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walkitouthttp://www.nytimes.com/2015/03/07/opinion/jobs-and-the-federal-reserve.html?_r=0
The NYT could have taken the easy path and said, hey, we're not above 2% yet, let's wait until we are. We're at the high end of the current belief system about NAIRU, wait until we're at the bottom. But they did not! They reminded everyone about the dual mandate, and then they went a little further.
"The reason the Fed associates falling unemployment with rising inflation is that, theoretically, more hiring leads to higher wages that, in turn, lead to consumer demand for goods and services, pushing up prices.
In practice, it has been several decades since those relationships have held — in part, because the Fed has usually been too quick to raise rates when wages have started to rise. This has led to a long-term decline in the share of income that goes to worker pay and a long-term increase in the share that goes to stockholders and executives."
They are reminding everyone of the theoretical core of NAIRU and pointing out that if you spike that phenomenon as comprehensively as we have in recent decades, you generate wealth inequality, and that is the current problem. So, yay! Concise and cogent!
But what about that asset bubble on the high end?
"In the meantime, it should use its regulatory tools to ensure that low-interest-rate credit is put to productive uses and not speculative bubbles."
Here's my suggestion: see if you can discourage people from taking margin loans to buy expensive property. Make them actually _sell_ the underlying asset, rather than just borrow against it. That should reduce the bubbliciousness at the high end.
The piece concludes with a swipe at Congress. Because, Congress.
The NYT could have taken the easy path and said, hey, we're not above 2% yet, let's wait until we are. We're at the high end of the current belief system about NAIRU, wait until we're at the bottom. But they did not! They reminded everyone about the dual mandate, and then they went a little further.
"The reason the Fed associates falling unemployment with rising inflation is that, theoretically, more hiring leads to higher wages that, in turn, lead to consumer demand for goods and services, pushing up prices.
In practice, it has been several decades since those relationships have held — in part, because the Fed has usually been too quick to raise rates when wages have started to rise. This has led to a long-term decline in the share of income that goes to worker pay and a long-term increase in the share that goes to stockholders and executives."
They are reminding everyone of the theoretical core of NAIRU and pointing out that if you spike that phenomenon as comprehensively as we have in recent decades, you generate wealth inequality, and that is the current problem. So, yay! Concise and cogent!
But what about that asset bubble on the high end?
"In the meantime, it should use its regulatory tools to ensure that low-interest-rate credit is put to productive uses and not speculative bubbles."
Here's my suggestion: see if you can discourage people from taking margin loans to buy expensive property. Make them actually _sell_ the underlying asset, rather than just borrow against it. That should reduce the bubbliciousness at the high end.
The piece concludes with a swipe at Congress. Because, Congress.