Unemployment Rates / Jobs

[Marvin the Martian]

I was looking up some information on wages vs inflation and found this CNBC article claiming wages are up less than 1% over inflation and no one really knows why. But there are theories, and one is that the unemployment rate doesn't tell the whole story. A whole lot of people have yet to reenter the workforce from the great recession.

There was talk as the great recession was happening that it was the type of event that might snap the elasticity of our economic system. It may be that it didn't snap it, but stretched it far more than we thought. As a result we are still reeling in slack. It may be, as has been pointed out a very long time, some of our metrics are off. The unemployment rate and the inflation rate being two. The decision to only include people actively looking for a job makes any government look better, but fails to capture the entire story. The graph above tells the story better. And the substitution used in inflation just makes sure we are all eating rice and beans while inflation doesn't move at all.

 

[JamieDimonsBalls]

I was looking up some information on wages vs inflation and found this CNBC article claiming wages are up less than 1% over inflation and no one really knows why. But there are theories, and one is that the unemployment rate doesn't tell the whole story. A whole lot of people have yet to reenter the workforce from the great recession.

There was talk as the great recession was happening that it was the type of event that might snap the elasticity of our economic system. It may be that it didn't snap it, but stretched it far more than we thought. As a result we are still reeling in slack. It may be, as has been pointed out a very long time, some of our metrics are off. The unemployment rate and the inflation rate being two. The decision to only include people actively looking for a job makes any government look better, but fails to capture the entire story. The graph above tells the story better. And the substitution used in inflation just makes sure we are all eating rice and beans while inflation doesn't move at all.

So, I'll start with this honest question, where was this thought process when some of us (e.g. Twenty and myself, among others) were criticizing the Obama trumpeting of unemployment rate and failing to address the U4 Rate and your associated chart?

Secondly, if the argument is that people are finally starting to come back into the work force (2015 - Present), and therefore are impeding on wage growth, is that really a net negative for society as it was presented in the article (compared to less employed, but faster real wage growth?

Lastly, you are correct that it is a paradox and none of these economists seem to have a concrete answer and certainly no consensus. I do wonder what a healthy real wage growth looks like. 2%? 4%?

 

[Rockfish1]

So, I'll start with this honest question, where was this thought process when some of us (e.g. Twenty and myself, among others) were criticizing the Obama trumpeting of unemployment rate and failing to address the U4 Rate and your associated chart?

I'm struggling to understand how fiscal policy could have had objectives that distinguished among measures of unemployment -- particularly when all measures were moving in the same direction.

 

[Marvin the Martian]

So, I'll start with this honest question, where was this thought process when some of us (e.g. Twenty and myself, among others) were criticizing the Obama trumpeting of unemployment rate and failing to address the U4 Rate and your associated chart?

Secondly, if the argument is that people are finally starting to come back into the work force (2015 - Present), and therefore are impeding on wage growth, is that really a net negative for society as it was presented in the article (compared to less employed, but faster real wage growth?

Lastly, you are correct that it is a paradox and none of these economists seem to have a concrete answer and certainly no consensus. I do wonder what a healthy real wage growth looks like. 2%? 4%?

To the first part, I am not sure. I have never defended the way unemployment is calculated. Just like inflation, the rates are designed to make the government look better. It is almost lying. I don't downplay the fact we are having growth and better employment. I do worry about the amount of growth per trillion of deficit.

I agree that bringing people back in I'd good. That is the elasticity being reeled in. The bad news is that we are having tremendous gains and people who had a job still have a job but are not taking part in the gains. Right now we should see that income inequality flattening. Maybe I will be proven wrong but I suspect it is growing. Still, bringing people in is a good thing. I think it highlights just how crappy the economy was 2008-10.

I think your last question is a fine question. I have no idea what good wage growth looks like. I am counting on the Fed to tell me. 1% over inflation seems low in a boom with little inflation.

 

[JamieDimonsBalls]

I'm struggling to understand how fiscal policy could have had objectives that distinguished among measures of unemployment -- particularly when all measures were moving in the same direction.

Well, the first step was acknowledging that the reported unemployment rate was not reflective of reality.

