Tuesday, February 3, 2015

Natural rate of unemployment and delusional macroeconomics

Economists made up this thing called natural rate of unemployment, and unemployment is the blue line on the left. That natural rate would be the level spots, generally just before the crash, where unemployment seems to meander but remains steady.  Otherwise unemployment is in constant motion, either coming down, or going up; never stable. Roger Farmer complains about this notion of natural unemployment.  For reference I lef in the red line which is inflation, and you can see that we magically align inflation and the natural rate, then we crash.

My first point is that half this economy comes from 20 major metropolitan regions spread across a continent.  How did all these employment markets agree to go natural at the same time?  And, second, if the rate is so natural, then why is it stable only for a year and then we crash?  I am sure that economists just made up the term because they do aggregate statistics.  But one would think that an economists, migth consider, how in the Jesus did all that coordination come about!

The real answer is simple.  Mostly the jagged line coming down are all the independent economies acting on their own.  Then DC simple runs up against the bills and cannot pay its own way, so DC fouls the economy..

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