Friday, September 25, 2015

Raise Interest Rates, When the Economy is Growing but Fragile? That’s What You Wanted, Dummy

The Fed dodged its own bullet last week.

About a year and a half ago, I wrote that Federal Reserve chair Janet Yellen, who took the position in February 2014, had the right attitude for this profoundly responsible job.  She believed in the importance of enough jobs – not with higher minimum wages, as most of her fellow Democrats believe, and not measured by dropping unemployment levels, a trap easy to fall into.  Still, over the past several months there had been widespread speculation, along with a number of apparent information leaks, that the Fed might raise interest rates, which are still at 0.25% (Federal Funds), 0.75% (Federal Discount), and 3.25% (Wall Street Prime).  At their September 17 meeting they did not, and released a statement saying they would wait until they have “seen some further improvement in the labor market” and are “reasonably confident that inflation will move back to its 2 percent objective over the medium term.”

Why was this the right decision?

First, since Yellen took office, core inflation, which measures price increases outside of food and energy, has indeed gone nowhere.  Since March 2013 its measures have been, every single month, in a range from 1.57% to 1.96%. 

Second, labor force participation, which tells more accurately how common it is for Americans to be working than any unemployment rate, has worsened.  Since February 2014, the share of United States residents either working or officially jobless has fallen from 63.0% to 62.6%. 

Third, while the number of technically unemployed has improved during that span from 10.9 million to less than 8.2 million, the AJSN, or American Job Shortage Number, has dropped only from 20.3 million to just under 18.1 million.  That means the United States economy could still absorb over 18 million additional jobs.  

Fourth, while the national debt has worsened only from $17.58 trillion to $18.39 trillion over the past 17 months, that difference alone, about $81 billion, still costs, for every 1% increase in interest, $810 million per year to service.  The entire amount costs $183.9 billion for each 1%, or about 5% of the current annual $3.67 trillion federal spending.  By comparison, the largest budget item, Medicare and Medicaid, consumes less than six times that.

All four of these facts mitigate toward leaving interest rates where they are.  Together, they more than offset any argument for the opposite.  Although the national money supply, whether measured by M1 (the total amount of cash, checking accounts, and traveler’s checks in the country) or M2 (the same, plus most savings accounts, money market accounts, retail money market mutual funds, and certificates of deposit under $100,000) has been increasing more, with M1 up 12.2% from February 2014 to August 2015 and M2 up 8.8%, the lack of inflation means wealth has been pooling up.  That means the people and organizations holding it have no better choices, which, with a lack of business projects, means they are creating relatively few jobs.  Facilitating more funds to be held by raising interest rates would mean an even smaller number of work opportunities.  

We have not been in a recession since June of 2009.  That’s now six years and three months ago.  The number of net new positions has exceeded those needed by population increase for 11 of the past 12 months.  Wages, at least recently, have gone up more than inflation more months than not.  Yet with 18 million jobs short we can hardly call our economy robust.

In all, however, given that we are in a permanent jobs crisis with nowhere near enough positions for everyone who wants one and no resolution for that in sight, times are good.  So why should we mess with them?  In Robert Townsend’s business classic Up the Organization, he proposed a generous and escalating commission scheme for salespeople, and then wrote “Don’t modify it if some hot salesman brings down the chandeliers and earns a fortune.  That’s what you wanted, dummy.” 

The Federal Reserve Board confirmed for us last week that they are not dummies.  That is a good thing, and it should continue, even if some people are still itching for change for change’s sake.  As long as the numbers above do not significantly worsen, interest rates should stay the same – no matter how much time passes.          

Friday, September 18, 2015

What Does Poverty Really Mean, and How Will the Jobs Crisis Affect It?

Poverty:  “The state or condition of having little or no money, goods, or means of support; condition of being poor.” – From

But, as we define it now, is that actually true?

Our government has defined “thresholds,” below which it considers a person or family to be in poverty.  In 2014 they ranged from a cash income under $11,354 before taxes for one person 65 or older and $14,309 for two to $52,685 for a family of nine relatives containing exactly one under 18 years old.  That sounds simple, and is in fact not a bad back-of-the-envelope scheme determining who is poor, but what is wrong with it?

First, it is not geographically adjusted.  Even ignoring the best and worst neighborhoods in individual cities, the United States has huge cost-of-living differences.  According to, the most expensive American metropolitan area has general consumer prices averaging over 65% higher than the cheapest.  That ratio is as high as 138% for groceries, and rents in San Francisco are nearly 5½ times those for comparable Iowa City homes.     
Second, although income toward poverty thresholds includes investment earnings, it has nothing to do with existing assets or possessions, which can vary massively.  Third, it does not consider noncash benefits covering basic needs, such as food stamps or housing subsidies, but counts money unusable for survival purposes, such as that going for child support and work-related expenses.  Fourth, poverty determination under the federal system cannot be made for people in the military, college dorms, prisons, nursing homes, or other institutions, which distorts statistics.  Fifth, it makes no provision for which goods and services are needed more in different areas, from the near-necessity of air conditioning in parts of Florida but not in Minnesota to the reduced need for cars in cities in general.