A second step would have been to figure out how to push pro-growth policies to boost aggregate demand (and I know we agree on this and it was mostly the Congressional GOP that held back infrastructure spending - AKA "real stimulus")

A third step would have been addressing the disenfranchised youth with some type of training stipend in conjunction with unemployment benefits

A fourth would be incentivizing baby boomers to stay in the work force (maybe some of the pickup is their reentry - the article and data leaves much unknown)

 

[JamieDimonsBalls]

I think your last question is a fine question. I have no idea what good wage growth looks like. I am counting on the Fed to tell me. 1% over inflation seems low in a boom with little inflation.

You could be right, I have no idea and I doubt the Fed does either. 1% over in an era of low inflation might be the equivalent of 3% over in a time of 5% inflation?

 

[mohoosier]

Looks like it’s class time again...



https://blackcommunitynews.com/five-reasons-obama-cant-take-credit-for-the-economy/

https://www.nationalreview.com/2016/05/barack-obama-economy-jobs-ugly-truth/

I’d forgotten how bad it really was. Jeez.

 

[Marvin the Martian]

Looks like it’s class time again...

View embedded media

https://blackcommunitynews.com/five-reasons-obama-cant-take-credit-for-the-economy/

https://www.nationalreview.com/2016/05/barack-obama-economy-jobs-ugly-truth/

I’d forgotten how bad it really was. Jeez.

The first story is the typical Community Reinvestment Act boogie man. Standard drivel, it's always the fault of programs to help the poor. The Minneapolis Fed looked into it.

There is an argument made that the lowering of standards to the poor forced the lowering of standards to all. First, there was no law forcing lowering of standards outside specific communities. Banks chose to do that, so are people suggesting banks are alcoholics who have an addiction? If so, is not the solution even more regulation?

Second, if that is true, blame FHA and FMHA, both also lower lending standards.

 

[Rockfish1]

The first story is the typical Community Reinvestment Act boogie man. Standard drivel, it's always the fault of programs to help the poor. The Minneapolis Fed looked into it.

There is an argument made that the lowering of standards to the poor forced the lowering of standards to all. First, there was no law forcing lowering of standards outside specific communities. Banks chose to do that, so are people suggesting banks are alcoholics who have an addiction? If so, is not the solution even more regulation?

Second, if that is true, blame FHA and FMHA, both also lower lending standards.

It's best to be wary of Kevin Hassett too. His cherry-picked statistical measures are only important if they move the broader aggregates, like GDP:

Or unemployment:

Or employment (since unemployment was already low when Trump took office):

Or wages:

The data don't show a Trump miracle. They show a continuing nine-year expansion, which Trump supporters are gullible enough to believe didn't begin until Trump took office.

 

[JamieDimonsBalls]

The first story is the typical Community Reinvestment Act boogie man. Standard drivel, it's always the fault of programs to help the poor. The Minneapolis Fed looked into it.

I think this argument is often communicated poorly. It's intent, as laid out in one of the Financial Crisis Inquiry Commission dissent, was the following:

Initiated by Congress in 1992 and pressed by HUD in both the Clinton and George W. Bush Administrations, the U.S. government’s housing policy sought to increase home ownership in the United States through an intensive eff ort to reduce mortgage underwriting standards. In pursuit of this policy, HUD used (i) the affordable housing requirements imposed by Congress in 1992 on the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, (ii) its control over the policies of the Federal Housing Administration (FHA), and (iii) a “Best Practices Initiative” for subprime lenders and mortgage banks, to encourage greater subprime and other high risk lending. HUD’s key role in the growth of subprime and other high risk mortgage lending is covered in detail in Part III. Ultimately, all these entities, as well as insured banks covered by the CRA, were compelled to compete for mortgage borrowers who were at or below the median income in the areas in which they lived. Th is competition caused underwriting standards to decline, increased the numbers of weak and high risk loans far beyond what the market would produce without government influence, and contributed importantly to the growth of the 1997-2007 housing bubble.

