In a part of the speech where he addressed unemployment, he stated:
Although attaining the long-run sustainable rate of unemployment and achieving the mandate-consistent rate of inflation are both key objectives of monetary policy, the two objectives are somewhat different in nature. Most importantly, whereas monetary policymakers clearly have the ability to determine the inflation rate in the long run, they have little or no control over the longer-run sustainable unemployment rate, which is primarily determined by demographic and structural factors, not by monetary policy.
Here the Chairman re-states the Fed mandate of achieving maximum employment with price stability, but then in an about face states that monetary policy really has no influence on unemployment over the long term. This is a fascinating admission. Has he given up? Maybe he has, because he also now introduces the word "structural" into the economic lexicon pertaining to unemployment, this is outrageous. Previously this adjective was only used by deficit terrorists to describe their misguided view of long term fiscal deficit projections. Now apparently, the Fed Chairman is using it to describe his misguided view of unemployment.
What does this term "structural" mean? Is this a real economic term? Is it a recognized accounting term? Is it a stock? Is it a flow? If you think about it, it is used when misguided, ignorant economic policy makers cannot logically explain some economic phenomenon using their own outdated, inapplicable paradigm. If you cannot explain it, it must be some sort of "structural" factor, it is "built in", part of the "natural" economic "structure". Perhaps they view it as an insurmountable "barrier", but this would only be because in reality they do not understand the policies that cause it. There is a structural barrier, it is in their own minds.
The shame of this speech (again!) is that Congressional and Executive branch policymakers can interpret this to mean that there is no policy to counter this now "structural" unemployment introduced here by Bernanke. Bernanke is a disgrace for a public servant.
PS: Go Yankees!
13 comments:
Matt,
Yes, funny how this structural unemployment came about so quickly and predominately during the financial crisis. What a coincidence!
Sure, there may be more structural unemployment now, but more than need be. Perhaps some companies have used the cash they're sitting on to buy technology to replace some laid off workers, in which case some jobs may be gone forever.
In this case, it's the Fed's fault for allowing NGDP to fall so far before getting serious in late '08. That September meeting at which they kept rates at 2% demonstrates how spectacularly out of touch the Fed was with the growing crisis.
Also, assuming that the word “structural” when used by Bernanke is something more than meaningless bullsh*t, it presumably means a mismatch between skills required by employers and skills available. These three employer surveys indicate that a shortage of skilled labour is a total non-problem at the moment.
1. http://www.nfib.com/Portals/0/PDF/sbet/sbet201009.pdf (Page 18)
2. http://www.blumshapiro.com/pub/articles/BlumShapiroCBIASurvey.pdf (Page 4)
3. http://www.pwc.com/us/en/industrial-manufacturing/barometer-manufacturing (Page 26)
Where does Bernanke get off stating that monetary policy has any effect on inflation? Monetary policy is about as accomodative you can get and where is the inflation?
Since when is any Fed chairman a "public servant?" I dont' think that a body that continually debases the curency and creates asset bubbles is a ever a servant of the people.
On second thoughts, I think Bernanke is right on this one. Where he says “long run sustainable unemployment rate” I think he is referring to the minimum attainable unemployment rate (before inflation kicks in) that will obtain when we get back to normal. That rate is determined by what might be called “structural” factors, like how well skills in demand and skills required match up.
That must be distinguished from the nonsensical claims, to which Mike Sandifer rightly refers above, to the effect that structural factors (e.g. a rise in skills mismatches) explain the rise in unemployment over the last two years.
Mike, great comments, they are obsessed with "inflation" to the detriment of the public.
JC, They are clueless.
Welfare, Right conlusions, wrong reasons.
Ralph,
I see what you are saying, that he is trying to identify for us some sort of "natural" unemployment rate.
As an economist (and I use that term loosely) Bernanke is making his own judgment that somehow there is "structural" unemployment that cannot be eliminated by monetary policy (and hence implying that it cannot be eliminated). Ironically he is in a way correct, the correct tool is fiscal policy, but he refuses to point out to congress that this is the case...either he has a "structural" barrier in his brain, or he thinks this is convenient for him and the banking entities he thinks he is beholden to.
His use of this term is a cop out. Rather than admit monetary has very limited efficacy in a FFNC system and perhaps learning something new that he can share, he facilitates the status quo, and btw he has NOOOOOOOO problem sticking his nose in fiscal policy at other times by providing steady commentary on how bad "the debt" is to every receptive deficit terrorist he can get in front of.
He is a disgrace, not a true professional who, like a physician, would look at this holistically.
Resp,
nouriel roubini is now calling for a payroll tax holiday like Norman did 2 years ago.
what a slow cow this nouriel is !
Since when is any Fed chairman a "public servant?" I dont' think that a body that continually debases the curency and creates asset bubbles is a ever a servant of the people. How is the currency being debased? Its been shown on this blog and others a thousand times that the fed, by definition, cannot do this. The fed controls interest rates.
10% is now the new full employment get used to it.
Eric,
Right. this is what he is trying to foist on us, that somehow 10% here is some sort of natural rate, etc...BS.
Inflation (particularly the hyperinflation that some are calling for) will not and cannot occur during times of massive credit contraction (like now). Austrians need to recognize that inflation is a net increase in money and credit, with credit marked to market. Credit is still get whamboozled, so there will be no inflation now. And as for the monetarist and keynsian clowns on this site, just because there aren't any rising prices now, doesn't make fiat currency and fractional reserve banking a good idea. That's why there are 7 of you on this web site. Most of whom are probably just Mike Norman under other google email names. Fiat currency is responsible for all the vicious asset bubbles of the past 40 years, not to mention the stagflation of the 70's. Recessions still occur under free markets, and asset bubbles would still pop up (Dutch tulips, etc), but they would be (by and large) much smaller, more easily corrected, and much less hurtful to our economy. Government's only job is to keep refilling the punch bowl with their eye on the next election. And with the ability to spend and print as much money as they want, not to mention their cozy relationships with Wall Street and their weapons of mass destruction in Freddie, Fannie and FHA.
Eric, What Monetarists? Huh?
I would call it MMT, Modern Monetary Theory and if you spend some time to read up on it, there are some good ideas on how to achieve full employment with price stability.
Eric, do me a favor, find some time and read this:
http://heteconomist.com/?p=658
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