's Forum Archives - Non-Cycling Discussions

Archive Home >> Non-Cycling Discussions(1 2 3 4 )

Full Employment and the Federal Reserve(49 posts)

Full Employment and the Federal ReserveMe Dot Org
Mar 2, 2003 10:30 AM
A question about Full Employment and The Federal Reserve.

I'm sure a lot of people remember this scenario from the 90's:

When the economy is doing really well, and the unemployment rate drops below 5 per cent, Wall Street gets jittery.


Because they are afraid that the Federal Reserve will jump in and raise interest rates.


Because making borrowing more expensive will cool economic growth.

Why cool economic growth?

Because the closer you get to full employment, the more competition there is among employers for labor. Increase competition for labor leads to rising salaries, which makes overhead greater, which leads to rising costs, which pushes people to ask for more money: the proverbial inflationary spiral.

Which leads me to this question: If our monetary policy is one where full employment is considered bad, and the Federal Reserve will raise interest rates in order to keep this from happening, how can we expect everyone to find a job?
re: Full Employment and the Federal ReserveSpoke Wrench
Mar 2, 2003 11:18 AM
I think it's also pertinent to point out that 100% of the people making these decisions all have jobs so only the upside affects them.
Deport "illegal" aliens, and viola, jobs...hycobob
Mar 2, 2003 11:20 AM
When I moved to Texas from Oklahoma, I had to find another skill. I had been working concrete...slabs, sidewalks, etc. This is in no way intended to be a racial slur, but as a whith guy, I couldn't find a job. All the construction crews were Mexican and only a few spoke English. I went from a skilled laborer to a stocker-job in a supermarket...paid the bills though.
Deport "illegal" aliens, and viola, jobs...mickey-mac
Mar 2, 2003 11:38 AM
First of all, how do you know that all of those "Mexican" workers were illegal? Many immigrants who are here legally speak little or no English. Second, how do you know those on the contruction crews were Mexican? Many immigrants are here from Guatemala, El Salvador, Honduras, Nigaragua, Colombia, and other Latin American countries and are often classified as Mexican by those in the U.S. who don't bother looking past skin color and language. Third, do you really think U.S. citizens are lining up for the jobs typically done by undocumented aliens? Most citizens I know aren't all that interested in taking jobs as busboys, gardener's helpers, housekeepers, or migrant farm workers.
OK...I'm not PC nor will I ever behycobob
Mar 2, 2003 12:47 PM
The hispanic illegal alien population in the Houston area alone is staggering. And it doesn't matter where they are from...they are here illegaly, period. Its not just a southern states issue anymore; they're migrating up north too. Alot of my US citizen friends (even white ones) have started up their own lawncare businesses and make good money doing it, hiring the best legal employees they can. On the other hand, look at RAMEX Construction in Houston. They are proud to call themselves a wholey minority owned and employeed company. This is racist to the Nth degree. Their jobsites aren't raided because its considered decidedly un-PC to ask for proof of citizenship. Heck, I even carry my driver license when I'm on mt bike. As for the language barrier...if I move to Brazil, I'll learn to speak, they can learn English. It is recognized by every country in the world to be our national language. I was floored to see street signs in Sharpstown, TX written in Vietnamese script.
OK...I'm not PC nor will I ever be4bykn
Mar 2, 2003 1:09 PM
Unless one is of native American descent, aren't we all aliens, legal or not?
You got me there...hycobob
Mar 2, 2003 3:39 PM
I'm sure someone in my history (not herstory) stole land or murdered an "indian" or too. I'm a quarter Comanche, so a feminist might say that my male European ancestors raped a squaw too. But who is to say the tribes we recognize were the first? Maybe we need to find some Neadrathals and beg forgiveness...we're all crazy to worry so much. People say we adults are the problem...maybe we are. Why don't we reform our culture to fit "Logan's Run" or better "Lord of the Flies", where there are no old farts like me. At 37 I'd already be long dead and gone.
Mar 2, 2003 9:38 PM
Anyone who up to speed on current anthropology knows that the history of the new world is about to be re-written and the recently-named 'Native Americans' were just a prior wave of immigrants. (Try to find one contemporaneous reference to Indians, other than maybe the Oneida, claiming to be Americans, in the 17th, 18th, or 19th centuries, during the periods of conflict.)