It was written by an AEI economist, but then again, the entire group of commissioners had political biases (as evidence between the adoption (slight majority Dem) and dissents. The other dissenters (majority of dissents) did not believe that the CRA directly impacted it. Instead, they blamed the idea of subprime lending in general as a culprit.

Nontraditional mortgages. Tightening credit spreads, overly optimistic assumptions about U.S. housing prices, and flaws in primary and secondary mortgage markets led to poor origination practices and combined to increase the flow of credit to U.S. housing finance. Fueled by cheap credit, firms like Countrywide, Washington Mutual, Ameriquest, and HSBC Finance originated vast numbers of high-risk, nontraditional mortgages that were in some cases deceptive, in many cases confusing, and often beyond borrowers’ ability to repay. At the same time, many home buyers and homeowners did not live up to their responsibilities to understand the terms of their mortgages and to make prudent financial decisions. These factors further amplified the housing bubble.

In other words, we had a "credit bubble" and the proliferation of non-bank lenders (many of which were subsequently acquired by banking institutions) contributed to a large supply of U.S. credit products that was initially met with strong demand. Once that demand fell off, down she went.

 

[JamieDimonsBalls]

If so, is not the solution even more regulation?

The solution is to restrict subprime lending in general. There is a reason that credit was only made available to prime borrowers for the majority of history. If we say that Pay Day lending should not be allowed, then there isn't an adequate type of risk-adjusted return that protects any financial institution making loans.

 

[JamieDimonsBalls]

The first story is the typical Community Reinvestment Act boogie man. Standard drivel, it's always the fault of programs to help the poor. The Minneapolis Fed looked into it.

There is an argument made that the lowering of standards to the poor forced the lowering of standards to all. First, there was no law forcing lowering of standards outside specific communities. Banks chose to do that, so are people suggesting banks are alcoholics who have an addiction? If so, is not the solution even more regulation?

Second, if that is true, blame FHA and FMHA, both also lower lending standards.

Also, the MPLS Fed just looked at performance of CRA-related credit. A better analysis was conducted by MIT, et. al where the author concluded in an interview:

There are other reasons to doubt that subprime borrowers were responsible for the financial crisis. For one, a large number of subprime mortgages originated in non-CRA banks, and “none of the 300+ mortgage originators that imploded were depository banks covered by the CRA.”

As noted in a study by McClatchy from 2008, “Federal Reserve Board data show that more than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions;” “private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year;” and “only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.”

 

[Rockfish1]

I think this argument is often communicated poorly. It's intent, as laid out in one of the Financial Crisis Inquiry Commission dissent, was the following:

Initiated by Congress in 1992 and pressed by HUD in both the Clinton and George W. Bush Administrations, the U.S. government’s housing policy sought to increase home ownership in the United States through an intensive eff ort to reduce mortgage underwriting standards. In pursuit of this policy, HUD used (i) the affordable housing requirements imposed by Congress in 1992 on the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, (ii) its control over the policies of the Federal Housing Administration (FHA), and (iii) a “Best Practices Initiative” for subprime lenders and mortgage banks, to encourage greater subprime and other high risk lending. HUD’s key role in the growth of subprime and other high risk mortgage lending is covered in detail in Part III. Ultimately, all these entities, as well as insured banks covered by the CRA, were compelled to compete for mortgage borrowers who were at or below the median income in the areas in which they lived. Th is competition caused underwriting standards to decline, increased the numbers of weak and high risk loans far beyond what the market would produce without government influence, and contributed importantly to the growth of the 1997-2007 housing bubble.

It was written by an AEI economist, but then again, the entire group of commissioners had political biases (as evidence between the adoption (slight majority Dem) and dissents. The other dissenters (majority of dissents) did not believe that the CRA directly impacted it. Instead, they blamed the idea of subprime lending in general as a culprit.

Nontraditional mortgages. Tightening credit spreads, overly optimistic assumptions about U.S. housing prices, and flaws in primary and secondary mortgage markets led to poor origination practices and combined to increase the flow of credit to U.S. housing finance. Fueled by cheap credit, firms like Countrywide, Washington Mutual, Ameriquest, and HSBC Finance originated vast numbers of high-risk, nontraditional mortgages that were in some cases deceptive, in many cases confusing, and often beyond borrowers’ ability to repay. At the same time, many home buyers and homeowners did not live up to their responsibilities to understand the terms of their mortgages and to make prudent financial decisions. These factors further amplified the housing bubble.

