Courtesy of Mish.
Natural Unemployment
In response to Republican questioning on monetary policy and employment, Bernanke replied the Fed Already Follows Policy Rule.
“The Fed already has a rule,” Mr. Bernanke said during a panel discussion at the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy. “It’s committed to hitting a 2% inflation target and aiming for the natural rate of unemployment. These are rules.”
Of course, Bernanke failed to admit the rule makes no sense, and it doesn’t. Leaving aside the ridiculousness of a 2% inflation target while ignoring asset bubbles, it is impossible for the Fed to target two things at once.
For example: The Fed can set interest rate policy but then it has no control over money supply. The Fed can target money supply, but then it would lose control over interest rates.
And the Fed cannot target employment at all. Thus his comment on “rules” is complete silliness. Moreover, there is no such thing as a “natural rate of unemployment” given central bank and government interference.
If Bernanke wants to discuss rules, I propose
- Raise the minimum wage and employment goes down vs. what it would otherwise do.
- Hand out enough free benefits and people have no desire to work.
- The more disability fraud government allows, the less incentive people have to work.
Making Sure You Don’t Count
Logic would dictate the unemployment rate would go up as a result of the three points above. It doesn’t because the unemployment rate is carefully defined in such a manner that it doesn’t.
If you are in school and working you are in the labor force and employed. If you are in school and not working you are not in the labor force and therefore not unemployed. If you collect disability and are not working, you are not unemployed no matter how fraudulent the disability claim.
Not employed and looking for a job on Monster or in the want-ads? Sorry, that does not count. You are not in the pool of the unemployed. The list goes on and on, and it is hugely arbitrary….