Sixth, even if geographical differences were somehow accounted for accurately, we would have no agreement on what constitutes a minimum non-poverty set of belongings and other resources.  We can settle on seven things that should always be present:  a steady supply of enough breathable air; sufficient water for drinking and washing; enough nutritionally and calorically adequate food to maintain health; adequate and reasonably safe shelter; sufficient clothing in reasonable condition; enough basic personal hygiene supplies; and medical care (including drugs, doctor’s examinations and instructions, and surgery and other procedures as needed) to adequately combat and reduce pain from health issues as they arrive.  Beyond those needs and cost-effective ways of maintaining their coverage such as refrigerators, we will not only disagree, but will immediately run into problems from the cost and nature of individual needs and preferences, as well as debates on goods which may reflect unusually poor personal choices, for example, cigarettes.      

These problems mean that we cannot currently determine, let alone agree on, just who is doing without a fully sufficient set of necessities.  While conservatives may think that American poverty is overstated, since most people even below the line have what they need to live, and liberals, with a wider view of what constitutes necessities, often see understatement, it is certain that, in individual cases, it can be either.  With low cash income, disabled people I have known were often well below poverty thresholds, but with food stamps and almost free Section 8 housing, along with Medicare Part B health care and more than enough Social Security income for other necessities, they were not in need.  In contrast, many retired people publicized for choosing between eating decently and buying prescriptions would not count as poor since their federal benefits took them over $11,354 or $14,309.

Given all that, what is true poverty?  While there is value in some kind of income-based approximation, that is all such a thing can be, and should not be the main determinant of who is truly poor.  Our national goal should be preventing shortfalls in the seven human needs above, without regard to how much money changes hands.  There is no tax or charge levied for breathable air, and running water is almost universal and low-cost.  As well, we have access to numerous other things at no charge or nearly so, such as a vast range of information, music, reading material, games, and other recreational outlets on the Internet.  Broadcast radio and public libraries are still free, and use of roads, parks, and playgrounds still cost nothing.   

With a permanent job shortage in force, despite ever-lower official unemployment, money may often be harder to acquire than many other resources.  That means we need to consider providing more things as a public service.  For one idea, it would be a superb and eventually technically attainable project to provide free wireless Internet for the entire country. 

In some ways, such as how an increasing number of Americans survive, we are going back to the times before the Industrial Revolution.  It may surprise modern people to learn that countless people lived full lives while getting and spending very little money, but that was how much of the country actually worked, well into the 20th century.  With more and more basic resources either government-provided or free, we may go back to that.  Such a situation will not mean more poverty, in the real sense of the word.  After all, jobs are not the stuff of life – and money isn’t either.               

Friday, September 11, 2015

The Latest on Jobs in the News, So to Speak

American employment, at first glance, has looked good lately.  Official joblessness keeps dropping, more net new positions are added almost every month than the population increase can absorb, and in August’s data, average wages even got into that spirit by rising at a way-over-inflation 4% annual rate.  The bad news of more and more people deciding they don’t want to work at all is whispered by comparison, as is the vulnerability we have by piling up the years, about six of them now, with no recession. 

Given all that, it’s no wonder that other concerns, even among the output from the huge crowd of 2016 presidential contenders, are predominating.  There are, however, some meaningful things about work which we can get from other stories, even those which don’t seem relevant. 

The first is about football.  The regular NFL season opened last night, with its about 1,600 well-employed production workers.  Yet one seems unlikely to be on the field – Tim Tebow.  This winner of the Heisman Trophy (best college player) was drafted in the first round, did well at quarterback, gathered a lot of attention for not only his work but his evangelical Christianity, but was considered flawed for various reasons, and ended up being traded and cut.  He was a college football analyst on TV, then was signed by the Philadelphia Eagles.  In the preseason, he again played respectably, but did not make the team. 

So why am I writing about him in a column about employment?  Many people seem to think that the reason Tebow has not been able to stay on rosters is that, despite achieving results coaches want, he falls short in how he does what goes into them.  Even though his passes have generally been on target, they are often wobbly.  Are these employers doing the right thing by judging him on technique instead of outcomes?  If people consistently get their jobs done, should they be fired in favor of those who can’t match their proven achievements?  I’m sure I don’t know the whole story here, but such an attitude is destructive, to workers and customers (in this case, fans) alike, whatever the industry.   

Another story appeared in Sunday’s New York Times.  It was titled “Friends at Work? Not So Much,” and essentially bemoaned the dropping likelihood of Americans socializing with their coworkers outside of their jobs, which is apparently much more likely in some other developed countries.  A raft of reader responses came in on why, many of which came down to people spending less time with any social companions.  But there is more than that.  One root cause is the permanent jobs crisis, which has caused jobs to be more and more transitory, making them less desirable sources for investments of time and effort in friendships. 

