Worthwhile Reads – November 13th

Boston Federal Reserve President Rosengren joins other Fed presidents in speaking out about fighting low inflation:

“Japan’s experience and now Europe’s current situation both indicate that indifference to very low inflation rates can generate a significant loss of confidence in the ability of a central bank to hit its inflation goal”

Kevin Drum echos Resengren’s fears by pointing out that Central Banks are worrying about the wrong part of their credibility:

“the US, Japan, and Europe “have persistently undershot their own inflation targets despite having enormous incentives to at least meet them as they try to recover from the Great Recession…. How do we know whether this is due to lack of will; lack of technical firepower; or lack of political support? And how long does it take before markets decide it doesn’t much matter? After all, at some point there’s no practical difference between unwillingness and inability…. The longer this goes on, the more their credibility gets shredded. It’s a mystery why this isn’t an issue of bigger concern.”

Goldman Sachs Chief Economist Jan Hatzius: Goldman Disagrees With The Fed On Labor Market Slack:

“We disagree with the [FOMC’s] view on labor market slack. While the unemployment rate is now below 6% and the explicit phrase in the FOMC statement that ‘…underutilization of labor resources is gradually diminishing…’ is factually correct, the implicit notion that underutilization is no longer ‘significant’–the term used in the July and September statement–looks inconsistent with the employment and wage data…”

Goldman’s position is supported by alternate measures of labor market slack, which are still high according to Chico Harlan of Wonkblog:

“One key measuring stick is the underemployment rate, which economists describe as a truer sense of the labor market because it takes into account those who’ve given up looking for work and those who want full-time jobs but can only find part-time. In October, the underemployment rate fell to 11.5 percent, compared with 11.8 percent in September and 13.7 percent a year ago. When the economy is at its best, the underemployment rate lags about four points behind the unemployment rate.”

Ben Casselman of FiveThrityEight, looking at the employment numbers tweets:

Our employment recovery has been slow and the Washington Post writes about what may happen to Federal employees if Senator Ron Johnson (R-WI) gets his way as the chairman of the Senate Homeland Security and Governmental Affairs Committee which oversees the government’s workforce.

“While Johnson feels it is “way too premature” to discuss specific reductions in the number of workers, he said “the federal government is way larger than it should be” and a smaller government would need fewer employees.His deficit-reduction report recommended cutting federal employees by 10 percent and federal contractors by 15 percent.”

If the government was to reduce its workforce by the amount Senator Johnson proposes, the estimated reduction would be about 1.7 to 2 million jobs. That would offset approximately the last 7 to 9 months of job growth. The cuts threaten the recovery and seem to not account for the fact that the federal government now employs the fewest people since 1966 and “data going back to 1939 would show no point where the federal government’s share of employment was so low (than now).”

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