Lowering the Bar
The above chart is where the seasonally adjusted unemployment rate stood from 2004 through 2007.
Though the economy posted unemployment rates of 5 percent or lower for 31 consecutive months, including almost a year at or around 4.5 percent, it never got to what I had understood to be the commonly accepted definition of full employment for decades.
But Zandi said it did. So when the call opened up for questions, I asked him what he thought the unemployment rate would be at the end of 2016 when we hit full-employment nirvana.
I was stunned at the answer: 5.5 percent.
It gets worse.
When I asked him if this benchmark meant that we were somehow at more than full employment in 2006 and 2007, he said "yes," contending that there was significant upward pressure on wages during that time. Does anyone remember that we had a seller's market for labor throughout the U.S. in the mid-2000s? With rare exceptions in certain sections of the country, neither do I.
When I mentioned that his full-employment unemployment rate was quite a bit higher than I was used to seeing by about 1.5 percentage points, Zandi went further into the land of the absurd. He asserted that full employment was commonly regarded as 5 percent last decade — this 2007 article in the New York Times confirms that — but that the economic damage caused by the recession had upwardly moved that standard to 5.5 percent.
In other words, it's Bush's fault — apparently forever — that the rate is now a half-point higher. The economy fell, and it will never entirely get back up. You can't make this garbage up. This permanent half-point upward move must have been discovered after the Obama administration was done promoting the idea that its 2009 stimulus package would lower the unemployment rate to 5 percent — by the middle of 2013. How convenient.
In a far more efficient communications environment, why did the accepted full-employment unemployment rate rise at all?
Part of the answer is that there are many people who believe that the increase never should have happened. That group, strangely enough, includes card-carrying liberals Jared Bernstein and Dean Baker. It also includes the folks at the American Institute For Full Employment. Its president, John Courtney, goes further. In an email, he specifically asserted his group's belief that "full employment is below the 4%" Bernstein and Baker advocated in late 2013.
It's hard to disagree with Mr. Courtney, given that a July 2014 table at the government's Bureau of Labor Statistics showed six states with rates below 4 percent. Only one of them, North Dakota, where the unemployment rate was 2.8 percent and starting wages at Wal-Mart can be as high as $17 per hour, is seeing significant wage pressure. This strongly suggests that the real-world unemployment rate at full employment is about 3.5 percent.
What has really happened is that the left-dominated establishment economics community has lowered the bar for full employment to avoid having to discuss the welfare state's pervasive work disincentives and their own Keynesian policies' utter failure to satisfactorily revive the job market.
(Artwork created using multiple Shutterstock.com images.)