July jobs report

[phil_20686]

Returning to the original topic, here is why its dangerous to read too much into the jobs report atm.

 

http://research.stlouisfed.org/fred2/graph/fredgraph.png?bgcolor=%23ffffff&fo=tn&ts=12&id=CE16OV,PAYEMS&scale=Left,Left&range=Custom,5yrs&cosd=2007-07-01,2007-07-01&coed=2012-07-01,2012-07-01&line_color=%230000ff,%23ff0000&link_values=false,false&line_style=Solid,Solid&mark_type=NONE,NONE&mw=4,4&lw=3,3&ost=-99999,-99999&oet=99999,99999&mma=0,0&fml=a%2F12,a%2F12&fq=Monthly,Monthly&fam=avg,avg&fgst=lin,lin&transformation=ch1,ch1&vintage_date=2012-08-06,2012-08-06&revision_date=2012-08-06,2012-08-06

 

 

From here

 

 

Red line is BLS data, blue line is the houshold surveys. As you can see they are not telling close to the same story atm. (These are smoothed moving averages).

[hrothgar]

I'll take it at $2, winner pays bank fees. :)

 

For that small a bet, I figure that its easiest to mail you a $10 bill...

[phil_20686]

For that small a bet, I figure that its easiest to mail you a $10 bill...

 

I carefully sized it so you would lose money paying international mail charges from the UK, but i would get a tidy profit of $6. That is free money mate :P

[awm]

In fact there is strong evidence (in the US anyway) that many workers are not paid close to their marginal productivity. Median wages have been stagnant (adjusting for inflation) for some 30 years while productivity (and GDP) grew substantially.

 

Right now there is an additional problem that the supply of (unskilled) labor greatly outpaces the demand. There are many people working at or near the minimum wage, and even very profitable companies (for example: Caterpillar, Verizon) are cutting wages and/or benefits.

 

In this environment the minimum wage is one of the few things keeping people above water. Raising it makes a great deal of sense. Such a change is unlikely to cause mass layoffs, since a lack of demand for goods is causing the unemployment (not a lack of corporate cash flow or profits).

[luke warm]

I find the very concept laughable. Romney's entire campaign is being run on economic issues. You expect me to believe that Romney wants to change tack and make foreign policy a focus of the campaign?

luckily, romney is capable of multitasking... he's done it before

 

Americans are sick of the wars and want to forget them

They (rightfully) blame the Bush administration for invading the wrong country

so does that mean you think he would help or hurt the reps?

 

I am willing to bet up to $500 at 10:1 odds that Patraeus will not be the Republic VP candidate.

10:1 isn't enough, i judge the real odds to be more like 22 or 23 to 1... i'd never call a pot offering me 10 to 1 with only 2 outs

[kenberg]

About minimum wage:

When I started college in 1956, tuition and fees at the University of Minnesota came to about $225 for a year. Minimum wage was $1 an hour. So about six weeks full time paid a year's tuition. Currently the tuition plus fees at the Univ of Maryland is between $8,000 and $9,000 a year. At the current minimum wage of $7.25 this comes to more than six months. Surely this should tell someone something.

 

Often the person struggling with a minimum wage job is young. College age, for example. Young doesn't mean that he has no need for a decent wage. Both in the 1950s and now one could probably do better than minimum. But right now, to pay for college, or a car, or the rent, you need to do a great deal better. The minimum wage in the U.S. is now so low relative to current costs that it is barely an exaggeration to say that we no longer have one.

[hrothgar]

luckily, romney is capable of multitasking... he's done it before

 

so does that mean you think he would help or hurt the reps?

 

10:1 isn't enough, i judge the real odds to be more like 22 or 23 to 1... i'd never call a pot offering me 10 to 1 with only 2 outs

 

1. Romney may be capable of multitasking, but I doubt the American people are.

 

2. I think Patreus would hurt a Republican ticket. If this election were being contested on foreign policy he'd probably be a good choice. However, the election isn't being contested on foreign policy. (If it were, Obama would be in much better shape)

 

3. So, you're just flapping your mouth then?

[Winstonm]

I find it highly unlikely the republican party will do something this intelligent. They will think, "we already have the military vote, so why choose a general? Instead we must pick some fringe buffoon in a vain attempt to attract a voting bloc that we otherwise suck at attracting." That's what they did last time anyway. Have they learned? I guess we'll see.

