defending a broken system that enriched them and leaves everyone else impoverished. The solution is revolution, either by electing candidates from the extreme progressive wing dedicated to addressing gross inequality and abuse of power, or by the traditional historic method of righting wrongs: the barricades and guillotines.
19
@Xoxarle Remember the Red Brigades? That's what we need and we need to make it a lot bigger and a lot better armed.
1
The US job "market" is only "strong" if you count Uber and not well paid dangerous work like an Amazon warehouse. That Amazon pays better than Walmart doesn't make it a good employer.
Submitted July 11th 2:10 PM eastern
3
Meanwhile in the South, or at least my area, kids can't find summer jobs because there are so many applicants for every one. Adults too, based on the experience of some people I know, even with long experience and a college degree. We may have full employment overall, but there are still plenty of pockets of higher unemployment.
15
@Barbara
There are so many people who are "employed" who are not in actual jobs, but "temporary" jobs just to hold them over until they can find something that's full time and with benefits.
So we have this economy where everyone is employed, but everyone is still applying.
15
@K That's true too, but Forest Park is a long ways from rural SC, where we have many more poor and undereducated people. A friend told me that hundreds were applying for low-level administrative assistant jobs.
4
Thank you Mr. Powell. It is refreshing to have an intelligent, thoughtful, honest public servant serving during the reign of Donald Trump.
4
The reason we are seeing these articles on the collapse of once major economic theories, such as employment and interest rates vs inflation, is largely the rise of Modern Monetary Theory. That’s why AOC knew to push the Fed on this. The New York Times should acknowledge that Bill Mitchell, Randall Wray, Stephanie Kelton, and many other heterodox economists have been correct on these issues for decades.
11
@Alec Bowman - Right on!
4
As opposed to all these ideologues that are screaming for higher inflation I applaud the Fed for moving slowly on this issue. As we saw during the Carter administration the effects of inflation getting out of hand can be disastrous. Admittedly we don’t have the same conditions, we don’t have a disconnect between a rising price of a commodity like oil with no accompanying increase in demand.
As a moderate I have to agree there is something wrong with the economy that has been off since the high tech bubble in the year 2000. There doesn’t seem to be the same cause-and-effect as we saw in previous years, however I am not ready to leap to idealogical solutions that fit neatly into a socialist agenda that it all has to do with redistribution, more taxes, and free stuff for all. But I am disappointed in the Fed for not having recognized this disconnect and giving us some empirical practical solutions to what is going on.
I know a lot of New York Times readers are going to faint when I say this but good for Trump for calling the Fed on this and pushing them to lower interest-rates. Remember a stopped watch is right twice a day.
1
@Paul
"a socialist agenda that it all has to do with redistribution, more taxes, and free stuff for all"
Riiight. Not even close to what anyone is proposing, but okay.
"good for Trump for calling the Fed on this and pushing them to lower interest-rates"
This isn't why he's pushing them to lower interest rates. You know that. I know that. We all know that.
15
Thank you. Correcting regs that tip the playing toward the Uber wealthy is not socialism. It’s good business. And good for business.
3
@K
"Riiight. Not even close to what anyone is proposing, but okay."
Just read some of the other comments. That is exactly what some people are proposing.
I've always wondered if the so-called "dual mandate" wasn't a kind of economic euphemism used, frankly, to harm workers.
Doesn't inflation mean that prices are rising, and wouldn't higher wages factor into those prices? So, at full employment workers, en bloc, can collectively demand higher wages, but those wages get re-defined as "inflation" where after the Fed raises interest rates, slows the economy, puts people out of work, and reduces wage growth.
I'm glad to see a change, and wouldn't mind at all running inflation, stably, up to rates of 3-4% for a while.
4
No discussion of older Americans who must rely on CDs and other safe investments to supplement their retirement income. Low rates are forcing retirees into the stock market and the consequences could be catastrophic.
19
@Kevin
Those same older Americans were the ones whose generation saddled younger Americans with astronomical college debt, stagnant wages and absurdly expensive home prices. Excuse the rest of us if, for once, we focus the country’s attention on someone other than the entitled boomers.
