Yes. Unemployment is very low. That means if you need ten people, you may have to pay more or wait longer than you expected. That is what “labour market running hot” refers to. “Eliminating slack” means encouraging employers to raise wages (which can cause inflation) to fill productive jobs.

“Central bank tightening” refers to the Federal Reserve reducing its balance sheet and raising rates. There is a Fed meeting later this year when target rates are expected to be raised, partly in reaction to said labour market.

I agree that the financial press could afford to be less jargon heavy.

If you reallocate money without creating new currency, what you get isn't really inflation. Prices may adjust because the demand for things lower income people buy increases and the demand for things higher income people buy decreases, and prices follow demand. But supply and demand isn't inflation.

And that effect is present for any method of reducing wealth inequality. If we had less inequality, people who are currently poor would then have more money and use it to buy things. If those things are scarce then their prices will increase.

It's like saying we shouldn't decrease homelessness because it may increase energy prices when the new homeowners have to heat their new homes. Even if it's nominally true, the implication that the cost outweighs the benefit is ridiculous.

And if you're really worried about high prices, the way to combat them isn't to denigrate efforts to increase middle class wages, it's to address artificial scarcity in markets like housing.

You’re forgetting about velocity. A dollar in a middle class earner’s hands gets spent faster than a dollar in a billionaire’s. That faster spending stokes both growth and inflation.

Billionaire's don't hoard cash. Money they don't spent is all invested. Billionaires know how to manage money, and don't pile it up in Scrooge McDuck cash vaults.

Velocity’s relationship with income is well documented. (Note, too, that velocity most properly measures the purchase of goods and services. Transaction velocity also includes investment. Even that goes down as income goes up.)

Even so, I seriously doubt wealthy people have non-trivial amounts of money in checking accounts, because the interest paid on them is nearly non-existent. Wealthy people know how to manage their money, and investing it in 0% checking accounts, stuffing it in mattresses, or burying it in tin cans are all terrible investments.

Drug dealers wind up with large blocks of cash because they have difficulties laundering it so they can invest it. The idea that anyone else has pallets of cash in their basements is sheer nonsense.

https://www.investopedia.com/articles/investing/022416/why-b...

Banks keep as little cash as possible, because (again) cash does not earn money. They try to lend out as much as possible. The people who borrow money don't sit on it, either, who wants to pay interest on money sitting in a pile?

The whole cash hoarding theory is nonsense.

https://www.frbsf.org/economic-research/publications/economi...

But the rich aren't hoarding cash. They're investing it. The money is put to use. The rich do not have pallets of cash in the basement.

You'd think that professional bankers would understand this.

Here's the salient quote from the paper:

"Surveys show low-income households tend to spend a larger share of their income than high-income households. Because of this, temporarily redistributing income from the rich to the poor could stimulate consumption and, through that, the economy as a whole."

Yup, that's the "rich people hoard cash" theory.

As a general statement, that's just as much an assumption as the GP's claim. Where are the studies to back it?

I could certainly imagine situations where someone owns a lot of wealth but never developed the skill to manage it - classical example being inheritance.

Also (unrelated to the argument), "investing" != "put to good use". If an investor chooses the strategy that gives themselves the best ROI that doesn't mean the investment is necessarily beneficial for anyone else. (Except in an abstract "stimulating the economy" sense. But if that is all you want, you could just spend all your money continuously digging holes and filling them again.)

There's no rational reason to borrow money and make a pile out of it.

Even people who operate cash businesses (like casinos) rush to deposit the cash in a bank ASAP.

> If an investor chooses the strategy that gives themselves the best ROI that doesn't mean the investment is necessarily beneficial for anyone else.

Actually, it does mean just that. An investment is giving someone else money to do something productive with that money. That person will take their cut, and so benefit.

Look at the Dairy industry in the United States. Wal-Mart has vertically integrated the dairy industry into itself, as a result, many smaller regional farmers no longer have a market at all since there is no way to compete with someone who is so well integrated that they can SELL AT A LOSS in dairy, yet compensate by making up for it with social engineering via loss-leading.

https://www.nbcnews.com/news/us-news/best-advice-u-s-dairy-f...

