Saturday, January 30, 2010

U6 is not the real unemployment rate

Cato says U6 is not the "real" unemployment rate.

I think U6 is attractive to permabears and "progressives" because it fits their pessimistic view of the world.

I don't think it matters whether you use U1, U2, U3, U4, U5, or U6, because they move in lock step with each other. Just pick one and stick with it. U3 is the official unemployment rate and is most widely reported.

What matters is not the unemployment rate per se, but the unemployment rate compared to the natural rate of unemployment (i.e. NAIRU, "full employment"). For U3, the natural rate of unemployment is about 5%, so when it's above that we know things are bad. If U3 falls much below 5%, inflation cometh. I don't know what the natural rate of unemployment is for U6, and I bet most people who insist on using it don't know either.

Sunday, January 24, 2010

Is the economic stimulus effective?

Comparing the Obama administration's projections for unemployment when President Obama proposed the stimulus bill with the unemployment rate we have actually experienced, it's hard to say definitively that the economic stimulus package has "saved or created jobs."

Dark blue: projected unemployment rate with stimulus.
Light blue: projected unemployment rate without stimulus.
Red: actual unemployment rate.

Graph source.

Saturday, January 23, 2010

The fed funds rate: Too low for too long?

Here's an interesting graph. It shows the fraction of the time in each decade that the real fed funds rate was negative, i.e. the nominal fed funds rate was below the inflation rate. In the 1970s, we had significant consumer price inflation. In the 2000s, we had a credit bubble.

Sunday, January 17, 2010

Adam Smith's "invisible hand" in context

Princeton University economics professor Alan Blinder puts Adam Smith's concept of the "invisible hand" in context:
When economists first heard Gekko's now-famous dictum, "Greed is good," they thought it a crude expression of Adam Smith's "Invisible Hand"—which is one of history's great ideas. But in Smith's vision, greed is socially beneficial only when properly harnessed and channeled. The necessary conditions include, among other things: appropriate incentives (for risk taking, etc.), effective competition, safeguards against exploitation of what economists call "asymmetric information" (as when a deceitful seller unloads junk on an unsuspecting buyer), regulators to enforce the rules and keep participants honest, and—when relevant—protection of taxpayers against pilferage or malfeasance by others. When these conditions fail to hold, greed is not good.
Greed is a natural human vice, just like aggression. As much as we may try, we cannot get rid of them because they are part of human nature. But just as sport channels aggression into productive use, free enterprise does the same for greed. Free enterprise is only productive when its goal is to benefit consumers. When it becomes acceptable to screw consumers (or taxpayers) in the quest for wealth, the benefit of free enterprise is entirely lost.

Greed is not good. It is the productive work and investment we do as a result of our greed that is good.

Saturday, January 16, 2010

Haiti's earthquake: How you can help

I encourage readers to help the Haiti earthquake relief effort. For those who want to donate, Charity Navigator has a list of recommended charities.

Sunday, January 10, 2010

December 2009 jobs data

Pundits are making a fuss about the fact that official December job losses increased from November's unbelievable numbers. Monthly job losses still show a longer-term gradual decline. (Source.)

Perhaps looking at ADP's private job loss numbers does a better job of putting the trend in perspective:

The official unemployment rate remained unchanged at 10.0% in December:

The year-over-year percent change in aggregate weekly hours worked shows an upward trend, although it's still below zero:

The year-over-year percent change in initial unemployment claims is below zero and continuing to improve:

So, while the widely-reported official data didn't look so good in December, other data shows the recovery is continuing.

A reminder for conspiracy theorists: The ADP data (i.e. the second graph) does not come from the government.

Saturday, January 2, 2010

Danish cartoonist attacked with axe

In defense of free speechFrom The Wall Street Journal:
A Somali man was charged with two counts of attempted murder on Saturday for an attack on a Danish artist whose 2005 cartoon of the Prophet Muhammad ignited riots and outrage in Muslim countries, authorities said.

The 28-year-old Somali man with ties to al Qaeda broke into Kurt Westergaard's home in Aarhus, Denmark, on Friday night armed with an ax and a knife, said Jakob Scharf, head of Denmark's PET intelligence agency. ...

The Danish cartoonist remains a potential target for extremists nearly five years after he drew a caricature of the Prophet Muhammad along with 11 others that were printed in the Jyllands-Posten newspaper.

The drawings triggered riots and protests in the Muslim world, and Danish and other Western embassies in several Muslim countries were torched a few months later in 2006 by angry protesters who felt the cartoons had profoundly insulted Islam. Islamic law generally opposes any depiction of the prophet, even favorable, for fear it could lead to idolatry.
Free speech should be defended, even when it is offensive to some. Non-Muslims should not be bound to an Islamic prohibition against visual depictions of the Prophet Mohammad.

If Muslims don't like the stereotype of being suicide-bombers, then they should collectively and vocally object to such tactics (as many Muslims in the U.S. do). If a cartoonist depicts an ethnic, racial, or religious group as being violent and that group reacts with violence, then they are simply reinforcing the stereotype.

Mohandas Gandhi and Martin Luther King achieved their goals by making their opponents appear violent. Muslims are desperately lacking their Gandhi.