Goldman Sachs - Perpetuator Of The Fed’s Jihad Against Savers

You can’t blame Janet Yellen entirely for the growing prospect that the Fed will take a powder on Wednesday and opt for the 81st straight month of ZIRP. After all, she’s basically a fuddy duddy school marm caught in a 1970s labor economics time warp - a branch of the “home economics” taught by John Maynard Keynes after he turned protectionist in 1930.

Accordingly, she does apparently believe that the US economy resembles a giant bathtub, and that it is the Fed’s job to see that employment and output rise full to the brim. Nor does that mission take much special doing - at least according to the primitive macroeconomic plumbing theories of Keynes’ disciples like her PhD supervisor, Professor James Tobin of Yale. Just crank the interest rate valve lower until the economic ether thereby released called aggregate demand works its magic.

Indeed, the good professor did help ignite a rip-roaring inflationary boom in one country during the Kennedy-Johnson years. Back then the world economy was still segmented and unmonetized enough to at last partially encompass a closed economy model of state managed pump-priming. That was especially possible because more than a billion potential workers were trapped in the economic Gulag of Mao’s China and the post-Stalinist Soviet bloc.

Never mind that today the US GDP bathtub leaks like a sieve and that massive trade, capital and financial flows transmit economic and financial impulses from around the globe. Accordingly, the marginal price of labor is set in the rice paddies of China, the call centers of Bangalore, the temp agency body shops of America and on the “bid for gigs” sites of the worldwide web.

The Bureau of Labor Statistics, which is apparently the Keynesian chapel where Yellen worships, captures none of this; it ought to be put in the Francis Perkins memorial museum along with souvenirs from the WPA and FDR’s Fair Labor Standards Act of 1938.

In fact, as misguided as Labor Secretary Francis Perkins’ wages and hours law was, it at least had the purpose of limiting a “job” to 40 hours per week in the absence of overtime pay. So, yes, if Washington wished to waste taxpayer money counting those kind of standardized 40 hour/week  “jobs”, it wasn’t necessarily the worse thing.

Nor did the essentially political project of computing an “unemployment rate” based on a monthly census of such job holders versus the adult population (except those millions employed in un-monetized homemaking) lack plausibility.

Sure, there wasn’t anything that Washington could constructively do about the resulting “unemployment rate” and its monthly trend, but it did give the Democrats initially, and eventually politicians of all stripes, something tangible to campaign about; in 1960, in fact, it gave Richard Nixon something to get even about eight years later, and to America’s everlasting harm.

But as irony would have it a flag-in-the-label entrepreneur from Arkansas put a decisive end to the pointless statistical work of the BLS. In one fell swoop he hit the traditional 40 hour/week “job” with a triple whammy. First, millions of “jobs” were unmonetized and eliminated from the reach of the BLS surveys when he turned giant stores into self-service discount emporiums where shoppers roamed the endless aisles and supplied their own uncompensated clerical labor.

Secondly, he kept the stores open around the clock seven days per week, and divided the work of cash register operators, greeters and inventory replenishment  clerks into 15 minute scheduling intervals based on customer traffic patterns, not the hour hands of the clock. “Jobs” became “hours” that fluctuated by the week and season and almost never added up to 40 hours per week, or even 30 hours.

Finally, he and his successors eventually outsourced almost all of the goods on Wal-Marts shelves to the cheapest labor precincts of the planet, especially the massive new export factories of Mr. Deng’s red capitalism.  Those “jobs”, of course, went MIA in the BLS survey permanently.

So the 40-hour/week job has gone nearly as extinct as the dodo bird, having been sliced, diced, out-sourced and gigged by the modern internet driven global economy.  Indeed, e-commerce has taken Sam Walton  one step further; its demonetizing labor even further as people shop with their iPhone.

Government bureaucracies never die of course - even when their mission becomes pointless, impossible or obsolete. The monthly jobs report exhibits all three of those conditions, but that has not stopped its publication or its utilization by fossils like Yellen and her posse.

Instead, the BLS has decided to count any gainful employment of even a few hours per week as a “job” in the establishment survey; and then to lather it with statistical voodoo called trend cycle projections, seasonal adjustment or mal-adjustments, as the case may be, birth and death jobs, whether warranted or not, and double and triple gigs held by the same social security number, even though these moonlighters could be readily consolidated by modern technology.

As to the household survey, the BLS went in the opposite direction—-deleting from the labor force pool any survey respondent professing to not having worked or looked for work during the survey period, whether able-bodied or not, thereby permitting the unemployment rate to fall, even as the share of the adult population counted as employed fell to ever lower ratio.

In short, the BLS produces noise and junk. Its own numbers prove that. Since the first quarter of 1999, for example, the establishment survey job count has risen by 11% while the number of labor hours utilized by the nonfarm business sector has climbed by only 3%. In other words, the denizens of the Eccles building are happily splitting unemployment rate to hairs on the second decimal place, but the difference in two of its aggregate measures amount to the equivalent of 16 million workers in a adult population ( 16 years and over) of 250 million.

Preposterously enough, Yellen has this junk pasted all over her so-called macroeconomic dashboard, including a bunch of equally flawed measures called jobs openings, quits, fires and hires from the so-called JOLTS report.

But really now. What kind of JOLTS metric do you get when a clerk in a full service store losses a job to E-commerce; the impacted home shoppers find their own sizes, colors and styles on the internet; a student delivers  the resulting packages 10 hours per week from the back of a Vespa; and a hamburger shack near the originating Amazon distribution center advertises for a fry cook?

These metrics are like the creation story in the book of Genesis: Unless you take the tall tale literally, its just a bunch of noise from a more primitive age. The fact is, even if pegging interest rates in the money markets could release some magic ether called aggregate demand, and it would stay within the bathtub walls of the US economy, the BLS publishes absolutely nothing that measures “slack” in a dynamic economy that is at once demonetizing, outsourcing and gigging.

At length, even Yellen might have figured this out - perhaps based on nothing more than the observation that its about the price of labor, not the BLS’ rickety count of jobs. That wages are stuck at 2% growth in an economy afflicted with at least a 2% creep in living costs proves that the pool of hours available in the global economy is beyond measure, and beyond the reach of the Fed.

But now comes a strain of economics that is far more insidious than Yellen’s labor focussed version of Keynesian home economics. Yesterday, the chief economist of the Vampire Squid itself opined that the “market’s have already done the Fed’s dirty work” based on the chart below. This gem puts the BLS noise to shame and then some.