You CANNOT sit idly by and say that investment is ALWAYS a positive societal good when by definition, the "rational invester" (read: paperclip maximizer for ROI) will naturally tend to converge on creating monolithic structures, which, by their nature as "rational corporate actors" act as, again, paperclip maximizers for profits.

Balance sheets do NOT accurately convey the full story of economic processes at work creating tangible effects in the real world, any more than meteorological climate models do.

If you take into account side effects caused by collectively funded (via rational investment methodologies) creating monolithic industry-consuming behemoths, then the idea the rich are "hoarding money" makes perfect sense.

Wal-Mart in this case is doubling down on automation, and keeping what payroll it pays low, so it's not actually acting to distribute wealth back to those who are so strapped they can't even think of investing, because they need to put the next meal on the table.

EVEN if they could statistically speaking, the most wealthy are the most likely to be able to pick up what stock they'd have to sell, because stock doesn"t put food on the table.

This creates a situation where regardless of who's hand the money is actually in, the outcome is the same. Monolithic businesses will be invested in, they'll integrate until they start creating value deserts in their space, and in order to contribute to continuing growth figures, will optimize away liabilities by minimizing workforce or salary. The only one's benefiting being those already on board.

Does it "GENERALLY" work well though? Yes and no. Yes, given the absence of any actors large enough to create value deserts through excessive vertical integration? Yes! It does!

No. I'm the sense that that isn't what the market seems to produce though. Companies will diversify, merge, or employ externalization of negative outcomes EXACTLY to accomplish making themselves the best looking target for investors.

At some point, enough has to be enough. The economy is one of the few process spaces where eternal growth is EXPECTED. No living system constrained by finite resource and time CAN grow indefinitely without causing major systemic upsets.

An equivalent solution to what Wal-Mart is doing could be achieved with networks of smaller less "fiscally efficient" distribution centers doing business with fewer monolithic industrial behemoths. This keeps the barrier to entry lower, leads to more opportunities for job creation, and increases financial mobility overall. This is something that CAN't exist with uncontrolled maximization of ROI by investors, and profits by corporation. At some point enough HAS to be enough.

Maybe I'm not an economist, but I've seen enough complex systems to recognize when blind spots exist in current modeling. This is something I see never get addressed.

I didn't say it was. I was responding to "beneficial for anyone else".

> value deserts

I'm sorry, but this is nonsense.

There are some sound reasons for redistributing money from the wealthy to the poor. Benefiting the economy because the rich are hoarding money or are incompetent investors is not one of them.

Again, look at Wal-Mart and dairy. Alphabet\Google does the same with digital advertising.

I'm not saying people are crap investors either. I'm saying the definition of a "good investor" (maximize fimancial ROI) and a "good company" (maximize financial profit) leads inevitably to market behemoths forming which WILL degenerate the health of the economy as a whole, and drastically increase barriers to entry for smaller players. A company as a collective stands as much as a danger when it becomes too large as it does a benefit.

A "good company" should not grow infinitely. It should grow as much as is needed to do what it needs to. That is providing it's service to it's community. No living system constrained by finite time and resources can support unceasing growth. The economy is just such a system.

-1st degree:Real wage growth doesn't happen, because investor behavior wants the most money back to them from a company.

-2nd degree: A company will try to trim "waste" by cutting immediate liabilities to the lowest they can to maintain requisite Talent.

-3rd Degree: Talent is going to go where the biggest bucks can be made, and that will be the biggest market behemoth which exists currently. The infusion of investor capital exaggerates buying power to acquire and retain Talent which would be necessary for smaller competitors to get a leg up against the behemoth"s entrenched position. This leads to value deserts, which adversely effects industry as a whole.

-4th degree: Smaller competitors die in value deserts. supply goes down, demand stays the same or goes up. Prices go up, profit goes up, return to 1st degree.

Wal-Mart captured a great deal of investor capital. In order to keep itself looking tempting to investor's it has to grow (diversify), cut liabilities (minimize wage growth, decrease employment/payroll via automation, and minimize benefits expenditures through scheduling shenanigans), or do BOTH at the same time by vertically integrating their supply chain and using loss leading's attendant benefits to undercut small producers; this pushes them out of the market, jacks up prices on the commodity when supply goes down, thereby increasing profits, thereby drawing more investment capital. Start the cycle again with the next industry.