 

Fringe buffoon? I'm willing to kick in my $10 in support of Michelle Bachmann on the Romney ticket. ;) Maybe Richard and I can get a write-in draft Bachmann for v.p. petition started .

[mike777]

as for vp...as I understand vp will only...only add about 1% to vote in his home state so I can see....ohio or florida or maybe virg.

 

otoh as many posters feel it will not be close then it dont matter.

[billw55]

About minimum wage:

When I started college in 1956, tuition and fees at the University of Minnesota came to about $225 for a year. Minimum wage was $1 an hour. So about six weeks full time paid a year's tuition. Currently the tuition plus fees at the Univ of Maryland is between $8,000 and $9,000 a year. At the current minimum wage of $7.25 this comes to more than six months. Surely this should tell someone something.

It tells me what I already know, that tuition costs are outrageously inflated. The providers of college education long ago discovered that they can charge whatever they want, and people will still be fighting each other to pay it. Not surprisingly, these costs have risen much faster than inflation for decades.

 

You may be right about minimum wage, but you should pick a more balanced indicator to compare it to.

[hrothgar]

10:1 isn't enough, i judge the real odds to be more like 22 or 23 to 1... i'd never call a pot offering me 10 to 1 with only 2 outs

 

How about the following

 

I'll pay you 3:1 if anyone other than Rob Portman gets picked.

 

What say you to a $100 bet?

 

Easy opportunity for you to triple your money...

[kenrexford]

I find it highly unlikely the republican party will do something this intelligent. They will think, "we already have the military vote, so why choose a general? Instead we must pick some fringe buffoon in a vain attempt to attract a voting bloc that we otherwise suck at attracting." That's what they did last time anyway. Have they learned? I guess we'll see.

 

 

I am curious. Exactly what voting bloc that would normally vote for Obama would decide that Sarah Palin changed their mind? I mean,if your thinking is that McCain wanted to get more women to vote Republican bcause Sarah Paln is a woman, then your assessment of McCain is even lower than mine. At the time, I thought the choice was designed to (1) excite the base and (2) keep a holdon those who would normally vote Republican but might switch simply because Obama would be "historic." In other words, not attracting new voters but holding onto waivering and unreliable voters.

[barmar]

It tells me what I already know, that tuition costs are outrageously inflated. The providers of college education long ago discovered that they can charge whatever they want, and people will still be fighting each other to pay it. Not surprisingly, these costs have risen much faster than inflation for decades.

Right. $225 -> $8500 in 56 years is 6.7% annual increase. $1 -> 7.25 is 3.6%.

[billw55]

I am curious. Exactly what voting bloc that would normally vote for Obama would decide that Sarah Palin changed their mind? I mean,if your thinking is that McCain wanted to get more women to vote Republican bcause Sarah Palin is a woman, then your assessment of McCain is even lower than mine. At the time, I thought the choice was designed to (1) excite the base and (2) keep a holdon those who would normally vote Republican but might switch simply because Obama would be "historic." In other words, not attracting new voters but holding onto waivering and unreliable voters.

Basically yes (and your point 2 seems like essentially the same thing - a woman would be historic). Although I don't think this was McCain's own idea, it doesn't seem consistent with his personality/style. I figure his "strategists" prevailed on him to choose a woman. And even at that, the specific choice baffles me to this day.

 

I think your last sentence expresses the meaning of VP choice pretty well. It can lose a few votes, but not really gain them.

[hrothgar]

I think your last sentence expresses the meaning of VP choice pretty well. It can lose a few votes, but not really gain them.

 

VPs are often capable of delivering specific states. The choice of Johnson is considered a prototypical example.

There are definitely counter examples. (Hell, Gore wasn't able to win his home state in 2000)

 

The reason that I am so bullish on Portman is Romney's need to keep Ohio in play...

[Phil]

VPs are often capable of delivering specific states. The choice of Johnson is considered a prototypical example. There are definitely counter examples. (Hell, Gore wasn't able to win his home state in 2000)

 

The reason that I am so bullish on Portman is Romney's need to keep Ohio in play...