A few months ago, an announcement was made of the discovery in Mexico City of a 9000+ year old skull of a woman. Funny thing, she wasn't an "Indian" as are 90+% of the population of Mexico is today. In Brazil, another skull of a little older antiquity has been discovered in recent years. She is called "Luisa" and funny thing is, she is not an Indian, but appears to be an Australian aboriginee. Then, there is the Kennewick Man (subject of a bit of legal wrangling with local Indians in Washington); funny thing is, at 8000+ years old, he isn't an Indian. Forensic anthropologists fleshed him out and he looks like Patrick Stewart (Jean-Luc Piqard of Star Trek), but is ethnically similar to the Ainus of Japan. All would qualify as 'Native American' but none of these most ancient of immigrants is an Indian.

Oh, yeah, all seem to have had violent deaths and at least in the Brazilian case, one of the theories is that aborignees (Australoids) were murdered by invading Indians ostensibly stealing the previous immigrant's lands.
Mar 2, 2003 10:03 PM
Didn't Bruce Willis take care of them a few years ago?
Deport "illegal" aliens, and viola, jobs...Me Dot Org
Mar 2, 2003 2:55 PM
The problem is not that illegal aliens are taking jobs. The problem is that government policy wants to discourage full employment.

If you deport the illegals, you would lower the pool of labor, which would increase competition for workers, which would increase pay, which would start an inflationary spiral, etc., etc. So you would simply make it more likely that the Fed would jump in and raise interest rates sooner.
Deport "illegal" aliens, and viola, jobs...hycobob
Mar 2, 2003 3:26 PM
But there would be fewer people on welfare and a much decreased drain on tax dollars. Then medical costs would eventually go down from less indigent patients. Maybe we could even open a few auto and electronics factories too, with more money out there...but, would that unduely influence the Japanese. Can't do what we did (sort of) before WWII, and give them reason enough to raid the "Northern Resource Area".
Deport "illegal" aliens, and viola, jobs...Me Dot Org
Mar 2, 2003 5:07 PM
I'm not sure you getting my point. If the market force that drives the Federal Reserve to increase interest rates is a low rate of unemployment, this is going to happen whether or not there are illegal aliens. It is going to happen when the Fed sees that a low unemployment rate is starting to drive up wages. My point is I don't think the people on welfare will ever see those jobs, because to stop the economy from overheating the Fed will increase interest rates, which will slow down borrowing, which will slow down economic expansion, which will decrease the number of jobs.

The average consumer is happy because the inflation rate low. The corporate sector is happy because it keeps labor costs down. The only people who are unhappy are those at the bottom who lose or cannot find jobs.

In other words, a low inflation rate is predicated on having a certain percentage of the population unemployed, as exemplified by the monetary policy of the Federal Reserve.
Inflation hawkishCaptain Morgan
Mar 3, 2003 8:39 AM
There is not just one goal for the Fed; but if I were to list the primarily goals, keeping inflation under wraps would be the first, not full employment.

The stats seem to support this. The unemployment rate dropped below 5.0% in 6/97 and decreased steadily until it reached 3.8% in 4/00. Yet rates actually declined through 1998 and half of 1999, even as the unemployment rate fell.

I'm no quant guy, but I'd bet you'd see a much higher correlation of interest rate changes/monetary policy to changes in CPI or PPI as opposed to changes in the unemployment rate. Still, your question is an interesting conundrum.
Inflation hawkishMe Dot Org
Mar 3, 2003 10:11 AM
Thanks, first reply that seemed to really get what I was going after.

I would agree that a CPI/PPI rise would be a greater concern to the Fed than a lowering unemployement rate. Perhaps the market gets jittery that the Fed will be proactive when most of the time it is reactive.

Is the premise that a low unemployment rate would tend to take the brake off wage control still valid? I think so, but I would be the first to admit I don't have a degee in economics. There may be other market pressures that would tend to control wages, even in the face of falling unemployment. I just don't know what they are.
You're right onCaptain Morgan
Mar 3, 2003 11:07 AM
The only thing I would add is that another thing the Fed looks at with respect to wage control is productivity. Greenspan is always mentioning productivity gains when he speaks about wages. In a perfect world, the Fed would like to see increased wages come with increased productivity.