It's called a positive feedback loop, and in nature, if they aren't compensated for, bad things happen. It just so happens that this one has a multi-generational period, so no-one has lived long enough or paid enough attention to get upset about it. If they did, I just haven't found their paper, bit I have the feeling people are starting to notice, even if they can't articulate it.

It goes back to wage growth because of the link between 1 and 2. 3 and 4 are what cause the actual societal\market damage. You can't "solve" the problem without fundamental rethink on the axiom that kicks off all of this, which is "the best investment is to dump as much money as possible into the fastest growing company", which has a sub axiom of "growth without bounds is acceptable and to be encouraged".

It ain't straightforward, but nothing about economics seems to be. If there is a glaring flaw, please enlighten me. I REALLY want to improve my understanding.

Never in my life have I ever heard of anybody (other than criminals and a few mentally ill people) with a cash hoard. Nor have I ever known anyone to do this. I've never seen any newspaper article about anyone with a hoard. Never a magazine article profiling millionaires with cash hoards. No books about it.

And yet, it is apparently conventional wisdom that wealthy people hoard cash as a general rule.

Name one wealthy American with a cash hoard.

I don’t think anyone assumes anyone is hoarding cash. It’s just a time to deployment question.

A dollar flowing into a wealthy person’s account may take a week or two to get loaned out or fielded into an investment, and another week or two to pay the investment manager or begin facilitating the purchase of goods and services. A dollar dropped into an empty checking account may buy food that day from an establishment which will sweep it out to a supplier the next day.

Our financial system is efficient, but the last time I saw a statistic for the figure, it takes about two weeks for the average checking account deposit to get turned into a mortgage.

Same thing.

It's like saying that a formula 1 race isn't faster then a car parked on the start line because it ends up at the same place. It ignores the times the car goes around the track.

It also presumes that a choice of an investment is as good as the free market in distributing capital effectively.

Imagine a world where everyone put 99% of his income into investments. There would be nothing to invest in, because nobody was consuming.

And by this definition the poor are definitely putting the money to better use because they cause the economy to grow by spending it all.

The rich are currently facing an asset price inflation because there is too much money wanting to be invested and not enough consumption for all those assets to be put to good use.

At a fixed money supply, growth causes deflation. People want to engage in more transactions and they need money to do it, which increases demand for currency.

You often see inflation during periods of growth because when there are high returns to be had, people take out loans to expand and banks making loans creates new money. The new money causes inflation. But if you really didn't want that to happen, it's simple to prevent it by requiring banks to hold more reserves (so they won't make as many loans).

But it's not clear why preventing moderate inflation should even be desirable. If you get a 10% raise at the same time as prices increase by 4%, who's complaining? You're up 6% annually and your mortgage, credit card debt and share of the national debt are down 4%.

True. This is the problem with fixed money supplies.

We moved past fixed money supplies several decades ago. My statement stands true in any modern context. Rich households spend slower than poor households.

Raises aren't automatic, they often have to be fought for. Especially in the public sector. What tends to happen in tones of inflation is labour unrest; people find their food prices have gone up by 10% so they need a >10% raise urgently, taking to the streets if necessary.

For the present problems of overly high inequality and falling productivity, indeed, the correct solutions probably run opposite to the "solutions" to the '70s stagflation crisis (wage repression and deflationary monetary policy).

Is it telling me that when unemployment is low, central bank policy is to raise interest rates? If so, why not say that? What I meant is that generally I don't see how the sentences in this article add up to .. an article. It's a bunch of metrics, chosen by convention, expressed in cliche. It kind of sounds like it's telling us a theory or opinion about something, but it isn't really.

Raising rates aren’t the only way to solve the problem of (a) people who could be in the labour market but aren’t and (b) insufficient labour in the places it needs to be.

Whatever it’s trying to do, it got me thinking about barriers to hiring in New York City. Are there steps we could eliminate or consolidate? Last week’s primary just saw my former bartender and taco server effectively become a Congresswoman for Queens. An article about the central bank and unemployment would not have prompted me to consider discussing this with her.

Why not discuss it with her?

I would have never tried the pastrami taco if it hadn’t been for her!

