[dmn322]

The federal reserve defines the "natural rate of unemployment" as being around 5%. This is just a number they made up that happens to be high enough to continuously erode the power of labor. If unemployment starts to dip below that, they raise the rates as quickly as possible. You can look at historical graphs of fed rate vs unemployment to verify. The rates are jacked up, it causes a recession. Unemployment increases. They reduce the rates, we recover from the recession, then they raise them as quickly as possible to stem "wage inflation" (a.k.a. people making more money) and within several months, the next recession starts.

The reason the wages don't rise with the prices is because that 5% are getting hired, and the under-employed are getting more hours, and they jack up the rates as quickly as possible as soon as they sense that wages are rising. However with the increased hours, and fewer under-employed there are people who couldn't afford toilet paper who are finally able to, and that increase the prices. That's not a bad thing. More overtime has a much bigger effect than increased egg prices to most people in low wage jobs. And lower unemployment improves their working conditions as well. It's still essentially a transfer of shares to the broke, even if the wages don't directly increase. Also, a lot of the inflation that was happening this go-around was due to rich people with their PPP loans being able to speculate. Taxing the rich at a more progressive rate as was done in the 50s and 60s would be an alternative way to stem inflation besides using the fed rate. But of course they haven't touched that one in a while.

It's not just trump and sanders that are populists looking for lower fed rates from the central banks. In most countries I think you'll find that the populist parties (i.e. the party with most representation among the poorest) tend toward pushing for lower interest rates and more government spending. You'll also find that those representing the rich tend to push for austerity. There's a reason for that. And it's not that the populists are all working together. You can tell they have much more disparate values than the centrist globalists who want high rates.

[pierrebai]

Or you simply are inverting cause and effect. Or at least cause and multiple independent effects. When the inflation goes up, both interest rates and unemployment go up.

It's akin to saying that coughing causes lung cancer. Smoking causes coughing and lung cancer. One cause, multiple effects.

[JumpCrisscross]

> federal reserve defines the "natural rate of unemployment" as being around 5%

Source? The natural rate of unemployment, like the neutral interest rate, floats with economic conditions and cannot be directly estimated.

[dmn322]

Right, they use their super scientific model that was definitely arrived at in a very scientific way that just so happens to keep the number hovering at 4 or 5%. There's nothing real stopping us from cruising around with unemployment at 2 or 3%. Other countries do it. It's been like that in the past in the US. And the invention of the concept just so happens to coincide with a complete de-correlation between productivity gains and wage gains. It's also based off of a dogmatic assumption that you can't have low unemployment and low inflation, and a failed economic model.

Anyway, as for a source, the 2nd paragraph of the wikipedia article on NAIRU states it's generally 5-6%. You can pretty readily google it and see that it's been between 4-6%.

https://www.ft.com/content/facf6989-7cd2-3724-a6d4-dfe7c7551... "Among a certain set, the big debates in the 1960s were about whether the government should target an unemployment rate of 3 per cent or 5 per cent." Guess which one they picked. Economics, as it intersects with politics, is not a science at all. Not even close. It's the result of people with agendas funding grants with hopes that someone will show the results they want, and then them cherrypicking those results. If you throw enough money into it, you can find a "scientific" justification for anything. The more academic side of it has some merit... but for the most part it gest brushed aside because it's not telling the people making the policy what they want to hear.

[avn2109]

Great clear-eyed and cynical take here, I like the spirit of this comment if not all the details/conclusions, but can you provide a link/source for "You can look at historical graphs of fed rate vs unemployment to verify" and the "federal reserve defines the "natural rate of unemployment" as being around 5%" claims?

I think both of these are probably roughly true-ish but by brief Googling I couldn't verify either one.

[dmn322]

The 2nd paragraph of the wikipedia entry on NAIRU mentions it being set at 5-6%. This article shows graphics with similar numbers: https://www.ft.com/content/facf6989-7cd2-3724-a6d4-dfe7c7551...

https://commons.wikimedia.org/wiki/File:Federal_funds_rate_v... <-- that's a graph like what I'm talking about. Notice how the blue tends to go up sharply before the grey recession bars. And this tends to happen right as the red line starts to approach 5%. There's an exception recently because trump was in office demanding that they keep the fed rate low, and I guess they decided to listen to him because he was cutting their taxes. But you can tell they didn't love the guy by the way the media covered him. I'm no fan either, but for different reasons.

[pierrebai]

That wiki graph does not show what you say. There are multiple place in the curve that don't follow your theory. And by places, I mean for example the stretch from 1980 to 2000.