Speaking of things the Fed or government have absolutely nothing to do with, do you really believe either of them have much control over jobs growth, unemployment or even wages? Sorry, that was a leading question…
The point is, when all is going well in a growing economy — however many hundred thousand jobs we add a month, a low employment rate — our politicians and monetary officials take all the credit. (On a side note, never do they seem to take the blame.)
Sure, Congress does mandate the Fed to optimize their monetary policy for maximum employment, but neither one of them have very much to do with jobs.
Okay okay, lower interest rates, taxes and less regulation can make it easier to conduct business and vice-versa. But that doesn’t drive employment. Businesses drive employment.
Businesses employ people, and employment grows when business grows. Businesses grow when profitability increases. And profitability increases when business offers better products at better prices because sales grow. Sales make money. Money drives employment.
So let’s be clear: Corporate sales don’t grow because interest rates are artificially low. Companies may temporarily opt to buy back shares in a low interest-rate environment, but the ones who are adding jobs are re-investing in capital improvements and research and development.
So what is the Fed doing if not increasing jobs? As Rodney mentioned here, the Fed is giving an unfair advantage (by keeping interest rates artificially low) to borrowers and penalizing savers, while encouraging savers to spend even though wage growth is nearly non-existent.
But here’s the problem: If we’re increasing jobs, and wage growth is remaining stagnant… doesn’t that mean the quality of our jobs is getting worse and not better!? And to paint an even prettier picture, the percentage of our total labor force employed (participation rate) is as low now as it was back in the 1970’s!
So, if anyone were to ask me what I think of how the Fed is managing our economy I would say 1) I don’t think they ought to be trying to, and 2) they aren’t doing a very good job.
The next time I hear a politician taking credit for economic growth or increasing jobs, my face may turn red and steam may start come out of my ears before I scream “get off of my lawn!” The success of any politician is not a reflection of their policies and how they have helped grow the economy, jobs or created a better standard of living for their constituents.
As Harry has shown through many years of research, that would be the result of a favorable demographic environment — one that allows businesses to grow, be profitable, hire more people and pay higher wages.
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