> Why not discuss it with her?

She’s campaigning. Not sure distractions would help. In any case, these sorts of proposals benefit from specificity. Next steps are doing homework and proposing specific rule changes.

Let’s not take pastrami tacos for granted.

They’re actually a brilliant fusion of American Hispanic and American Jewish traditions. As it happens, her district has prominent populations of each.

https://www.washingtonpost.com/politics/2018/live-updates/mi...

The part where someone has to compete for ultra-scarce housing in and around NYC.

Source? (Genuinely curious.)

Based on the wealth and income demographics of her community, democratic socialist policies would be net benefit.

You may dimly recall from your undergraduate Macro courses a relationship between unemployment and inflation called the Phillips Curve [0], which is used to evaluate one of the "dual mandates" the Fed tries to fulfill with its interest rate setting policy.

The problem, of course, is that there is evidence from the Fed's own research that suggests that the Phillips Curve is balderdash [1]. That doesn't stop central banks (including the Fed) from pretending it's still true, though.

[0] https://en.wikipedia.org/wiki/Phillips_curve

[1] https://www.philadelphiafed.org/-/media/research-and-data/pu...

I can’t recall a major central bank basing a policy decision on the Philip’s Curve since the 1970s.

12:29 pm

The Philips Curve is alive, [Federal Reserve Chair Janet] Yellen says.

So the Philips Curve posits that there is a relationship between the degree of slack in the labor market and inflation, and it is an empirical relationship that, while not absolutely tight, has been a consistent relationship over time, and I believe that relationship still holds.

https://www.c-span.org/video/?406675-1/federal-reserve-chair...

> there's considerable support for the idea that an inverse relationship between unemployment and inflation exists at least in the short run

Would you care to cite some? I'm certainly familiar with the post-70's forms of Phillips Curve theory (it's discussed in the very Wikipedia article I linked). But I also cited a 2017 paper from the Philadelphia Fed that looked very hard for such a relationship and couldn't find one, and which itself cites prior research going back to 2001 that agrees.

Real unemployment and under-employment are high because of the way unemployment is now measured. The definition of being unemployed has changed since the GFC to manipulate the statistics.

Some tricks to manipulate the numbers are:

- If you have been unemployed for more than 6 months you are no longer classified as unemployed.

- Work for one hour a month, say mow your neighbor's lawn or give someone a paid ride in your car and you are no longer unemployed.

- Give up an stop looking for work, and you're no longer unemployed.

Looking at different indices at different times is obviously going to skew the results, but that's the fault of the person doing the looking, not the BLS, Obama, or the Deep State.

I think you might be confusing cyclical and structural unemployment with your first point. I think it is valid to talk about the two numbers separately as they deal with pretty different problems (labour market liquidity/efficiency versus skills shortages).

The employment rate is at an all time high in many countries.

As for point 2: employment in the black economy is usually not included in official employment figures; people who want to work more hours are classed as underemployed although data on this is not as comprehensive as for the other measures.

I do not think the definition of employment has changed much in the last decade. Do you have a source?

Nah, this would be the labor force participation rate - and that one took a plunge since 2008 and never recovered since.

https://data.bls.gov/timeseries/LNS11300000

The OECD chart linked (if you play with the sliders) shows that both are increasing globally. I know that in the UK the employment rate is at an all-time high [3].

Your link seems like it might be using a strange measure of employment [4] which excludes agricultural workers and the military in the numerator and includes all people who are aged 16+ in the denominator, so as your population ages, the indicator would worsen.

[1] https://data.oecd.org/emp/employment-rate.htm

[2] https://data.oecd.org/emp/labour-force-participation-rate.ht...

[3] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwor...

[4] https://www.investopedia.com/terms/c/civilian-labor-force.as...

The problem is not with the reporting, it’s with the field. Economics is pseudoscience. It has all the trappings but none of the explanatory or predictive abilities. So you get articles like these that use a lot of jargon pretending like they’re making a strong case, but there’s no strong consensus position reached here beyond the bare observables.

Economics can’t be a science yet. It is a branch of sociology, modelling the economic behavior of people, and we lack the sociological insight to do that currently.

Economics is a social science, just like anthropology, archaeology, history, linguistics, political science, psychology, sociology, etc. etc.