5
You want to increase economic growth? Raise the federal minimum wage!
Nothing would produce as much stimulus as tens of millions of people with more money to spend.
46
That’s too sane and logical. Mitch wouldn’t allow it.
5
@mtbspd. Excellent point.
1
Studies show where Unions are strong both Union and Non Union workers receive higher wages. We need a new Union movement.
27
It won't be better for workers! It will never be! We need to overcome this system! Overcome capitalism!
12
Why do you quote Kudlow? The guy has been wrong about almost every major economic prediction he's made in the last 20 years. Incidentally, he also predicted in 2008 inflation would skyrocket by 2010 if the Fed kept rates low and kept printing money. You're normalizing his crazy opinions to a national audience. He's a crank.
I've also seen some of the "boldface names of the profession" say that the Fed raised interest rates too fast, too soon, including Paul Krugman and Jared Bernstein.
3
"You can see in comments from a range of top Fed officials over the last couple of years that they have grappled with the possibility that they have been overly confident in their assessment that the economy was closing in on full health."
This is baffling. The indicators have been showing since 1973 that the average American worker has not gotten a raise. Are these "economic wizards" so disconnected from the rest of us that they only perceive an issue when there are pitchforks and torches at the gate?
31
@Max
Simple answer: YES!
1
@Max. Yes.
1
It's astounding that so many so-called intelligent people, can be so myopic and ignorant of common sense. For decades we have seen jobs and wages cut so that profits could soar, rewarding a relative handful of people and entities. How did none of these "experts" ever step back and ask: In our consumer-driven economy, what happens when the consumers (workers) consistently lose wealth? Staggering ignorance!
This is the root cause of why the economy has never really recovered, and why we've experienced a cycle of "boom and bust". And this gives lie to "supply side" theory that underlies "trickle down" economics. Concentrating wealth at the top in the belief that the excess will flow downward has been a failure, and yet our leaders and the experts continue to ignore the evidence right in front of them. Instead they focus on things like Wall St. indices, and unemployment numbers to "prove" that everything is great, but these are illusions.
The problem is much deeper than interest rates, it's systemic. Since Reagan, tax, tariff, accounting, and executive compensation rules have all been geared to rewarding short term profits, which by extension punish the long term investment that supports R&D, company expansion, creation of new industry, and of course jobs, wages, and employee retention. Under "trickle down" jobs and wages are profit killers and must be minimized.
It's not rocket science. Until we undo this systemic cause, the economy won't work for most Americans.
84
You are confusing tax rates with interest rates. These are two entirely different thing. The Fed does not control tax rates, and Powell didn’t talk about them.
1
I could not have summarized it better. Thank you for this comment.
8
@Kingfish52
"Jobs and wages cut so that profits could soar."
Nope.
Since 1980, wages and salaries have increased $7 trillion while profits have increase $2 trillion.
Paying good wages goes hand in hand with making good profits. They are not in opposition.
1
The Fed says there is not inflation but there is.The New York Times has an Op-Ed titled “In 200 cities the median home price will set you back only one million”This speaks of inflation in home prices- it affects thousands of people.Ask anyone who has purchased medicines recently if drug prices have not risen drastically.The list goes on.The average worker will not benefit from lower interest rates.The low rates will allow companies to buy back stock or buy other companies.The corporations will not raise wages, increase health care contributions or help employees with retirement savings.Every time someone gets an idea to redefine the economy they say, “It is different this time”.It is not different this time-Trump and his cheap money and Trade War fans will lead us into the next recession.It is hard to believe that Powell does not know better.If interest rates are low the Fed has no room to maneuver to help an economy in crisis-there could be exogenous events which would require speedy relief from the Fed.
22
@Stephanie Wood
I know it seems that way, but the data doesn't lie. https://fred.stlouisfed.org/graph/?category_id&graph_id=167361
Why would the Fed be thinking of cutting the prime lending rate now? The economy is not in an economic downturn. Unemployment levels and wages are no longer tied so closely to economic health. When the market crashes is when those Fed rate cuts (arrows in the quiver) will be needed. Rate cuts spur the market. They do not create jobs or higher wages. Plus, after years of low rates and Quantitative Easing interest rates are nowhere near "normal".