 

Betfair isn't too far off on your prediction:

 

Republican VP

[luke warm]

How about the following

 

I'll pay you 3:1 if anyone other than Rob Portman gets picked.

 

What say you to a $100 bet?

 

Easy opportunity for you to triple your money...

close to the right odds... close enough... you have pay pal, right?

[hrothgar]

close to the right odds... close enough... you have pay pal, right?

 

I've paid other folks via Pay Pal. Don't have an account, however...

If I win, we can worry about how to set things up.

 

Just to be clear, you are accepting a bet in which:

 

I pay you $300 if anyone other than Rob Portman is chosen as Romney's running mate and

you pay me $100 if Rob Portman is chosen as Romney's running mate.

[luke warm]

I've paid other folks via Pay Pal. Don't have an account, however...

If I win, we can worry about how to set things up.

 

Just to be clear, you are accepting a bet in which:

 

I pay you $300 if anyone other than Rob Portman is chosen as Romney's running mate and

you pay me $100 if Rob Portman is chosen as Romney's running mate.

done, unless it was announced before 12:20 PM central time zone, Thursday, August 9th, 2012

 

what odds you giving on rubio? or ryan?

[phil_20686]

In fact there is strong evidence (in the US anyway) that many workers are not paid close to their marginal productivity. Median wages have been stagnant (adjusting for inflation) for some 30 years while productivity (and GDP) grew substantially.

 

Right now there is an additional problem that the supply of (unskilled) labor greatly outpaces the demand. There are many people working at or near the minimum wage, and even very profitable companies (for example: Caterpillar, Verizon) are cutting wages and/or benefits.

 

In this environment the minimum wage is one of the few things keeping people above water. Raising it makes a great deal of sense. Such a change is unlikely to cause mass layoffs, since a lack of demand for goods is causing the unemployment (not a lack of corporate cash flow or profits).

 

The first two points are actually the same point. Marginal productivity wages only applies at full employment. At full employment it is hard for a business to replace you, so you a have strong bargaining position to drive up your wage, at low employment the business has a strong position, as they can easily replace you, and an unemployed person might do the same job for a lower wage. Nevertheless most economies operate close to full employment most of the time. It can also be hard for workers and employers to accurately measure their marginal product.

 

As for wage stagnation, what we are really seeing is convergence. There is currently an oversupply of unskilled labour, but that is caused by increasing integration. We are bringing millions of (essentially) unemployed people into the world economy every day, as india, china, brazil become more integrated. And they are demanding wage increases. The real story of stagnant wages is in declining labour share. If we consider only the manufacturing industry, we find that in the last twenty years labour share of output has fallen from 35% to 25%, but almost all of that fall has been due to rising commodity costs. The reality is, that a huge fraction of that money is going to pay rising wages in the developing countries which are doing all the mining, Brazil, china, etc. Between 1994 and 2002, the wages paid to brazilians for the manufacture of `basic metals' (which I think means mining, hard to read these transliterated terms), doubled. (Stats from here).

 

So, the reality is that productivity gains are being captured by workers, just not our workers. This is the reality of globalisation. On the other hand, most developing countries do not yet have the universities, business schools, and law schools, that we take for granted, and we are exporting their services to the rest of the world. Helped immeasurably by the information technology revolution, It is becoming possible to manage more and more people, and our skilled classes are reaping the benefits, which is driving inequality higher. This is a secular trend that it is beyond governments to limit, though they can possibly limit the absolute size. If you look at the trend lines for inequality they are identical from high tax places like sweden, through medium taxes like the UK to low taxes like the US. We were just starting at comparatively lower basis.

 

I think there is a cogent argument here for taxes to become more progressive, as we respond to these changing circumstances. However, like all trends it will not continue forever, wage convergence is proceeding apace. By the time I grow old, I think de-industrialised countries will be a thing of the past, at that point I would expect first world manufacturing wages to again track productivity growth.

 

ALso, since 1970 (ish) world inequality has been decreasing faster than anyone thought was possible. If this trend continues for another two decades, the world will be a very different place.

[awm]

Right now we are very far from full employment. Unemployment causes downward pressure on wages, which increases inequality, which reduces demand, which causes unemployment. Government needs to step in and break this cycle.

