Are Low Unemployment Rates and Higher Wages Actually Bad News?

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economic metaphors and nature. seen in Caddyshack where Judge Smales is asking Ty there, what did you shoot today? Ty, Ty’s like, I don’t keep score. Judge Smales asked, well, how do you measure yourself with other golfers? Ty’s like, by height. that’s why I bring this up.

People have a difficult time understanding what the various different so -called wizards of smart in the mainstream media business press when they talk about unemployment numbers and higher wages and all sorts of good stuff. Because again, it confuses people. OK, what’s to say when they say, you know,

Low employment and higher wages are actually bad news. When they present that to people, they’re like, huh? How does that make any sense?

Another one, another one. The economy is overheating.

They’ll say, it’s overheating. The labor market is too tight and wages are too high.

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it’s bad that people can find a job and their wages are going up. How does that make sense? These are like tarot card readers and they’re always, you know, enamored with the artists, this inflation monster, this evil inflation monster is going to come and it’s going to lay waste to the entire country. And they blame it on wages, blame it on wages and low unemployment.

when the reality is it’s government spending. Phillips curve, okay. There was a 1958 paper by A .W. Phillips and it said the relationship between unemployment and wages. Phillips curve. He said, wages tend to rise as unemployment falls. Okay, yeah, that’s true.

Is that true? But then you had other economists come out and say that their theory is that they link this unemployment and general inflation.

No. Again, you can talk go back to John F. Kennedy and his tax cuts in the 1960s that had low inflation, strong dollar. 1970s dollar collapse when Nixon took the dollar off the gold standard, unemployment and inflation rose at the same time. Reagan cut taxes lasted through the 1990s unemployment and inflation fell.

as a dollar stabilized, okay? Like Ty from Caddyshack, we evaluate economic strength differently than the chattering classes on TV. The greatest, greatest economic indicators, as far as I’m concerned, including probably the greatest social program you could ever have is a strong labor market. I don’t pay much attention

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GDP numbers and trade deficits and other nonsense. Can people find a job? Are wages increasing? What is inflation like? What can people afford? These questions are in the affirmative. We tend to be on the right track. Now, unemployment has ticked up to some degree.

you know and the job market is not nearly as strong it’s becoming much more difficult that that’s obvious and at the same time this is occurring okay yeah it has inflation come down from where it was yes it is but it’s still very high.

The economy, the economy, it’s an ecosystem. Okay. And I’ve tried to get that across here on the program. It’s not an engine, not an engine that can be worked on and tinkered with. you you try to think of it this way. You think about, you you take a look outside, or I always like to use fall as an example. It’s like, can somebody calculate when the leaves fall off the trees where they’re all going to land?

No, you think about all the interactions in nature with bugs and frogs. You can’t even get your arms around it. It’s a beautiful thing. Trying to grasp the countless transactions, interactions of our economy, that’s an exercise in futility as well. Whatever inevitably happens is that the people in charge, the wizards are smart there.

and they try to tinker with it and they tell you they’re going to make things better and they make it worse. I wrote a column several years ago that the Federal Reserve should have a tagline on their website, the Fed causing recessions since 1913. There was a piece a few years ago, was and I saved it was in the Investors Business Daily that poked fun.

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at all of the idiotic metaphors. Every conversation about the economy invariably compares it to a mechanical device. When the economy is going well, it’s humming or chugging along. When it’s not, it’s sputtering or stalled. We prime the pump with stimulus spending during a recession and hope the economy will reach escape velocity. Tax cuts and more federal spending can fuel growth or turbocharge it. Money gets pumped into

Economists look for red lights flashing because if the economic engine is revved too much, it could overheat. To prevent this, the Fed sometimes must tap the brakes. Hitting the brakes too hard, however, can drive the economy into a ditch. Again, metaphors are used to help people understand topics that might be somewhat complicated or abstract. These types are terribly wrong.

And it leads to the old axiom that bad metaphors leads to bad policy. Again, once again, think of all the interactions and random events that happen over the course of a day. Look out your window and watch nature for a while. There’s nothing mechanical about life. Our economy is life. Comparing the economy to an engine means that it’s made up of parts that interact in precise ways and that if they break down can be easily fixed.

by some smart technicians. It suggests that pushing the right buttons and flipping the right switches and adding the right mix of fuel in the proper amounts will keep it running smoothly. What do we get after bad metaphors thrust us toward bad policy? Stimulus plans that don’t stimulate, Fed policy causing recessions, jobs programs that don’t create jobs, bailouts that don’t solve but rather extend current problems at hand, subsidies that cause a disconnect in the markets and inflate prices, a tax code

That is incomprehensible. 70 ,000 plus pages long, just to articulate a few.

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George Carlin had this bit on nature. He said, the planet’s been through a lot worse than us. Been through earthquakes, volcanoes, plate tectonics, continental drift, solar flares, sunspots, magnetic storms, the magnetic reversal of the poles, hundreds of thousands of years of bombardment by comets and asteroids and meteors, worldwide floods, tidal waves, worldwide fires, erosion, cosmic rays, reoccurring ice ages, and we think some plastic bags and some aluminum cans are gonna make a difference?

Planet isn’t going anywhere. We are. We’re going away. Pack your bag, folks. We’re going away. And we won’t leave much of a trace either. Maybe a little styrofoam. The planet will be here, and we’ll be long gone. The planet will be here for a long, long, long, long time after we’re gone. And it will heal itself. It will cleanse itself. That’s what it does. It’s a self -correcting system. Remember the wildfires out in California, devastation? And again, climate change. No, no, you might want

bury those power lines and you know a lightning strike is gonna cause fire there in California things are dry and yeah there’s more damage because more people live there anyway I got countless acres of forest in California short time short time nature came roaring back wild flowers new growth came back can’t fix nature

make the rainforest come back, can’t make endangered species reappear, can’t fix coral reef. We also can’t save or fix the economy. What we do is you leave them alone and they will repair themselves. The free market is a self -correcting system. Let’s get the hell out of the way. Watchdog on wallstreet .com.