This, below, is the best chart of the week. It’s like an optical illusion. You have to stare at it for a while. Note that the right scale is inverted. Tweeps were quick to confirm their favorite political theories – George Bush “put the economy in a ditch,” Obama never “created or saved” any jobs. Jeremiah debunks president centered economic theories here.
The point of plotting both these lines is to show that one of them is bogus. The blue line is the one that’s economically relevant. The black line, U3 Unemployment, is a proxy measure for the blue one. What is astonishing is that U3 held up so well for so long. All serious observers have switched to U6, nonfarm payroll, and labor force participation. Even if you’re looking at NFP, you have to crack the report and look at the categories.
No one takes the headline numbers seriously, especially not U3. It’s not technically wrong. It’s just irrelevant, and then CNN serves it up as feel good propaganda. The Fed has kept ZIRP for almost seven years now. They are either trying to destroy capitalism, or they see a weak economy. Jeremiah is not prone to conspiracy theories. We disagree with the Fed’s prescription, but not the diagnosis.
Back before Chairman Yellen, the Fed set a benchmark of 6.5% unemployment before they would raise rates. The reason this is “chart of the week” is that it shows the corresponding figure, 62% on the blue line, that would mark the return of a healthy job market.
See also: New Fed Bashing Hero