Here’s the Story About the Economy That Liberals Don't Want to Hear

Analyzing the top news stories across the web
March 3 2014 4:19 PM

Here’s the Story About the Economy That Liberals Don't Want to Hear

Fed Chair Janet Yellen.
Fed Chair Janet Yellen.

Photo by Mark Wilson/Getty Images

This post originally appeared in Business Insider.   

For the most part, the "left" has been on the correct side of all the big economic policy debates since the economic crisis hit.

Advertisement

Inflation has not been an issue at all, meriting exceptionally aggressive Fed policy.

The public debt has also not been an issue at all, and attempts to cut spending have been completely counterproductive and damaging to the short and long-term health of the economy.

Liberals were on the correct side of these debates. Conservatives were, by and large, not. You can get into debates about other issues (taxation, health care policy, trade, etc.) but the two issues above—inflation and debt—were the real biggies.

But times change, and a gap is starting to grow between the liberal view of things, and how economists are seeing things. This is most evident in the view of the labor market. The liberal view is that there's tons of room for the Fed to be more aggressive in the pursuit of full employment.

Meanwhile, economists are starting to come to the conclusion that the job market is not far from being "tight." More specifically, the view among more and more economists is that the headline unemployment rate (which is currently at 6.6 percent) is a fairly accurate gauge of the job market and that various measures of long-term unemployment (and labor force participation) tell us very little.

The New York Fed recently published a study, for example, that showed that short-term, not long-term unemployment, is the best thing to look at if you want to predict wage growth. In other words, if you want to know if the job market is tight enough to induce a rise in worker wages, the best input is short-term unemployment. The large numbers of long-term unemployment don't seem to have a big depressant effect on wages.

Evan Soltas posted this chart Saturday, showing the relationship between the headline unemployment rate (also known as U-3) and the rate at which workers quit their jobs. Workers quitting their jobs at a higher rate is a good sign, since it's an expression of confidence. When the economy is bad, workers don't quit their jobs. What the chart shows is that the relationship between unemployment rate and quit rates has remained steady, suggesting that it's the headline unemployment rate (not long-term unemployment) that best captures the state of the workforce.

Up until recently, the left was very much in step with where the mainstream of economics was (more easing, wherever you can get it). But daylight between the two is emerging. Economists are increasingly talking about a tightish job market.

As the unemployment rate continues to fall, Fed Chair Janet Yellen is going to face increasing pressure to tighten money before inflation starts to creep up. This would be a tremendous mistake, and the left must mobilize against it.

The view from the left is basically: Even if the labor market is getting tight (which they deny), the Fed should press hard on the gas pedal, so that employers start to employ the long-term unemployed. And that might be the proper path, and if there's anyone who has the stomach to engage in the strategy, it's probably Janet Yellen.

Meanwhile, the view of more and more people in the economics sphere is that the job market is getting tight, and there's little more the Fed can do.

Joe Weisenthal is the executive editor of Business Insider. Follow him on Twitter.

TODAY IN SLATE

Politics

Talking White

Black people’s disdain for “proper English” and academic achievement is a myth.

Hong Kong’s Protesters Are Ridiculously Polite. That’s What Scares Beijing So Much.

The One Fact About Ebola That Should Calm You: It Spreads Slowly

Operation Backbone

How White Boy Rick, a legendary Detroit cocaine dealer, helped the FBI uncover brazen police corruption.

A Jaw-Dropping Political Ad Aimed at Young Women, Apparently

The XX Factor
Oct. 1 2014 4:05 PM Today in GOP Outreach to Women: You Broads Like Wedding Dresses, Right?
Music

How Even an Old Hipster Can Age Gracefully

On their new albums, Leonard Cohen, Robert Plant, and Loudon Wainwright III show three ways.

How Tattoo Parlors Became the Barber Shops of Hipster Neighborhoods

This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century

Moneybox
Oct. 1 2014 8:34 AM This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century To undertake a massively ambitious energy project, you don’t need the government anymore.
  News & Politics
Politics
Oct. 1 2014 7:26 PM Talking White Black people’s disdain for “proper English” and academic achievement is a myth.
  Business
Buy a Small Business
Oct. 1 2014 11:48 PM Inking the Deal Why tattoo parlors are a great small-business bet.
  Life
Outward
Oct. 1 2014 6:02 PM Facebook Relaxes Its “Real Name” Policy; Drag Queens Celebrate
  Double X
The XX Factor
Oct. 1 2014 5:11 PM Celebrity Feminist Identification Has Reached Peak Meaninglessness
  Slate Plus
Behind the Scenes
Oct. 1 2014 3:24 PM Revelry (and Business) at Mohonk Photos and highlights from Slate’s annual retreat.
  Arts
Brow Beat
Oct. 1 2014 9:39 PM Tom Cruise Dies Over and Over Again in This Edge of Tomorrow Supercut
  Technology
Future Tense
Oct. 1 2014 6:59 PM EU’s Next Digital Commissioner Thinks Keeping Nude Celeb Photos in the Cloud Is “Stupid”
  Health & Science
Science
Oct. 1 2014 4:03 PM Does the Earth Really Have a “Hum”? Yes, but probably not the one you’re thinking.
  Sports
Sports Nut
Oct. 1 2014 5:19 PM Bunt-a-Palooza! How bad was the Kansas City Royals’ bunt-all-the-time strategy in the American League wild-card game?