Paul Krugman in The New York Times discusses the state
of the US economy, which surveys suggest is not as good as it looks because of inaccurate unemployment figures.

“Economists who argue that there’s something wrong with the unemployment
numbers are buzzing about a new study by Katharine Bradbury, an economist at the
Federal Reserve Bank of Boston, which suggests that millions of Americans who
should be in the labor force aren’t. ‘The addition of these hypothetical
participants,’ she writes, ‘would raise the unemployment rate by one to
three-plus percentage points.'”

Regular readers of Henry Thornton’s views might recall a similar argument for Australia, in response to Lindsay
Tanner on the lack of need for labor market reform. “There are several points
to make in reply. Firstly, the labor market is by no means as satisfactory as
Tanner implies. If one adds to the officially unemployed the people who are
self-employed independent contractors (there are now more of these than union
members, incidentally) working less than they’d like to, employees who get
less than the amount of paid work than they’d like to, people in their
fifties or sixties who have “retired” but would rather be working, people on
disability pensions who would be better off with paid employment if they could
find it, it’s easy to make the case that the effective rate of unemployment is
closer to 15% than 5%. (Thanks to Professor John Freebairn of Melbourne
University for this estimate.)”

Back to Paul Krugman and the US case. “There’s both good news and bad news
in that assessment. The good news is that the economy probably has plenty of
room to expand before inflation becomes a problem (which implies that the Fed’s
decision to start raising interest rates was premature).”

And, although Krugman doesn’t say so, this is yet another rationale for Alan
Greenspan’s bond market conundrum.

Read more here.

Peter Fray

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