Mar

5

I am sorry for you personally that your job hunt is frustrating - however, I think some of your points defy logic and can lead you to the wrong place. I'll offer some (hopefully helpful) other ways to think about your observations. You wrote:

In my opinion, there exists a very large disconnect between the stock market and the jobs market. As a job seeker I can tell you what I am seeing, no jobs. - Frustrated Job Seeker

Stock prices represent the discounted future value of corporate profits. They are not a proxy for the unemployment rate; in fact, nothing could be further from the truth. If a company can produce the same profits with fewer employees, productivity and profits rise. And the stock price should rise too (ceteris paribus). This has been true since the industrial revolution, and it's true today. The challenge of a economy with a large number of displaced workers is to have those workers (a)accept lower real wages; (b) acquire new skills; and (c) avoid permanent unemployment. Additionally, in an economy with an increasing concentration of wealth and income (such as the USA has had for the past several years), this situation can be persist for a very long time. (This isn't an argument in favor of wealth redistribution, just an observation that structural unemployment isn't necessarily related to corporate profitability and stock prices.)

Those of us who cleaned toilets to pay our way through college always find it perplexing when people talk about graduates who cannot find jobs. It's a shame (and economic loss) if you're a PhD in computer science and forced to work as a cashier. But instead of blaming others, one needs to do what one needs to do — and in this regard, I highlight the shortage of workers in North Dakota . I'll happily mail you a Greyhound bus ticket to Fargo (gratis) if that would be of any help!

The stock market rise is just another Fed induced low rate driven bubble - Frustrated Job Seeker

Your comment ignores the way monetary policy is intended to work. The entire principle behind classical monetary policy is that by lowering the price of money and credit, people will be more inclined to spend, invest and borrow. Stefan and other gold standard bearers wince at this, and they have an intellectually consistent basis to do so. However, that's not the regime we have. We have a fiat currency and fractional banking system. And under this regime, the reaction of financial markets is (in part) a reflection of the incentives that the central banks are providing. And, combined with fiscal spending, monetary policy a potent stimulant to SHORT TERM demand and consumption. (Its effect on LONG TERM growth is a different discussion.)

It is true that the reaction of unemployment to the cycle has become more muted over the past 25 years in part because the percentage of US workers in direct manufacturing industries have declined. The days when Ford and GM and US Steel would layoff 100,000 factory workers during a recession — And then hire them back 15 months later — is long gone. The hiring/firing cycle for white collar workers is vastly different and much slower post-recession. When you read that the number of jobs created post-recession is the lowest since WWII, you should bear this structural change in mind. (Also, it's worth examining the structural unemployment rate in Germany over the past 25 years for some interesting contrasts.)

Fed policy has been a failure on the unemployment front, at this point doesn't it make more sense to raise rates a bit in hopes it signals the all clear, even at the risk of a short term adverse reaction in stocks? (stocks have already doubled from their lows, after all) - Frustrated Job Seeker

You can reasonably argue that the fed funds rate is currently too low. And you can further argue that QE2 is not a constructive idea. However, there needs to be a sound intellectual framework for deciding on the appropriate short rate. Why raise rates 25 basis points? Why not raise rates to 6%? Why not let the fed funds rate float and target money growth (ala Volker)? Or why not just have the fed funds rate set every month at CPI minus 25 basis points? There are endless papers on this subject - but no serious person suggests raising rates 25 bps to simply signal "confidence."

You point to the doubling of the S&P off it's low as meaningful. I suggest that it's not. What you fail to consider is that when the S&P was at its low, it was a reflection of the fact that the commercial paper market had frozen. The money market system was facing a run. And there was (to quote Mr. Rogan ), "No way out other than total financial collapse." That Mr. Rogan has been proven wrong (and the world has not ended yet), has not elicited any mea culpa from him — nor has he evidently learned anything about economics — but rather he's turned his perpetual malice toward Bernanke, Boehner and China. In sum, rather than showing any signs of optimism, he's an angry old man. In contrast, you are not an old man. You are still young. You are actively looking for work. And I encourage you to be optimistic — since enthusiasm and optimism are necessary ingredients for success. To summarize, don't let yourself become depressed. Don't let the stock market influence you. Just keep your chin up, be realistic, and things will eventually turn out fine. Oh, and if you need to clean toilets for a couple of years to make ends meet, that's not the end of the world either. It's what makes America great!

Gary Rogan replies:

Ignoring the ad hominem part of Rocky's argument, it is absolutely clear that the Fed operates under the traditional monetarist assumptions that postulates that "by lowering the price of money and credit, people will be more inclined to spend, invest and borrow". My problem with Mr. Bernnake is that he treats this as an irrefutable law of nature. There is clear anecdotal evidence, as in the expressed opinions of multiple CEOs (the recently mentioned Mr. Zell in a different testimony being one of the recent cogent examples) that it is the uncertainty introduced by the various medllings of our government in the private sector that is keeping them from hiring more people and not the availability of credit, especially when large corporations are involved.

Furthermore it is unclear whether the entire reason for  Mr. Bernanke behavior is just his monetarist belief system or perhaps in part a desire to accommodate the government spending that is occurring independent of the monetarist concerns. His intentions may very well be totally pure, in that he sees himself as doing what's strictly necessary to save the country, I simply disagree with the actual role he is playing.


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search