It's never going to be something with Laws of Gravity or the like, because humans are never wholly predictable or rational creatures. But that doesn't mean we can't come up with models that explain markets a majority of the time, in a macro sense.

Why do you think central bank policy has been able to prevent a depression from occurring over the last 90 years, when in the past they were a regular occurrence? That's economics in action. Just because it lacks the certainty of computer science doesn't mean you can throw out the baby with the bath water.

Unlike those sciences there's a lot of money in economics invested in certain conclusions, though.

It does not help Walmart's bottom line, for instance, if everybody stops believing that raising the minimum wage causes unemployment.

There aren't equivalent controversies with money behind them like in other social sciences (and other social sciences don't get paid as much).

There is a strong school of thought that argues that central bank policy has created _more_ and _worse_ depressions than before.

The fact that we can now debate if a central bank is a good thing or a bad thing is evidence that it's all pseudoscience.

Macroeconomics, yes. Microeconomics is a proper science. It has theories which make predictions which can be demonstrated in experiments.

When Karl Popper criticised economics (and freudianism) for being a pseudo-science, there wasn't a real macro-micro divide. Adam Smith, Ricardo and the like were essentially micro-economists.

You can experiment in some very small (raise the price of a product on a shelf) ways. The bulk of economics is about how these small components interact as a large dynamic. When it comes to predictions like "increasing minimum wage will lead to increased unemployment," it's never been adequately demonstrated experimentally.

Hypothesis, experimentation, the ability to negate/falsify, some predictive ability ... Either these things are not true, or your bar for "being a science" is higher than most.

If I’m setting pricing and volumes at a firm, I don’t give a rat’s ass about the larger dynamics. I want to know how production variables will impact sales. For this, I can A/B test and rely on a deep corpus of research on queueing theory, supply and demand network and latency models, and logistical models.

But just because you don't, doesn't mean they don't exist/matter. You can do a lot on your individual micro-scale, but you will have a very hard time understanding how these changes affect the overall economy on a macro scale.

For all we know, "the market" is pretty much just a giant black box. It's not totally black, but we have a very hard time properly defining, or even quantifying, what's actually going on there.

We understand the relationship between the temperature and pressure of ideal gasses without a precise presentation of quantum mechanics. Similarly, we can produce useful production functions without comprehending the complexity of the bulk.

Economics, on the other hand, are usually considered part of the social sciences, due to the heavy sociological influences, which make modeling, predicting and testing extremely difficult.

For all the talk of "the market", especially in the financial sector and by glorifying certain successful individuals, the reality seems to be far less understood than many people would admit to. Probably has to do with these people usually trying to sell their services/financial products with a reputation for "understanding and mastering the market".

Theory of the firm is closer to a hypothesis. I’m not sure how one would experimentally verity its claims.

Sociology is a science, and so branches of it are also science. There are differences between the hard/soft or natural/social sciences but that doesn't mean that soft science isn't science.

I was cranky at The Economist when I wrote that and I guess from the upvotes other people were too. It's a crappy article, and they shouldn't publish crap... I like the Economist, on balance.

Anyway, interesting that you bring up pseudoscience. I think most good economists, or economists on good days prefer to think of economics as just not science. Some of the founders of modern economics were also the founders of modern anti-scientism. They were the generation that experienced bloody wars between marxism, liberalism, and a highly pseudoscientific nazism. They were all backed by pseudoscientific "theories," with key elements leaning heavily on economics. ..actual wars. Karl Popper is IMO, the iconic guardian of the fine line.

These are the same intellectuals that The Economist's position alway alludes to when they get ideological themselves. open society, liberalism. It's actually not ironic. Even Hayek & Popper were sort of confused cases, having been drawn into all sorts of utopian stuff. I think it was the time. Even libertarians/anarchists became obsessed with boring technical philosophy, and all the schismatic flavours hate one another.

"The magazine is written by young people pretending to be old people... If American readers got a look at the pimply complexions of their economic gurus, they would cancel their subscriptions in droves."

Without the steady subscription revenue of the past, you can't afford to hire big name writers with decades of experience anymore.

He doesn't like the economist at all.

