Interesting and, I think, correct on the costs, benefits, risks, and opportunities from the keen-witted President of the Federal Reserve Bank of Minneapolis: Neel Kashkari: The Fed should not move too quickly to raise rates: "The US recovery took place after the Federal Reserve undertook extraordinary monetary policies...
...While some economists predicted these policies would lead to runaway inflation, the opposite has happened: inflation and wage growth have been surprisingly low.... With unemployment even lower now, why is wage growth so slow? Labour markets in other advanced economies shed some light on what is happening in America.... It could be that the 3.9 per cent measure does not capture the true slack in the labour market and that additional, hidden slack explains today’s modest wage growth. A better measure of labour market tightness appears to be the employment-to-population ratio of prime age workers, those aged 25 to 54 years old.... If you look at international comparisons, there is an astonishing contrast between the US and other developed economies. The percentage of prime-age Americans who are working has been declining during the past few decades, while the same ratio has climbed to new highs in the UK, Canada and Germany....
Economists offer various theories.... Americans are addicted to drugs; too many have criminal records; workers do not have the skills needed for the available jobs.... The rise of Chinese manufacturing and of automation should affect other advanced economies as much as they do the US....
The truth is we don’t know how much slack still remains in the US labour market. But international labour markets offer a hopeful sign....
This analysis has important implications for monetary policy. It suggests that as we return interest rates to normal levels, we should shift only to a neutral policy stance, and not move too quickly, until we see more evidence that wages are climbing and that we really are at maximum employment.
#shouldread