17
"He even hinted that American workers were due for some catch-up growth in their compensation — after years in which their pay fell as a share of the economy."
It's about time someone at least hinted that American workers need higher wages to survive. Corporations have made a killing on the Republican's tax cuts and shared almost none of it with their workers. Making America great GOP style.
42
I just don't understand American fat cats unwillingness to share the love with the very people who made them rich. Just for the PR and boast of it, if nothing else. And you can't take it with you.
In times of war, especially, we are all called upon to serve our fellow man in whatever way is needed. In peacetime, that same ethic should apply. It's all about us, all of us, isn't it?
And I don't mind the CEO squeaking by with only, say, $100k/year. I know it's hard to cut down and cut back, but this is for your workers, your neighbors, well, probably not your geographical neighbors, but your civic neighbors.
If only a few CEOs would start the ball rolling, say, cutting their salary in half, it might snowball. (Granted, $100k/annually isn't a living wage for them.)
It's a proven fact that generosity makes you a happier person, as Chills on YouTube says.
10
@Jim Muncy Greed is an addiction like any other and no addict gives it up until it costs them, usually everything.
Boil a frog slowly.
4
Nursing the biggest shortage, still waiting for a raise. Daughter nurse too interviewed said they can’t offer her what her current job does. Let me say it’s staring rate for nursing. So there is a disconnect somewhere.
16
Yeah, "It's different this time."
Forty years ago, one of the first, best, and most reliable pieces of financial advice I received was: When they say, "It's different this time," run for the hills.
21
Gosh!! It's beginning to sound like MMT is going mainstream. Soon the powers that be may begin to understand:
1. The gov (thru the FED) can create as much money as it needs out of thin air.
2. The gov MUST create money & get it to the private sector by deficit spending so that we will have money to buy & sell stuff, & so that banks will have money to use as reserves for loans.
3. Because of 1. the federal gov does not need to tax or borrow to pay for government operations.
4. If gov spending sends too much money to the private sector & it causes too much inflation, then the gov can tax some back, The purpose of taxes is to control the amount of money in the economy, NOT to pay for gov operations.
5. BUT since gov spending usually increases production (If people can afford to buy more widgets, the production of them usually goes up), & since prices are INVERSELY proportional to production (A bumper wheat crop lowers wheat prices), if the spending gets the money to the people who need it & will spend it, not to the people who do not need it & use it to speculate, why then taxes need not be very high.
6. The only time gov should not add money to the economy is when the economy is constrained, when there is no way to increase production. This is rare and is usually caused by shortages, e.g. oil (our inflation of the 70's), & food (Weimar).
7. And reasonable federal deficit spending will not only get necessary money to the economy it may even get a bridge fixed
6
1. Yes, but the amount of money needs to match the amount of goods and services trading throughout the economy.
2. The government deficit spending is fine as long as it is an investment that increases the number of goods and services trading.
Spending $10 and increasing the total debt, is fine if it is traded 5 times to give a $50 ROI on our GDP. If it is taxed at 20% then it balances the books in the future. Banks act as local economic stewards of good investments. They are regulated and incentivized to make good loans which contribute to GDP growth.
3. The government has to tax after their investment works through the economy to balance the books in the future. If not then world trade suffers. The government has to tax to ensure the country uses only their currency which they control.
4. Taxes are slow to change. The FED can respond faster in a dynamic economy.
5. Government spending lowers the barriers to entry for private firms by providing research and developing the technology to increase production. Money should go to spenders. We want to maximize the VOM to increase GDP. This means the current tax rate or a lower tax rate on a much higher GDP can cover the initial spending.
6. When there are shortages the government should spend more. Like Renewable energy, fracking, and dwarf wheat research.
7. Yes, it also increases aggregate demand. Nudging the economy into a growth direction instead of fluctuating between going up and down in a random walk pattern.
1
@PictureBook
1. That's what my 4. says.
2. That's exactly what my 4. and 5. say.
3. I don't know what books you are referring, too. I agree with your last statement here, but that does not contradict my 3.
