Tomahawk, WI 4/3/2012 (StreetBeat) -- Aristotle, it is said, had a particular view on how best to communicate an important idea to an audience. Begin by telling them what it is you plan on telling them. Then tell them. And in conclusion, tell them what it is that you told them.Fed boss Bernanke is not happy with the labor market. He’s the first to acknowledge that the Unemployment Rate has fallen from a peak of ten percent down to 8.3% in relatively short order and he claims to be encouraged by the twenty-four month winning streak for private sector payroll growth, including the current six-month average gain of more than two-hundred thousand per month. But, despite that good news, he just can’t prove to his own satisfaction that the trend is as good as it looks; he’s worried that some of the data, such as the jobless rate, is misleading and could be the basis of incorrect conclusions and result in wrong-headed policy decisions. He has decided to communicate these concerns in a clear and thorough manner; I think one should pay attention.
First tell your audience what you are going to tell them.
In early February Bernanke testified before Committees in both houses of Congress that he thought some of the data that makes headlines, such as the declining unemployment rate, are likely understating the weakness of the labor market. Without going into much detail he expressed concern that the employed to population ratio and the unusually high level of long-term unemployment were indicating trouble in the labor market is ongoing.
Tell them.
On March 26 Bernanke gave a speech before the National Association of Business Economists (NABE); it was called “Recent Developments in the Labor Market”. In fifteen pages of text, in addition to fourteen charts, he discussed in great detail the concerns that he mentioned briefly in February on Capitol Hill. He explained his quandary at the top, “We have seen some positive signs on the jobs front recently, including a pickup in monthly payroll gains and a notable decline in the unemployment rate. That is the good news. At the same time, some key questions are unresolved. For example, the better jobs numbers seem somewhat out of sync with the overall pace of economic expansion. What explains this apparent discrepancy and what implications does it have for the future course of the labor market and the economy?” Among the labor market topics that he touched upon were the debilitating effect of long term unemployment on the individual and the society, the fact that much of the statistical improvement is from a decline in firing as opposed to an increase in hiring, and the mismatch between sluggish economic growth and the sharp decline in the unemployment rate. Bernanke is not happy with the labor market and, in this speech, he told us why that is so.
But there is another layer to Bernanke’s concern about the labor market, a layer that I think is the real heart of the matter. He is worried that the dichotomous labor market data will lead policy makers to the conclusion that the problems are structural and not cyclical. And if that is the case decisions will be taken using the assumption that little more can be done to help the labor market. Bernanke is not of that opinion, and he wants us to know that the Fed will not stand down, not now anyway and likely, not anytime soon.
Early in the NABE speech Bernanke told the audience the position he will defend, “I will argue today that, while both cyclical and structural forces have doubtless contributed to the increase in long-term unemployment, the continued weakness in aggregate demand is likely the predominant factor.
Consequently, the Federal Reserve’s accommodative monetary policies, by providing support for demand and for the recovery, should help, over time, to reduce long-term unemployment as well.” And then he defended that stance, “A pessimistic view is that a large share of the unemployment we are seeing, particularly the longer-term unemployment, is structural in nature, reflecting factors such as inadequate skills or mismatches between the types of skills that workers have and the skills that employers demand. If this view is correct, then high levels of long-term unemployment could persist for quite a while, even after the economy has more fully recovered. And it appears true that over the past two decades or so, structural factors have been responsible for some increase in long-term unemployment…However, although structural shifts are no doubt important in the longer term, my reading of the research is that, at most, a modest portion of the recent sharp increase in long-term unemployment is due to persistent structural factors.” He then took the time to remind the crowd of the point he had strived to make in the speech, “…further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies. I also discussed long-term unemployment today, arguing that cyclical rather than structural factors are likely the primary source of its substantial increase during the recession. If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well.”
Bernanke is a student of the history of the Fed. He does not want to repeat the Fed’s mistakes in the late 1930s that, in retrospect, seemed to extend the Depression unnecessarily. I think that he is very sensitive to the idea that if he decides that the labor market’s difficulties are now a structural problem and therefore conducts Fed policy from that perspective, that he will be cutting loose millions of former and or future workers from the labor market; extending the personal Depression of those workers unnecessarily in addition to wider societal implications as well, or so I could imagine Bernanke surmising. In regards to that view, he warned the NABE audience of the consequences of giving up too soon on the goal of returning the labor market to its former condition, “We must watch long-term unemployment especially carefully, however. Even if the primary cause of high long-term unemployment is insufficient demand, if progress in reducing unemployment is too slow, the long-term unemployed will see their skills and labor force attachment atrophy further, possibly converting a cyclical problem into a structural one.” Or, in other words, Bernanke does not plan to walk away from a battle that he does not think is over.
Tell them what it is that you just told them.
Shortly after Bernanke completed his speech at NABE the New York Fed announced that their in-house blog, Liberty Street Economics, would present, over the following few days, six essays on the labor market. Coincidentally, the essays’ content was strikingly similar to the topics that were covered by the chairman of the Federal Reserve System in a speech that same day. Not to say that the essays were merely reiterations of Bernanke’s opinions, but the connection between the two is inescapable and the message is, I think, clear; this is the key topic, familiarize yourself with it.
Bernanke did not leave the review of his message solely to others. The day following the NABE speech he took the unusual step of being interviewed on ABC News, where he added this coda to his view of the labor market and what he sees as the proper response from the Fed.
Bernanke: “It’s great to see unemployment come down the way it has recently. And there are a lot of other indicators in the labor market which are positive. But—again we’re still millions of jobs below where we were before the recession.”
Diane Sawyer: “You worried that people are getting too optimistic?”
Bernanke: “Well, optimism’s a good thing. It –makes people go out and –you know, start businesses and spend and do whatever is necessary to get the economy going. But I think as policymakers we need to be –cautious and---and not—not change policy too quickly.”
Bernanke told us the topic, explained the topic in detail and then reminded us of his point. Since he is the chairman of the Fed it is a point that matters, whether or not it is one to which you can agree.
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