The employment report out today paints a bleak picture of the employment situation. On the employment side there was zero job creation and the gains of the two previous months were revised down. The unemployment rate remained above 9%.
This brief from the Richmond Fed is revealing about the prospects for monetary action (my bold):
Long-term unemployment rose dramatically during the recent recession and remains elevated. A primary cause may be the fact that more workers with inherently low job finding rates have become unemployed. This would suggest that the natural rate of unemployment has increased, and that additional monetary stimulus may have only a limited effect on reducing unemployment.
The flagship picture they use to bolster their argument is graphed below.
So monetary policy has “structuralized” unemployment? Too bad, that´s in the past and now it cannot help much!
Note that in the cycle that began in 2001, the long term share of unemployment did not come down as much as it did in previous cycles. That means that the number of workers with “low job finding rates” has been on the rise. That´s an indication that public policy could have a positive effect in reducing the number of those workers, since it may be indicative of structural changes in the labor market.
But it´s something very different to suggest passivity of monetary policy in the face of the huge jump in the share of the long term unemployed starting in mid 2008, especially since much of that was the result of monetary policy errors, as can be gleaned from the figure below (one of my favorites) which shows the jump in unemployment following the “spending crash” engineered by the Fed.
The next figure shows that the “extended” (U 6) measure of unemployment also went “off the charts” at that time. I have a hard time trying to construct a plausible “structural story” to explain that observation!
Since elections loom, the “it´s the economy, stupid” view of politicians gains traction.
Back in December 2009:
President Obama said today that he is not interested in “taking a wait-and-see approach” when it comes to job creation, as his administration faces unemployment numbers at their worst levels since 1983.
“What I’m interested in is taking action right now to help businesses create jobs right now, in the near term,” the president said at the opening session of the White House jobs summit.
The summit, announced a week after the Bureau of Labor Statistics said unemployment reached 10.2 percent, is the administration’s latest effort to do just that.
And for some “déjà vue”:
Mr. Obama is scheduled to address a joint session of Congress next Thursday to outline his latest economic proposals. His ideas could include “a mix of tax cuts to create jobs and provide economic security to the middle class, [and] innovative infrastructure ideas to put people back to work,” as well as measures aimed at the long-term unemployed, the report said. White House press secretary Jay Carney suggested the measures could push the unemployment rate below 9%, but he also sought to avoid making predictions.
And most things said and written only help to keep monetary policy – and what it could effectively accomplish – buried deep in the background, in effect without any useful role to play!
It is completely aggravating to watch the debate about the economy and jobs unfold with but rare–and usually pejorative–reference to monetary policy. Right-wing commentator Charles Krauthammer last night dismissively referred to a Fed that was “debasing the currency.”
The CPI is up less than 3 percent in three years, and some some the CPI overstates inflation.
Japan here we come. We might as well string up the Rising Sun over our Capitol buildings.