Ben Bernanke and the Ph.D. economists he loves so much need to get out into the real world a little more.
The economic doctors at the Federal Reserve are causing their boss to make some very wrong assumptions, and one in particular is going to cost all of us dearly someday.
At a press conference last week, a reporter asked the Fed chairman if he personally knew anyone who was unemployed. Bernanke didn’t hesitate: A member of his family in South Carolina was out of work.
Next question.
But what Bernanke said later during the news conference and while testifying before Congress makes it clear that his limited contact with jobless people is causing him to make a grievous error.
Here’s the setup for this whole problem:
The Department of Labor only considers people unemployed if they have actually tried to find work within in the past four weeks. If a person tells a telephone survey-taker for the department’s monthly household report that he hasn’t looked for work, that person is not included in the nation’s unemployment rate, which last month was at a still-lofty 7.7 percent.
There are, of course, a number of reasons why someone might not be actively looking for a job. One, of course, is that he doesn’t want one. But the more likely reason in today’s economy is that a jobless person doesn’t think there are any jobs to be found. So why bother.
The department calls these people “discouraged workers.” And while some in this group show up in broader unemployment numbers that people like me look at, they will never be included in the figure that makes the headlines.
Here’s the crux of it: When the real-world economy starts to show signs of life (and it’s still on a resuscitator), more of these discouraged workers will resume their job searches. That will swell the size of the active labor force and cause the unemployment rate published by the department to rise.
Maybe it will even rise by a lot.
I’ve always wondered why Bernanke didn’t understand this very basic fact. Why would the Fed chairman be foolish enough to say last year that he’d keep interest rates low until the economy improves enough for the unemployment rate to drop to 6.5 percent, when everyone knows that the rate will rise when things start to look better?
Last week, Bernanke explained his logic, although few picked up on it. The Fed chairman simply doesn’t think those discouraged workers are ever coming back into the job market. He thinks they will somehow disappear and, therefore, won’t cause the jobless rate blip that I just described.
Bernanke apparently thinks people who have been out of work for so long that they are discouraged will find some other way to conquer the real-world problems of putting food on the table and clothing on their families’ backs.
Bernanke also sounded a lot like a guy who didn’t expect to continue in his job for very long. His term on the Fed is up next year, and he pooh-poohed reporters’ concerns that he won’t be around to finish the job he started (and clean up the mess made by his quantitative easing money-printing scheme.)
Don’t worry, said Ben. There are a lot of smart people at the Fed. A lot of Ph.D.s.
But weren’t there Ph.D.s at the Fed in 2006, and when the central bank was allowing the current financial crisis to develop? Have they gotten any smarter since then? Have the Ph.D.s been forced to take a course in Home Economics for Dummies so they’d understand that unemployment isn’t a choice that people are voluntarily making?
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Mydeals.com polled nearly 2,000 parents and discovered that children are going to eat a lot of chocolate this Easter.
Really? How amazing!
But, wait, there’s more. The site estimates that kids will consume over 5,000 calories in Easter junk food. And 81 percent of the parents said they’d spend at least $36 on candy and such. (Only 12 percent said they planned on attending church but that’s a story for a different columnist.)
Surely, the parents are pulling the site’s rabbit foot. I don’t believe the average parent will spend that much on candy — $36 worth would give a child a lot more than 5,000 calories.
And, more important, I say: Let the kids eat some candy once a year. What’s the BIG deal!! (Sorry, I shouted.)
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The Census Bureau reported last week that more Americans are debt free now than in 2000, when 74 percent of households were in the red.
Today, only 69 percent of American families are in debt.
So that’s great, right? Well, not necessarily.
I hate to always be the downer but that drop in household indebtedness might be attributed to something very ominous — the fact that many homes in recent years were foreclosed upon. And when houses were taken away from their delinquent owners the mortgages and the debt go away.
I spoke with Alfred Gottschalck, the Census economist who put out the debt survey, and he admitted that his group has no idea why debt figures have shown improvement. And, he admitted that it could very well be because foreclosures are having an oddly positive effect on his numbers.
Hold off on the noisemakers for a while. A celebration right now may be premature.