I think what the Fed does is an art, not a science. Its like standing on a floating platform in the middle of the ocean. When it starts to tilt one way, you try to offset it by leaning the other way, but not too much or you'll take a dive.
Great metaphor. The Fed is completely adrift. . .czardonic
Mar 3, 2003 11:40 AM
. . .relying on a reactionary, knee-jerk policy that keeps the feet of the well-off dry but soaks the less fortunate.
What part of monetary policy soaks the less fortunate? (nm)TJeanloz
Mar 3, 2003 11:46 AM
NoneCaptain Morgan
Mar 3, 2003 11:59 AM
A couple of points:

1. Greenspan is against the Bush tax cut.

2. Greenspan was appointed twice by Clinton.
So what? Remeber Welfare Reform?czardonic
Mar 3, 2003 12:03 PM
Clinton was no friend of the poor.
That's fiscal policy - not controlled by the Fed (nm)TJeanloz
Mar 3, 2003 12:08 PM
Gee, really? I was responding to the Clinton reference. (nm)czardonic
Mar 3, 2003 12:13 PM
The part that favors "economic growth" over employment and wagesczardonic
Mar 3, 2003 12:01 PM
Bidding war over employees!?!? Heaven forfend!
This argument almost defines comprehension...TJeanloz
Mar 3, 2003 12:10 PM
Ask people in Argentina how good inflation is for the poor. A bidding war for employees creates an unsustainable economic condition whereby prices will rise at rates faster than wages. What good is it to make $1 million/hour if a loaf of bread costs $500,000?
Speak for yourself.czardonic
Mar 3, 2003 12:22 PM
I am well aware that rampant inflation is a bad thing, as is rampant deflation. I realize that a balance has to be struck.

My problem is that under our system, the crests and troughs inherent to finding that balance often effect those least able to survive them. So, when hundreds of thousands of people lose their ability to feed their families, people like you assure them that the system is working as it should. I expect that you are also a proponent of minimizing or cutting the welfare safety net that we have to keep them from starving altogether the next time interest rates are tweaked in the direction of "economic growth".
Mar 3, 2003 12:34 PM
If you can, explain to me the causality between the current Fed interest rate policy and joblessness. The current discount rate is .75%, which is the lowest it has ever been. It peaked roughly when the economy peaked, in late 2000, at 6% - as it should have.

The Fed embarks on a so-called Goldilocks approach of keeping the economy "not too hot, not too cold"; attempting to minimize the height of crests and depth of troughs - which is good mostly for the poorest members of society. The rich would prefer to make a lot of money on the crests and ride out the troughs (because they can afford to ride them out). Monetary policy actually favors the less fortunate.

On welfare, I personally am not in favor of cutting the amount spent on welfare programs. I am in favor of structural changes to the system to encourage positive economic development. Welfare, we have to realize, should not be a sustainable, pleasant situation, it should encourage (and give the opportunity) to advance into the un-subsidized economy.

But, as I said above, I'd be most interested to hear how you believe the Fed policy has negatively effected the poorest members of society.
What happens when the Fed "cools" the economy?czardonic
Mar 3, 2003 1:20 PM
Who are the first to lose their jobs when growth is reined back?

"Welfare, we have to realize, should not be a sustainable, pleasant situation, it should encourage (and give the opportunity) to advance into the un-subsidized economy."

I see that you are of the "poor-people are inherently lazy, and will only seek work if unemployment is made to be a bitter and unsustainable condition" school.
The economy "cools"Captain Morgan
Mar 3, 2003 1:31 PM
Regarding the welfare issue you BOTH have points. Yes, there are individuals that use the system as an alternative to working, and yes, there are some people who tend to paint poor people with the same lazy-colored brush.

I think the noninterventionist policy you are advocating is quite dangerous, and the long-term effects would be more detrimental than the short-term discomfort the policy would create.
Intervention is fine. Punishing the unemployed twice is not.czardonic
Mar 3, 2003 1:52 PM
If unemployment is a necessary part of striking a stable balance, fine. I just find it offensive that the people who are quickest to shrug off unemployment as a necessary evil are also the one trying to cut holes in the safety net for the unemployed.
Intervention is fine. Punishing the unemployed twice is not.TJeanloz
Mar 3, 2003 1:58 PM
Few people advocate the elimination of the unemployment safety net. But it's a safety net, to catch your fall and put you back on your feet - not a featherbed to catch your fall and keep you comfortable until you feel like waking up.
Maybe <i>you</i> are so lazy. . .czardonic
Mar 3, 2003 2:01 PM
. . .that if you could live comfortably on the dole you'd gladly choose to do it. But don't project your attitudes onto people you don't know.
I think you generalize too muchCaptain Morgan
Mar 3, 2003 2:03 PM
Talk about painting people with the same brush.