In other words, we had a "credit bubble" and the proliferation of non-bank lenders (many of which were subsequently acquired by banking institutions) contributed to a large supply of U.S. credit products that was initially met with strong demand. Once that demand fell off, down she went.

The CRA story is bullshit. Among many other things, it can’t explain how efforts to get poor Americans into homes triggered a real estate bubble in (for example) Ireland.

 

[Marvin the Martian]

The solution is to restrict subprime lending in general. There is a reason that credit was only made available to prime borrowers for the majority of history. If we say that Pay Day lending should not be allowed, then there isn't an adequate type of risk-adjusted return that protects any financial institution making loans.

Wasn't the point of CRA to allow subprime lending in very unique circumstances? There are studies that people who own their homes are more invested and involved in their community, it seems we would want to encourage that in problem areas. Somehow conservatives excuse Countrywide for shoveling wheelbarrows of cash out the door to anyone walking in without enough ID to vote because "the government let them do it so they have no blame". What does that say about deregulation?

CRA was never designed for Sope to buy his 4th Atlanta mansion, but these non bank lenders (and some banks) used CRA to do that. To me that is like using using a bottle of nitroglycerin as a hammer. It may well get the job done, but if it does what I think it will do isn't that my fault.

 

[Marvin the Martian]

An example of the McMansion problem. If anyone can tell me what part of CRA required banks to make 100% loans to people to speculate on multi-million homes, I'd love to hear it.

 

[Rockfish1]

Wasn't the point of CRA to allow subprime lending in very unique circumstances? There are studies that people who own their homes are more invested and involved in their community, it seems we would want to encourage that in problem areas. Somehow conservatives excuse Countrywide for shoveling wheelbarrows of cash out the door to anyone walking in without enough ID to vote because "the government let them do it so they have no blame". What does that say about deregulation?

CRA was never designed for Sope to buy his 4th Atlanta mansion, but these non bank lenders (and some banks) used CRA to do that. To me that is like using using a bottle of nitroglycerin as a hammer. It may well get the job done, but if it does what I think it will do isn't that my fault.

Here is a good explainer. The CRA story is bullshit.

 

[Rockfish1]

Here is a good explainer. The CRA story is bullshit.

Here is an even better explainer.

 

[JamieDimonsBalls]

The CRA story is bullshit. Among many other things, it can’t explain how efforts to get poor Americans into homes triggered a real estate bubble in (for example) Ireland.

Asset and credit bubbles in the U.S. aren't mutually exclusive with similar bubbles in other areas of the world. If anything, I think we quickly learned how interconnected the bubbles and subsequent value breakdowns were.

 

[JamieDimonsBalls]

The CRA story is bullshit. Among many other things, it can’t explain how efforts to get poor Americans into homes triggered a real estate bubble in (for example) Ireland.

The NYT Pulitzer Prize winner wrote a book that claims James Johnson's transformation of Fannie was a key piece to the explosion of subprime. I have not read the book, but might one day if I ever find time.



I think the entire point is the conflict that a GSE creates in general. There are several 90s NYT articles that do a good job discussing this.

https://www.nytimes.com/1997/04/20/...n=latest&contentPlacement=9&pgtype=collection

So, do I believe that the CRA was the primary factor in the recession? No. But there were elements of the Fannie changes under Johnson that clearly altered the financial perception of what Fannie was and how it behaved.

That being said, would any of this have happened if we didn't have mark-to-market accounting that was a result of Enron?

 

[JamieDimonsBalls]

Somehow conservatives excuse Countrywide

I assume by this you mean fiscal conservatives and I'd pursue criminal and civil cases to the fullest extent of the law against Countrywide and Mozilo. Given who Mozilo provided sweetheart mortgages to, it's no surprise he sort of just disappeared with only minor penalties.

Democratic Senator Dodd received a $75,000 reduction in mortgage payments from Countrywide at allegedly below-market rates on his Washington, D.C. and Connecticut homes. Michael Moore's Capitalism: A Love Story shows on film that this was actually over a million dollars of a sweet-heart mortgage deal.[15][17] Dodd nonetheless called for stronger regulation of mortgage lenders and proposed that predatory lenders should face criminal charges.[18]

Clinton Jones III, senior counsel of the House Financial Services Subcommittee on Housing and Community Opportunity, and "an adviser to ranking Republican members of Congress responsible for legislation of interest to the financial services industry and of importance to Countrywide." was given special treatment. Jones is now state director for federal residential-mortgage bundler Freddie Mac. Alphonso Jackson, acting secretary of HUD at the time and long-time friend and Texas neighbor of President Bush, received a discounted mortgage for himself and sought one for his daughter. "In 2003, using V.I.P. loans for nearly $1 million apiece, Franklin Raines, Fannie Mae’s chairman and C.E.O. from 1999 to 2004, twice refinanced his seven-bedroom home, which has a pool and movie theater."[18]

Though Mozilo donated extensively to both parties during the Clinton Administration, he himself was reportedly a registered Republican. Speaker of the House Nancy Pelosi's son Paul Pelosi, Jr. also received a loan with Countrywide. Barbara Boxer, Adam H. Putnam, Richard C. Holbrooke, James E. Clyburn, and Donna Shalala are among those with mortgages from Countrywide. CBS News has obtained the following list of then-Fannie Mae employees whose names have been turned over to investigators as having received VIP loans from Countrywide:[19]

Those are some pretty powerful names.

 

[JamieDimonsBalls]

Wasn't the point of CRA to allow subprime lending in very unique circumstances?

I'm sure that was the point of its origination. It's a bit of a pandora's box dilemma. But, the fact remains, subprime borrowers are subprime for a reason. If you are going to claim that it is good for communities that people should get subprime credit, but restrict and regulate the means by which lenders can issue this credit (e.g. restrictions on interest rates), any legitimate institution isn't going to be issuing credit to those borrowers. Hence, you get Countrywide.

 

[Harry Hondo]

You're just noticing this? Have you not picked up a newspaper for the last decade?

https://www.usatoday.com/story/mone...k-teen-unemployment-lowest-record/1536572002/

https://www.usatoday.com/story/money/2018/10/05/september-jobs-report-economy/1527876002/

https://www.nytimes.com/2018/10/05/...g-jobs-numbers-are-actually-pretty-great.html

Great news

So outside of an inherited great economy that they have yet to f’k up (give them time) what has the Trump administration done, besides dividing America and spreading fearful rhetoric about throngs of evil immigrants coming to take your jobs and then kill you?

One more stat, the first 21 months of his presidency he’s created 4.05 million jobs and the last 21 months of Obama’s there were 4.47 million jobs created.

D'Oh!

 

[JamieDimonsBalls]

So outside of an inherited great economy that they have yet to f’k up (give them time) what has the Trump administration done, besides dividing America and spreading fearful rhetoric about throngs of evil immigrants coming to take your jobs and then kill you?

One more stat, the first 21 months of his presidency he’s created 4.05 million jobs and the last 21 months of Obama’s there were 4.47 million jobs created.

D'Oh!

That stat is as useful as a one legged man in an ass kicking contest

 

[Rockfish1]

The NYT Pulitzer Prize winner wrote a book that claims James Johnson's transformation of Fannie was a key piece to the explosion of subprime. I have not read the book, but might one day if I ever find time.

View embedded media

I think the entire point is the conflict that a GSE creates in general. There are several 90s NYT articles that do a good job discussing this.

https://www.nytimes.com/1997/04/20/business/the-velvet-fist-of-fannie-mae.html?rref=collection/timestopic/Johnson, James A.&action=click&contentCollection=timestopics&region=stream&module=stream_unit&version=latest&contentPlacement=9&pgtype=collection

So, do I believe that the CRA was the primary factor in the recession? No. But there were elements of the Fannie changes under Johnson that clearly altered the financial perception of what Fannie was and how it behaved.

That being said, would any of this have happened if we didn't have mark-to-market accounting that was a result of Enron?

Reasonable people can disagree about the value of CRA/Fannie/Freddie. Reasonable people cannot claim that they caused the financial crisis.

 

[Sope Creek]

So outside of an inherited great economy that they have yet to f’k up (give them time) what has the Trump administration done, besides dividing America and spreading fearful rhetoric about throngs of evil immigrants coming to take your jobs and then kill you?

Blow out the deficit.

If the current policies are sustained, they'll have f'ked up the great economy inherited from the Obama administration. It's just a matter of time, just like enjoying life on credit card spending . . . until the credit card bill arrives.

 

[Sope Creek]

Wasn't the point of CRA to allow subprime lending in very unique circumstances? There are studies that people who own their homes are more invested and involved in their community, it seems we would want to encourage that in problem areas. Somehow conservatives excuse Countrywide for shoveling wheelbarrows of cash out the door to anyone walking in without enough ID to vote because "the government let them do it so they have no blame". What does that say about deregulation?

CRA was never designed for Sope to buy his 4th Atlanta mansion, but these non bank lenders (and some banks) used CRA to do that. To me that is like using using a bottle of nitroglycerin as a hammer. It may well get the job done, but if it does what I think it will do isn't that my fault.

The purpose of the CRA was to provide a measure of home mortgage banking where the free market failed to provide it because of redlining and similar race-based lending decision practices. At the bank I worked for back in the day, the CRA resulted in zero - zero - losses.

Banks and other lenders funneled money into sub-prime mortgage lending based on two other market failures: (1) the unwillingness of holders of capital to undertake risks in exchange for the then-existing market-based returns (such as risks associated with investing in entrepreneurships), and (2) the time-and-again-demonstrated false narrative that real estate assets never lose value. In other words, they chased high, but "safe", yields, and that's a unicorn that ultimately always leaves an unwelcome deposit on somebody's lawn.

BTW, has anybody noticed that whenever we have these asset bubble/busts there always seems to be a corresponding "bubble" in the increase in the size of the deficit and amount of the national debt - even during good economic periods? We'd have been far better off as a nation to have taken the apparently excess capital formed through chimeric low tax rates and "invested" it by paying down/off the national debt . . . and would today as well.

 

[JamieDimonsBalls]

@Marvin the Martian

You may like this:

https://www.schwab.com/resource-cen...-ground-wage-growth-makes-its-move?cmp=em-QYC

Liz Ann Sonders explains her view on why the Phillips Curve is amiss this time around

Quits rates continue to push avg. hourly earnings higher

 

[Marvin the Martian]

@Marvin the Martian

You may like this:

https://www.schwab.com/resource-cen...-ground-wage-growth-makes-its-move?cmp=em-QYC

Liz Ann Sonders explains her view on why the Phillips Curve is amiss this time around

Quits rates continue to push avg. hourly earnings higher

Thanks some of that is beyond me. But I think I get most of it. And from my view, the wage growth is positive even if my 401k does not.

 

[JamieDimonsBalls]

Thanks some of that is beyond me. But I think I get most of it. And from my view, the wage growth is positive even if my 401k does not.

As bad as stocks have performed, bonds are doing even worse.

http://news.morningstar.com/fund-category-returns/

 

[JamieDimonsBalls]

Thanks some of that is beyond me. But I think I get most of it. And from my view, the wage growth is positive even if my 401k does not.

I may have developed a new hypothesis that explains some rationale for why wages have not kept up with historical rates. Obviously there are likely a multitude of reasons (changes in technology, business models, automation, efficiencies, etc.), but I haven't seen this one discuss.

As the generational shift moves from the Greatest Generation to the Baby Boomers to Gen X to Millennials, etc. the number of employed persons increased relative to our population in an unprecedented fashion. Part of this is attributable to the growing frequency of women working outside of the home (i.e. presence of multiple earners in households). Thus, supply exploded.

I'm not sure this is a bad thing long-term so long as the demand for labor exceeds supply, but it likely explains some of the drag from the 80s through recession.