4. Why are taxes slow? It is certainly not clear how the FED can quickly alter the amount of money in the economy.
5. Government spending can surely go to other places. It can fix bridges. And I said that money should go "to the people who need it & will spend it."
6. What use is government spending if production cannot be increased? Weimar proved that no amount of government spending could increase food production if you don't have enough arable land. Your examples are cases where production could be increased.
7. I covered aggregate demand in 2. and 6.
4
I'm botching this quote (hopefully someone will provide it) but David Frum, basically, said that faced with a loss of power, Republicans will not abandon Trump, they will abandon democracy. Likewise, the Fed Chairman, when faced with a loss of power or an angry tweet, will abandon established economic principles before he will abandon Trump.
6
The "consensus" view (known technically as the Phillips curve) has long been abandoned. It was formulated for closed , national economies.
Very simplified (Econ 101 level)
The prize of flat panel TV's in the US can not rise until China decides to do so, and it won't lest the production would move to Vietnam. Neither can wages (the driver of inflation) as long as companies can respond to Union demands with "Well, if you do not want to work for our wages we will move the factory to Mexico". Or, in that case, we will just import more foreign workers via H1Bs
Mr. Erwin needs to read
"THE CASE OF THE DISAPPEARING
PHILLIPS CURVE"
https://www.stlouisfed.org/~/media/files/pdfs/bullard/remarks/2018/bullard_ecb_sintra_june_19_2018.pdf
ONLY , or services and goods NOT exposed to global competition is the Phillips curve still valid (i.e. a closed
economy)
The classic example is Physician salaries in the US (that makes shuts out foreign MD from the US health market) has been rising since 2011 at 7% a year
3
this is fine as a raconteur report of various economic headlines, and a shout out to AOC, but the logical crux here is reduced simply to "more jobs don't mean more inflation."
why, exactly?
we have powell's testimony about the "lost decades" in wages since the turn of the century, which sounds to me quite a lot like the lost decades in wealth transfer.
how exactly does a still lower employment rate at the same wage scale solve that problem? sounds to me as though you have a larger share of the population who are underpaid.
nice, if you're a corporation with a large payroll.
let's see that "catch up growth in [worker] compensation," with all that implies for prices -- let's see that first, then get back to me about inflation.
there is no relation between wages, interest rates and inflation, when corporations control the wages and central banks control the interest rates.
14
The rising share of GDP going to corporate profits has served as a gradual tax increase whose proceeds have gone too much to dividends and share re-purchases rather than funding private investment that would have supported higher growth rates, more jobs, and higher real compensation.
It's effectively a maldistribution tax that has been compounded by federal tax cuts skewed to favor higher income earners.
22
My husband hasn't had a raise in over 5 years. It used to be that workers were paid more when there were fewer workers available. Companies and the wealthy were given tax breaks. Our taxes went up last year. Please explain to me how we are better off now.
73
There is irony in this "new message". During the past 10 years, the self-serving Fed has transferred trillions of tax dollars and lost interest on savings from the middle classes and seniors to Wall Street, suppressing labor participation and wages for all but the wealthy, while simultaneously increasing income inequality. The real issue now is whether the market, increasingly detached from manufacturing, can survive without continued public support. If it can't, a new paradigm for our economy that benefits the whole country will inevitably be developed.
29
"...the low jobless rate had led employers to be more willing to hire less qualified workers and spend money training them".
Well isn't that nice.
At what point does it lead them to actually pay a decent salary, offer some security and control?
Until then its all self-serving fluff.
58
@oogada
"At what point does it lead them to actually pay a decent salary, offer some security and control?"
It doesn't. Welcome to the gig economy.
12
@oogada
"At what point does it lead them to pay a decent salary..."
That point was 2019 for an enormous number of employees. The economy is producing the highest wages ever recorded.
People always whine. The research shows that people actively seek a state of pay dissatisfaction even if they have to start comparing their wages with professional athletes to do it.
