Yellen Economist Says It Would Be Better if Unemployment Was Higher

John Ransom
Posted: Feb 14, 2014 12:01 AM
Yellen Economist Says It Would Be Better if Unemployment Was Higher

It would better for the country, say progressive economists, if the unemployment rate was higher. And things are so bad that they are right. It takes a lot to get me to agree with Keynesians.

But although I agree with the premise, I don't agree with their solution.

I have something cooler in mind.

Well, first the good news: Congress has gone home. And now comes word that a major winter storm has shut down the rest of Washington, D.C.

The Democrat National Committee is meeting, even as you read this, on ways to blame the winter shutdown on Senator Ted Cruz (R- “I-Told-You-So”) and his Tea Party Weather machine, which he purchased from Mikkos Cassadine off the set of General Hospital.

Word is that Cruz will call off the winter weather for a $1 MILLION cut in spending over ten years, but the Democrats have balked at the cuts as harmful to the economy; an economy, which they point out, is better than it’s EVER been under ANY president EVER.

The shutdown is expected to cost the economy $8 billion say the Democrats.

That’s it for the good news.

This is where is all went wrong: Note above flywheel housing the hamsters that power the "calculating machine." Image Source:

Because then there’s retail sales, which fell more than expected, which is BAD news. And let’s face it, it’s hard these days to tell which bad news is good and which good news is bad without a micrometer.

“Retail sales in the U.S. fell 0.4 percent in January after a revised 0.1 percent drop the prior month,” says Bloomberg, “according to the Commerce Department, as inclement weather kept consumers away from auto showrooms and stores. The median forecast of 86 economists surveyed by Bloomberg called for no change.”

Unemployment claims were up modestly too.

The consensus for new claims was 330,000 after reporting 331,000 the previous week.

“Initial jobless claims rose by 8,000 to 339,000, the Labor Department reported Thursday,” reports MarketWatch. “Economists polled by MarketWatch expected claims to fall slightly to 330,000. The four-week moving average was 336,750, an increase of 3,500.”

But here’s where it gets really scary.

Janet Yellen, Chairman of the Federal Reserve, is delusional. As are her economists.

Yes, meet the new Fed chairman, same as the old Fed chairman.

She thinks today’s unemployment is more-closely related to the cyclical nature of business than it is to any policies followed by Washington, D.C.

From Yahoo Finance’s Daily Ticker:

"The reason that's important is if you think it's cyclical, then you think monetary policy can help," says Jim Rickards, author of bestseller Currency Wars and the forthcoming Death of Money. That's opposed to structural unemployment which is longer-term and due to fundamental shifts in an economy.

"If you think it's all structural then monetary policy cannot help," and you would have to employ fiscal and regulatory policies, for example, that are mostly in the hands of Congress.

Rickards view is that trouble in the labor market is almost 100% structural: "The Fed has been using monetary easing for five years and it hasn't really worked." He concedes that unemployment has fallen substantially but that many of the jobs created are low-wage part-time jobs.

Economists from the Fed, the IMF, Yale, Harvard, Dartmouth, and the Disney School of Animated Cartoon Economics disagrees with Rickards and, likely, you and me too.

Even more ominous is this little noticed fact: It would better for the country if unemployment were higher, with fewer people dropping out of the workforce and having more just-plain-unemployed people, says Rickards of the Fed's view.

In the Yahoo piece, they cite a paper by Yellen’s “go-to” economist on labor, Andrew T. Levin, that says it takes more effort to get a person back into the labor force who has stopped looking for work-- and then subsequently get them employed-- than it does to make an unemployed person employed.

The obvious inference is that even if you added back the 6 million workers—or more—who are missing from the labor force, and figured unemployment at its current rate of 10 percent as a result, it would still understate the problem of unemployment. That’s because it would take longer to get those people now out of the workforce back into a job.

“Overall we view our paper as pointing out how labor market slack arising in the wake of deep recessions,” writes Levin et al, “may not be well-summarized by the unemployment rate.”

Yeah, no duh.

Glad you have a Ph.D there fella.

Our tax dollars pay these people. Levin, it should be noted, is on loan to Cato economist Dan Mitchell's least favorite quasi-bank, the International Monetary Fund.

The upshot is that Levin is arguing that monetary stimulus measures, like zero interest rates and quantitative easing ought to continue because the unemployment rate of 6.6 percent is a chimera, a myth.

And he’s right about the unemployment number being a myth.

But I’m thinking: Since politicians are so adverse to winter weather, wouldn’t it just be cheaper to ship Washington, D.C. piece-by-piece to Antarctica and keep the capital city closed permanently?

It worked for General Hospital, which was much more grounded in reality than anything coming out of Washington, the Fed, the White House or Congress.

At least that show had a budget. And better actors.