As for the presidential candidates, two things are forestalling most discussion on any substantive issues.  The first is Hurricane Donald.  Trump has been getting amazing amounts of press attention, even for irrelevant things such as his TV show.  Both despite and because of his wildly aggressive statements, he is way on top of the Republican polls, yet most think he won’t last, and if any well-established newspaper columnist anywhere in the country supports him I don’t know about it.  Other hopefuls in his party are reacting in various ways, ranging from trying to grab his coattails to just waiting for him to crash and burn, and, generally and understandably, are not saying much for now.   

The other factor preventing more candidate substance is on the Democratic side.  Hillary Clinton, once the massive favorite and still with much shorter election odds than anyone else (now at 35 to 20 against, compared with next-best Jeb Bush’s 6 to 1 against), is falling as fast as the worst recent stock market days.  Even on the liberal side she is gathering almost exclusively negative press, mostly from her atrocious handling of her email message management scandal, and is being buried by once fringe candidate Bernie Sanders in how much she is liked and trusted.  She is now behind in both Iowa and New Hampshire polls.  Even Joe Biden, an undeclared contender with the same 15-to-1 odds as Sanders, has been taking a long time to decide whether to get in the race, which he is heavily likely to do only if Clinton falls much more.  Until we see a bottom to her descent, others will not commit themselves. 

One Republican, though, released something substantive.  On Wednesday, Jeb Bush put forth a plan for federal tax reform.  It included consolidating income tax brackets into three (10%, 25%, and 28%), increasing deductions for those at the low end, removing various loopholes, eliminating the estate tax, and other ideas.  Although such policies would create jobs, through tens of millions of Americans having more money to spend, even Republicans acknowledged that the proposal would cost over $1 trillion in revenue shortfalls over ten years, and few outside his campaign staff really think it would, by itself, achieve the national economy’s touted 4% annual growth.  Slashing revenues would call for hacking spending as well, and that would devastate prospects for the labor-intensive infrastructure project America badly needs.   

There have been a few other odds and ends on the edges of American employment.  Will the Kim Davis idiocy make it fashionable for people to refuse to do their jobs?  (I would sure like to get weeks of nationwide publicity just for not doing mine.)  Atlantic published a piece about “job flexibility” helping economic mobility, which would have been worthwhile if author Gillian B. White had defined even in general terms what she meant by that.  Candidates and commentators everywhere are still conflating good things for American jobs, such as mandating high standards for workers to be considered contractors instead of employees, with bad ones such as forcing all employers everywhere to raise their lowest rates of pay.  Despite the lull, the news about work is still out there – we just need to look a little harder.      

Friday, September 4, 2015

America Now 18.1 Million Jobs Short, as AJSN at Lowest Level Since Recession – But More People Leaving the Workforce

This morning, we got a particularly important set of Bureau of Labor Statistics employment numbers.  Articles had popped up all week about how they would affect the Federal Reserve’s slow-motion decision about raising interest rates.  There were no massive surprises, but the data fell out strangely.

Many eyes were on the count of net new jobs, which some expected to be around last month’s 215,000.  That fell short with 173,000, not a huge difference but the lowest since March.  Yet the heavily publicized seasonally adjusted unemployment rate did better than forecast, dropping from 5.3% to 5.1%.  Unadjusted joblessness fell more than the usual difference between July and August would suggest, down from 5.6% to 5.2%.  Average hourly earnings, another input into the interest rate decision, grew 8 cents per hour for a robust 4.0% annual rate. 

The four main secondary numbers were mixed.  The count of people working part-time for economic reasons, or wanting but not finding a full-time position instead, gave back July’s improvement to return to 6.5 million.  Those jobless for 27 weeks or longer stayed at 2.2 million.  Of the two percentages telling the most about how common it is for Americans to be working, civilian labor force participation held at 62.6%, while the employment to population ratio improved by one tenth of a percent to 59.4%.     

The American Job Shortage Number, or AJSN, giving in one number how many more positions could be quickly absorbed if finding work were easy and routine, dropped not only from lower actual unemployment, but from an almost 400,000 cut in the number of those wanting work but not looking for it in the previous year, which took about 300,000 off overall latent employment demand.  Other marginally attached statuses almost broke even, with the most noteworthy a stunning almost 1.9 million increase in those saying they did not want work at all.  All told, the AJSN fell 849,000, as follows:

The AJSN continued its strong year-over-year improvement.  August 2014’s number was more than 1.6 million higher, all but 200,000 of that on lower official unemployment and the rest on fewer people discouraged or not looking for a year or more, offset slightly by the 2.3 million-plus gain in those expressing no interest in having a job.    

So how good were this morning’s numbers really?  Despite net new positions disappointing, they are in line with the rest of 2015’s – lower official joblessness, higher and higher number of people leaving the workforce, labor force participation and employment-to-population edging slowly but persistently down.  The economy keeps getting better, but we are still short more jobs than just before the Great Recession, of which less than 41% would be filled by people officially unemployed. 

With so much latent demand for work, the Fed would be foolish to push up interest rates now. The turtle is again creeping forward, but he would find himself stopped, or even backtracking, if what is still weak incentive for companies to create positions and spend money were impeded.  Janet Yellen and company, you have done well to keep us out of a recession – don’t blow it now.