1
So the Fed finally admits what average workers have always knew...the economy is rigged in favor of business owners and the rich. If the economy is the greatest it's ever been, and unemployment the lowest, why aren't wages rising? Because it's been rigged to keep a lid on wages.
With more rate cuts, the Fed signals that its job is to goose the economy a little longer to help get Trump re-elected. The supposedly independent Fed is now an arm of the Republican Party. For the GOP, tax cuts are always the answer, whether the economy is good or bad. Now, the Fed says that rate cuts are always the answer, whether the economy is good or bad.
52
@Dario Bernardini You've nailed it! It's no accident that jobs and wages have been diminishing over the past 40 years. As they say in the software industry: "That's not a bug, it's a feature!".
Our economy has been designed this way - it's called "trickle down" - and has been enabled to exist by every President and Congress since Reagan. Yes, the GOP led the way, and continues to find ways to reward the rich and soak the rest of us, but the "Third Way Democrats" born of Bill Clinton and still in charge of the DNC, have gone along with it. They had chances to do something different but didn't. This is what led to the "Trump Rebellion" as a result of so many people getting fed up with waiting for the promised "trickle down" to hit them.
The Democrats now have another shot to do something, but if they fail again, they may never recover. Joe Biden is just another Third Way disciple. We need Sanders, Warren, Harris, or one of those who aren't beholden to the 1% to finally undo the policies of the past 40 years.
19
This is just another scam perpetrated by the 1% crowd: Jobs are through the roof, corporate profits sound, and the stock market in record territory. What's wrong that Mr. Powell is "uncertain" and needs to lower interest rates on the big Wall Street banks? Tariffs he said. Tariffs? Trump's Tariffs? Well played you wealth consolidators. And to think that the people who get nothing from this scheme will try and get Trump re-elected. What would he say about them? "Stupid."
23
Another decades long policy of the Fed has been to raise rates slowly during good times so as to be able to lower them on a downturn.
Trump is against that. Will the Fed keep the course on raises?
2
'Representative Denny Heck, Democrat of Washington, said, “Why hasn’t the Fed called out more than a generation of lack of wage growth?”'
why hasn't congress, especially those of democratic party persuasion, increased wage subsidies for menial, manual and/or low-wage jobs, which can remain unfilled, especially at low unemployment rates? do people on capitol hill even know about the EITC? monetary policy can do only so much.
...
as for the natural unemployment rate, japan (low rate) and spain (high rate) would be good comparisons with the US. norway and north dakota have also maintained low unemployment rates over time, while greece and turkey are often cited as examples of poorly functioning labor markets with high average unemployment rates.
immigration policies and population growth rates (almost always declining for major economies) can also vary across countries, which can affect unemployment and employment rates, and labor markets more generally.
memo to BOJ and ECB: deflation does not imply rising unemployment rates (converse: inflation does not imply falling unemployment rates).
2
Of course, the problem with the job market not being "in an all-out boom" has little to do with monetary policy, and everything to do with the decades-long Republican Party effort to destroy workers' rights to collective bargaining, while maximizing the power of corporations. The so-called "right to work" states are actually the "keep workers down" states, codifying into law ever manner of oppressive labor policies. And the Roberts Supreme Court, or more precisely "The Roberts Five," as Senator Whitehouse of Rhode Island described the five conservative Republican justices, have sided with business against labor "every darn time."
The fact that corporate profits as a percentage of the economy are exceeding the levels of the Gilded Age is all about the Republican Revolution against labor, and not because of anything the Fed has been doing.
91
@Sean Spot on!
It's not much solace, but at least somebody's starting to admit the obvious,,,sort of.
6
@Kingfish52
"Republicans...destroy..collective bargaining"
Nope. Not the reason for weak wage growth.
From 1981 to 2000, U.S. real median personal income increased 38%.
Didn't happen in heavily unionized Europe.
Europe saw no increase in median income at all.
Real household income in the U.S.? $62,400
Real household income in Europe? $36,700
The Fed is in a quandary. If they agree with Trump that the economy is humming, a rate decrease is not justified. If they reduce rates to help Trumps 2020 chances, they’re admitting that the economy is not what Trump says it is.
29