You know, you could sell your expensive road bike(s), and probably make some poor families pretty happy. Or maybe you just want to use other people's money. I see.
Expensive road bike(s)!?czardonic
Mar 3, 2003 2:13 PM
Don't have any of those.

Other people's money? I guess when other people take it on the chin to protect an economy that puts money into your pocket, they shouldn't ask to for any of your money in return to help put food on their table.
$1,000 to some would be obsceneCaptain Morgan
Mar 3, 2003 2:26 PM
I just did a quick search -- you have one Tiagra-equipped road bike and one MTB (unspecified). I'll bet many unemployed poor people could not even IMAGINE spending a grand on bikes. And to "innocent Iraqi citizens" -- forget about it!

Also, what was your charitable contributions on your 1040 the past few years, Mr. "Protect the Poor"?

Sometimes I think liberals (generalization) value money more than some conservatives. They have a choice -- either donate their OWN money or be an advocate for others to give THEIR money. That's why so many celebs do it -- so they don't have to give away their own money.
I wish I could afford a $1000 bike!czardonic
Mar 3, 2003 2:53 PM
I bought mine on sale for substantially less than that. The MTB was a gift, but it cost under $400 back in 1996. Now, throw in the fact that I don't own a car, and really don't think you can say that my bike is an extravegance.

If I didn't pay taxes, I could afford a car. But I'd rather that money go to the needy.
Ideally? Nobody...TJeanloz
Mar 3, 2003 1:32 PM
When the Fed "cools" the economy, their actions don't promote laying workers off, they simply make it less attractive to hire as many new workers, which prevents large inflationary spikes. If the economy is fully employed, it makes a lot of economic sense to prevent inflation by "cooling" the economy and preventing it from becoming more than fully employed, which would inevitably lead to an inflationary situation. I would also contest that the poorest people are the first to lose their jobs in an economic slowdown. It seems to me that in the latest weak economy, the technology sector (which isn't exactly a minimum-wage field) has been the hardest hit. My building has far fewer investment bankers in it- but the same number of cleaning people, and more security staff. So I'm not sure that the lowest paid are the first to be cut in tough times.

I don't believe that the poor are inherently lazy. But I do believe that if you provide them a living wage (for no work) they will be encouraged not to work. Given the choice between working for a decent wage and not working, but getting a similar wage, I don't know many people who would choose to work. So yes, I believe unemployment should be bitter and unsustainable.
But when "full employment" is 96%. . .czardonic
Mar 3, 2003 1:46 PM
. . .4 out of 10 people who want work can't find it. As you euphemistically put it, the Fed's policy makes it less attractive to hire as many new workers. So that means that someone is SOL, and that person is generally the one least able to "ride out" the trough.

Of course, it's not good enough that the unemployed play a vital part in your grand scheme of economic stability. You also want to make sure that they play their part in as little comfort as possible. Nice.
QuestionCaptain Morgan
Mar 3, 2003 1:51 PM
If a terrorist-controlled plane is on a direct route (GPS confirmed) to a building filled with 1,000 people, but the plane has 50 innocent people onboard, do you sacrifice the 50 to save the 1,000?
Do you understand the unemployment rate?TJeanloz
Mar 3, 2003 1:57 PM
If the unemployment rate is 4%, 4 out of 100 people who were surveyed last week did not work and looked for a job. What it does not reflect is how long they have been looking. If I quit my job on Friday, and begin looking for a job on Monday, maybe I find one the following Monday, I have been unemployed for a week. Maybe I, as an investment banker, have 5 job offers, but I'm holding out for something that pays at least $250,000 a year. And that's fine, because over the years, I've socked away a few million dollars. I'm counted as unemployed. The 4% of frictionally unemployed are unemployed as a result of (primarily) voluntary machinations of the labor system. They are the inherent statistic of the existence of timing differences in the labor force. It would be impossible to eliminate this 4%, except via forced labor (which I'm pretty sure you're opposed to).

