6.6.13

PUSHING ON A STRING.

In introductory macroeconomics, forty years ago, the received wisdom about fiscal and monetary policy had fiscal policy as the throttle, and monetary policy as the brake.

Perhaps that simplification is still valid.  Consider Edward Lazear's latest analysis of the unemployment numbers.
The Fed may draw two inferences from the experience of the past few years. The first is that it may be a very long time before the labor market strengthens enough to declare that the slump is over. The lackluster job creation and hiring that is reflected in the low employment-to-population ratio has persisted for three years and shows no clear signs of improving.

The second is that the various programs of quantitative easing (and other fiscal and monetary policies) have not been particularly effective at stimulating job growth. Consequently, the Fed may want to reconsider its decision to maintain a loose-money policy until the unemployment rate dips to 6.5%.
There are other influences at work, including unemployment and disability benefits, to depress labor-force participation. Perhaps, though, the traditional Keynesian argument in favor of borrowing cheaply to build capital assets has bite.

No comments: