No Inflation in Sight But Still They Fear

Dean BakerLast Friday, Dean Baker wrote, Job Growth Remains Strong in July. He actually wrote that the jobs report is “moderately positive,” which, if you know anything about Baker, is high praise. But it isn’t anything especially great. It is just that the economy is continuing to grow as it has been. And wage growth is poor. If we look at the last three months, wages are less than 2% higher than they were during the same period a year ago. Accounting for inflation, that’s an increase of about 1%. So we are hardly seeing liftoff with pay. And this is with over a decade and a half since the middle class has seen much of any increase in wages.

Most people know that the standard unemployment rate — 5.3% right now — doesn’t mean much. It doesn’t include people who want jobs but have simply given up looking. And it doesn’t include people who are working part time but want to work full time. The best way to look at employment is with the Employment-to-Population Ratio, which is bizarrely abbreviated EPOP. And it paints a very disturbing picture of the economy. The standard one uses all employees. But this one shows only prime age men (25-54), in order to cut out demographic factors (aging workforce).

EPOP 1996 - 2015

What most disturbs me about this is that our peaks seem to be going down over time. And if you look at numbers dating back to the 1950s, it is even worse. The number stayed pretty constant until the late 1960s, and then it has been all down hill from there. This is largely due to women entering the work force. But this only makes the case that much more strongly. It used to be that families could better support themselves with a single paycheck. That’s just not so anymore. Regardless, the EPOP for all workers peaked at 81.5% in 2000 and is down to 76.7% as of last year. And it looks like we are headed for a new (lower) normal.

What’s so aggravating about this is that despite the data, there is still a constant push to slow down the economy. The claim is that inflation is about to take off. Well, let’s consider that for a moment. The Federal Reserve is supposed to have a 2% inflation target. The idea is that sometimes it will be a little above that and sometimes a little below, but overall: 2%. Now I think that is too low. I think our target should be more like 3% or 4%. The 2% target is just something that Alan Greenspan pulled out of the air. But it is certainly the case that a 2% inflation target is better for the rich and a 4% target is better for workers. So you decide what is really going on.

But the Fed can’t even manage to meet its 2% inflation target. The inflation rate of the last year was only 0.8%. The inflation rate of the first six months of this year has has been slightly negative. Now, I understand: what the Fed does is hard. It is not always possible to get the inflation where it ought to be. But the question on my mind is why the Fed has been making noises about raising interest rates for the last year. I would think they would be freaking out about the low inflation, not looking for ways to slow the economy down. If ever there was a time to push for increased wages and some inflation, it is now.

It doesn’t matter, apparently. The Federal Reserve is not just supposed to keep inflation low, it is supposed to keep unemployment low too. But as Matt Yglesias asked several years ago when Ben Bernanke was the Fed chair with unemployment at 8.2% and inflation less than 2%, “If the unemployment and inflation rates were reversed, would the Fed do something about it?” It’s a rhetorical question, because we all know it would have been working night and day on the problem. But the fact that poor people who no one on the Fed knows aren’t able to find jobs is never a pressing issue.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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