If government acts to directly increase demand and/or employment, this means a massive increase in government. That is politically untenable and also creates massive opportunity for graft. Raising the minimum wage would seem to break the cycle without most of the issues. Its also easy to justify morally, since it directly helps only people who work and the minimum wage has not kept up with inflation and really is not a "living wage." A similar suggestion is to mandate paid vacation days.

[phil_20686]

Right now we are very far from full employment. Unemployment causes downward pressure on wages, which increases inequality, which reduces demand, which causes unemployment. Government needs to step in and break this cycle.

If government acts to directly increase demand and/or employment, this means a massive increase in government. That is politically untenable and also creates massive opportunity for graft. Raising the minimum wage would seem to break the cycle without most of the issues. Its also easy to justify morally, since it directly helps only people who work and the minimum wage has not kept up with inflation and really is not a "living wage." A similar suggestion is to mandate paid vacation days.

 

Downward price ridigity is a feature of our economy. No one takes pay cuts. Instead they fire people and hope to rehire at a lower wage. Imagining a higher minimum wage will make a significant impact on this cycle is fairytale economics. If you believe that minimum wages are insufficient, direct transfer payments based on hours worked is more efficient, and has none of the negative impacts.

 

Or alternatively, the Fed could do its job.

 

Aggregate demand is really a statement about the price level. Everything is in demand at the correct price. This is the central (new) Keynesian insight; Prices clear markets, a demand side recession is when markets fail to clear, ergo the the price level is wrong. The easiest way to reset the price level is through moderate controlled inflation.

 

For the third time in a century, we are suffering through needless economic hard ship because central bankers cannot tell the difference between demand side and supply side problems. There was the great depression, then there was stagflation when the central bank thought that high inflation would cure unemployment, when that trade off only applies if the short fall in production is demand side. Supply side problems require innovation, and increase in production. Demand side problems just require appropriate policy.

 

Now they are pursuing price stability while millions suffer, because that was the solution the last time around. Its like a sick joke. Millions of people are suffering because the ECB is allowing the periphery to slip into outright deflation. The Fed, whose dual mandate specifically authorises it to allow above two percent inflation in times of high unemployment, is now a cumulative 5% below its two two percent target over the time since the financial crises. This is a scandal.

 

The hard money lunatics have taken over the asylum. Only in this case, the asylum are the biggest players in the world economy. Bring on high inflation. Let the unemployment rate fall. It is the only realistic chance the developed economy has to avoid decades of lost production as the price level slowly adjust through high unemployment and lower wages. In the absence of higher inflation, every peripheral country in the EU will follow spain into a black hole of unemployment that may take decades just to return to normal.

 

Fiscal policy will do nothing if the the central banks do not allow inflation to rise. If they were happy for it to rise to lower unemployment, why don't they make it rise? If they want to keep inflation below two percent, they will act to tighten money in response to fiscal policy, and you will have larger deficits and no gain. If the government gets into a tug of war with the Fed over fiscal vs monetary policy. The government will lose. The Fed controls the path of aggregate demand. In can increase demand, at will, by lowering the price of money. The federal reserve statement came out and said, for the sixth, successive quarter, the path of the economy was yet again below their predictions, but that there was still no need for the fed to change course. If the fed's policy forecasts are less than it hopes for, that is the perfect reason to do more.

 

It makes me so angry. Millions of people are suffering, and our political classes are wholly oblivious to the actual problem. Those countries who are doing ok out of this recession have exactly one thing in common, their central banks have acted aggressively to keep NGDP on growth, by allowing high inflation through the aftermath of the recession. Australia: 5% inflation, to keep NGDP at 8%. New Zealand: 5% inflation, Iceland, inflation peaked at 17% for a few months post crises: result, unemployment fell 3% in six months. Sweden, inflation peaked at four %, and knocked two percent of the unemployment peak. In the united states, the inflation rate was negative two percent. NEGATIVE TWO PERCENT. And you wonder why there is a problem.

 

My dad told me once (I paraphrase) that every generation starts off optimistic about the future, imagining that they will not repeat the mistakes of the past, and then they have a WTF moment when they realise that the world government is run by a collection of pretty faces in fancy suits, and they they descend into cynicism and conservatism, because better the suffering you know than the cluster**** that they made of their last `good idea'. I was just hoping to get to thirty before I became a cynical old man.