Right now, we are not at full employment, so this is sort of moot- but think back to 1999; was there anybody who wanted a job who couldn't find one in short order?
What percentage of the unemployed are investment bankers?czardonic
Mar 3, 2003 2:03 PM
Give me a break. Most people in this country can ill afford to miss even one paycheck. Must be nice to live in complete ignorance of the lot of your fellow man.
You can't answer a question with a question. nmCaptain Morgan
Mar 3, 2003 2:04 PM
Who asked you? (nm)czardonic
Mar 3, 2003 2:14 PM
Good question...TJeanloz
Mar 3, 2003 2:21 PM
About 8 million people are currently unemployed, and at least 100,000 investment bankers are on the street (as opposed to the Street), so that's about 1.25% of the unemployed. Why are you concerned about the frictionally unemployed? You shouldn't be.

Full employment can be defined as "anybody who wants a job is able to get one" note the difference between that and "anybody who wants a job has one". The 4% of frictionally unemployed are NOT badly off. They are in a position whereby they are able to get a job and, for some unkown reason, are not taking it. The people you should be worried about are the structurally unemployed, those whose skill set (or lack thereof) precludes them from getting a job.

At those points in time when the economy has been at full employment (like 1999-2000) was there anybody who wanted a job who was unable to get one?
If the definition has any meaning, no.czardonic
Mar 3, 2003 2:46 PM
But, you are simply assuming that people who choose not to work are not badly off. What about people who can get a job at McDonalds, but can't afford to feed their family or pay their mortgage on minimum wage and are thus holding out for a liveable wage? By your definition, they simply choose to be unemployed. Technically, I suppose that's correct.

So, to answer your question with a question, does "full emplopyment" mean that people can find work that meets their requirements as far as feeding, clothing and housing themselves and their dependents. Or is it an abstraction that counts people as "frictionally" unemployed as long as Wal-Mart is hiring Greeters for minimum wage?
As usual, it depends,TJeanloz
Mar 3, 2003 2:56 PM
If being a greeter at the Wal-Mart is the most that a person is qualified for, and they're holding out for something better, there's a problem. But it's not something that a booming economy is going to fix. The "frictionally" unemployed are assumed to be able to afford their unemployed status. But if you can't afford to feed your family or pay your mortgage on what you can get in the labor market, you probably can't afford to feed them on the nothing that you're making by staying out of the labor market. Any time somebody says "I could make $XX mowing lawns, but instead I'm doing nothing and surviving on it", they are frictionally unemployed. They are doing nothing, and making nothing, but it is their choice. And in that case, I might content that they are not unemployed at all, because they aren't really looking for a job.

Does "full employment" mean that everybody has a job they like, and that pays them what they think they're worth? No. Does it mean that everybody who wants to work can work? Yes.
So, it <i>is</i> a meaningless abstraction. (nm)czardonic
Mar 3, 2003 3:40 PM
NoneCaptain Morgan
Mar 3, 2003 12:05 PM
A couple of points:

1. Greenspan is against the Bush tax cut.

2. Greenspan was appointed twice by Clinton.
"Full Employment"TJeanloz
Mar 3, 2003 11:34 AM
Using the term "Full employment" in this context is a bit of a misnomer. "Full employment" in the United States is generally considered around 4% unemployed, rather than 0%. Full employment in this sense is actually optimal, but levels of employment above "full" are not good. This is based on the idea that there will always be a segment of the population that is unemployed - the so-call "frictionally" unemployed. These are people who are just out of school or quit their jobs because they didn't like them or could no longer do them (but have not yet found new jobs).

If these frictionally unemployed people didn't exist, think of how difficult economic growth would be. A company looking to expand would have to lure people away from their current job to add employees, and this would quickly create a bidding war scenario for employees (we saw a bit of this in the high-tech sector in the late 1990s, when the category had more than full employment). This bidding war stunts economic growth, and caps the potential of the economy, which is not what the Fed wants to have happen.
"Full Employment"Me Dot Org
Mar 3, 2003 4:23 PM
I understand what you're saying. An economy where everyone is employed has no room for growth. If you're an expanding company, you need a pool of unemployed people to draw from.

My point is this: If it is economically bad to have everyone employed, why do we insist that everyone have a job?

I realize that the definition of "everyone" is somewhat amorphous. Seriously disabled people cannot work. But does the Fed want to promote and economy where every able bodied person is employed? Won't the inflationary push from that much employment prompt them to raise interest rates?
It can't be that simple.czardonic
Mar 3, 2003 4:32 PM
Our population is always increasing, via birth and immigration. We should't need to limit employment to make sure that there is room for growth.