I don't agree in general, the economist is often good. This article (and economics generally)... I have to agree. Heavy on Oxbridge feel, light on actual ideas.

Most of what these kind of articles convey is a feel, justified by technical sounding babble that a friendly reader will assume is adequate.

Ironically, the iconic example of this kind of carry on is marxism. 93.6% of all communist/marxist writing was a sharp tongued criticism. Moral critiques of capitalism. Critical reporting on the state of the urban working class in Europe. But, Marx (and his Bougie Oxbridge readers) needed more than that though. They needed to refute "Bourgeoisie Economists" and "Liberal Political Scientists." That's why Das Capital was so important. No one read it, but owning a copy added intellectual weight to one's marxism.

When Thomas Pickety won the nobel, and got so much coverage, the economist ran some article structured pretty much like this one. All jargonized, cliched & euphamised language.

I'm not upset at the economist's positions, political orientation or such. I'm upset with the "Quantum Healing" style of pseudo-argument that is now dominant in their economic writing. They are using economic terms. They are saying sentences that are true, just not meaningful in the context. Then they flavour this with vaguer, more abstract sentences which sound more meaningful while being less meaningful.

Continued tightening in labour markets might yet boost workers’ bargaining power enough for that to happen, as was the case during the late 1990s and late 2000s, two unusual periods in which labour’s share of GDP rose across the rich world.

Labour’s share of GDP is a fraction. labour/gdp. you can make it bigger by having higher wages or lower gdp. Anyone remember 1999 or 2008? Anything "unusual" about those years?

Recessions hit the lowest rungs of the economic ladder hardest, and those same rungs are last to fully get in on the recovery. Hence, labor's share of GDP tends to be highest at the end of the business cycle... which necessarily coincides with an imminent recession.

And that increasing wages for labor is in fact capital's least-preferred option.

Which would be sad, but more or less jive with how the modern global, publicly traded economy works.

How do you measure this?

- "labour markets have tightened"

- "unemployment rate"

- "unemployment was much higher"

- "fall in union membership"

- "rising offshoring"

- "outsourcing"

- "workers’ bargaining power"

- "tightening in labour markets might yet boost workers’ bargaining power" "as was the case during the late 1990s and late 2000s"

- "number of part-time workers who want full-time jobs"

- "unemployment rates that are far higher"

- "pockets of slack might constrain wages everywhere"

- "firms that are struggling to find workers"

- "If slack were eliminated everywhere, pay might rise faster"

- "boost real wages by running labour markets hotter"

Now, I'm no economist, but the picture I'm getting is that they are describing labor relations as a "market", where prices (wages) are affected by demand (companies seeking employees) and supply (workers seeking jobs). So the idea would be that when the supply of potential workers increases (because unemployment is high, or because new sources of labor are available, e.g. by outsourcing and offshoring) that tends to drive wages down, and when the supply decreases it tends to drive wages up.

The fly in the ointment of my interpretation is that there is at least one other obvious source of increased labor supply in rich countries, yet the Economist does not mention it anywhere. So I must be misunderstanding it, after all.

The zip code you're born in predicts future success better than any other attribute, including IQ!

If your parents can take you in when your business attempt falls, you're in a different world than of your parents are a single mother of three, through no fault of your own.

Aristocracy is hereditary, always has been, seems to remain that way. This, is what "stacked" really means.

Whether you think this is actually bad for America or not is a different question.

Or is it one of those phrases that can be used to mean absolutely anything at all?

The meaning depends a bit on the political orientation of whoever is uttering the phrase. In the neoliberal nomenclature presently used throughout Europe, "structural changes" are an euphemism for cuts to public spending (healthcare, social security, pensions, services), reduction of worker rights and wage depression.

For example, France is currently undergoing "structural changes". Ireland, Spain, Greece underwent "structural changes" as a response to the global economic crisis of 2008.

In this case, I think "structural" is a euphemism for "equilibrium state," what would happen in the economy if everything stays as it is now long enough for things to settle down.

It's nonspecific even for a euphemism. "Structure" could mean "the type of products now made in the economy." It could mean "the fact that labour markets are internationalised," as the article stops short of alluding to a paragraph earlier. It could mean "the fact that we the economy is made of fewer, larger companies."