[Winstonm]

I was just hoping to get to thirty before I became a cynical old man.

 

Me, too, but along came My Lai, the Tet offensive, and then Watergate. An 18-20 year old American male had no choice but to cash that trifecta of cynicism ticket.

[blackshoe]

How does the Tet Offensive fit in there?

[mike777]

Downward price ridigity is a feature of our economy. No one takes pay cuts. Instead they fire people and hope to rehire at a lower wage. Imagining a higher minimum wage will make a significant impact on this cycle is fairytale economics. If you believe that minimum wages are insufficient, direct transfer payments based on hours worked is more efficient, and has none of the negative impacts.

 

Or alternatively, the Fed could do its job.

 

Aggregate demand is really a statement about the price level. Everything is in demand at the correct price. This is the central (new) Keynesian insight; Prices clear markets, a demand side recession is when markets fail to clear, ergo the the price level is wrong. The easiest way to reset the price level is through moderate controlled inflation.

 

For the third time in a century, we are suffering through needless economic hard ship because central bankers cannot tell the difference between demand side and supply side problems. There was the great depression, then there was stagflation when the central bank thought that high inflation would cure unemployment, when that trade off only applies if the short fall in production is demand side. Supply side problems require innovation, and increase in production. Demand side problems just require appropriate policy.

 

Now they are pursuing price stability while millions suffer, because that was the solution the last time around. Its like a sick joke. Millions of people are suffering because the ECB is allowing the periphery to slip into outright deflation. The Fed, whose dual mandate specifically authorises it to allow above two percent inflation in times of high unemployment, is now a cumulative 5% below its two two percent target over the time since the financial crises. This is a scandal.

 

The hard money lunatics have taken over the asylum. Only in this case, the asylum are the biggest players in the world economy. Bring on high inflation. Let the unemployment rate fall. It is the only realistic chance the developed economy has to avoid decades of lost production as the price level slowly adjust through high unemployment and lower wages. In the absence of higher inflation, every peripheral country in the EU will follow spain into a black hole of unemployment that may take decades just to return to normal.

 

Fiscal policy will do nothing if the the central banks do not allow inflation to rise. If they were happy for it to rise to lower unemployment, why don't they make it rise? If they want to keep inflation below two percent, they will act to tighten money in response to fiscal policy, and you will have larger deficits and no gain. If the government gets into a tug of war with the Fed over fiscal vs monetary policy. The government will lose. The Fed controls the path of aggregate demand. In can increase demand, at will, by lowering the price of money. The federal reserve statement came out and said, for the sixth, successive quarter, the path of the economy was yet again below their predictions, but that there was still no need for the fed to change course. If the fed's policy forecasts are less than it hopes for, that is the perfect reason to do more.

 

It makes me so angry. Millions of people are suffering, and our political classes are wholly oblivious to the actual problem. Those countries who are doing ok out of this recession have exactly one thing in common, their central banks have acted aggressively to keep NGDP on growth, by allowing high inflation through the aftermath of the recession. Australia: 5% inflation, to keep NGDP at 8%. New Zealand: 5% inflation, Iceland, inflation peaked at 17% for a few months post crises: result, unemployment fell 3% in six months. Sweden, inflation peaked at four %, and knocked two percent of the unemployment peak. In the united states, the inflation rate was negative two percent. NEGATIVE TWO PERCENT. And you wonder why there is a problem.

 

My dad told me once (I paraphrase) that every generation starts off optimistic about the future, imagining that they will not repeat the mistakes of the past, and then they have a WTF moment when they realise that the world government is run by a collection of pretty faces in fancy suits, and they they descend into cynicism and conservatism, because better the suffering you know than the cluster**** that they made of their last `good idea'. I was just hoping to get to thirty before I became a cynical old man.

 

 

 

 

 

not sure what is your recommendation.......allow inflation to rise ok...but fed do what that it does not do?

 

bank of england to do what that it does not do?

 

 

"It makes me so angry. Millions of people are suffering, and our political classes are wholly oblivious to the actual problem"

 

 

As a noneconomist...monterist/friedman.........I guess I show my bias that in general i dont care about budget deficits......in general

 

--

 

 

 

I also get the impression, strong impression that macroeconomics is a science in need of a savior