Ryan Avent is surprised by how quickly Minneapolis Fed President Narayana Kocherlakota is accepting structural unemployment as a reason for not pursuing monetary policy. Federal Reserve Bank of Kansas City President Thomas M. Hoenig is calling for a raise of interest rates, and Richard Fisher of the Dallas Fed is taking unemployment off his “to do” list at the Fed.
I think there’s an implicit meme here that these states have little to no unemployment problems. What does unemployment look like in these people’s states? From google’s public data, we get this graph:
(I included both Missouri and Kansas for Kansas City, since I am never sure where people from there consider home, though the Fed Building seems to be in Missouri.)
These states are all mostly at the low end of unemployment, but they are still higher than the 20 year average. Let’s take the lowest end, Kansas. It’s the highest it’s been in 20 years and it’s leveling out. Is that all “sectoral mismatch”? The real worry is that these specific Fed chairmen are performing a type of inception on you, and you’ll wake up from a dream within a dream within a dream and think “Well 6.5% unemployment isn’t that bad for Kansas. It’s actually a pretty respectable number, all things considered” and you’ll think you came up with that argument yourself.
My subconscious has been militarized and I don’t buy that for a second. 6.5% is terrible! It’s more than a 50% increase over the normal steady state of the past 20 years. Kansas had no significant housing bubble or overdeveloped financial sector, so it can’t be entirely attributable to the implied structural critiques from the bubble. And it leads to a bind: if adding 2% is appropriate for structural unemployment, what about the 5%+ in U3 we’ve added at the national level? Is there any room for cyclical demand management anywhere?
And the story is worse if you look elsewhere (though oddly not Minnesota) among these states. People have discussed Texas before and it is standing out as a poor example. Even in the flat states, even in places with smaller economies less dependent on construction or finance there is a major unemployment problem that mirrors the unemployment crisis going on in the rest of the country.