A Benjamin Cole post
In 1962, Herman Kahn, the American author of On Thermonuclear War, followed up with his tome Thinking About The Unthinkable, about a nuclear war with the Soviet Union.
Some were appalled at Kahn’s parsing the life after coast-to-coast atomic blasts.
But today’s macroeconomists would be equally aghast at the suggestion the United States should seek zero unemployment.
But should they be?
Cross-country economic comparisons are notably treacherous due to differences in the definitions and quality of data compilation.
Yet Thailand has had just about no unemployment for years, and modest inflation rates. For example, the latest issue of The Economist reports Thailand has an unemployment rate of 1% and a deflation rate of 1%. Thailand’s latest quarter reported annual growth rate 7.1%, and 3.9% YOY. I can tell you that in rural Thailand work goes undone for lack of laborers.
My anecdotal take is this employment picture is great for the Thais. Almost any Thai has a sense of value, a sense the economy works for them, if they work.
Thailand, run by populists, royalists and now a junta is able to do better than the United States?
Is this creditable?
The Phillips Phlat-Line
Is the U.S. so different? We have seen since the 1990s in the U.S. that inflation barely budges, even as unemployment drops. The Phillips Curve is dead. Indeed, the U.S. has had steady drops in the reported national unemployment rate since 2008, and the problem is still potential deflation, not inflation. The latest PPI, of course, was down YOY.
Thinking The Unthinkable
Surely, some structural impediments could be removed in the U.S. economy, such as the overly generous Social Security and Veterans Administration disability programs, upon which 12 million Americans now draw monthly checks—in a nation in which most jobs do not involve physical labor. Extending unemployment insurance is a bad idea too. Even the minimum wage is a bad idea—although I am uneasy about suffocating the economy through tight money and then stomping the minimum wage, though some might take malicious glee in that, and have proposed as much.
Would it be such a bad thing for our macroeconomic policy to target much lower rates of unemployment?
Why not try, and see what happens?
If moderate inflation results, could we live with it? Why not? The U.S. prospered for decades with inflation in the 3% range. If in the worst cast scenario, inflation rose too high, and the Fed hit the brakes a little—how bad would that be?
When did sub-2% inflation take precedence over robust growth?