The concept of "considerable time," which is frequently seen in the U.S. Federal Reserve's official reports, has turned into a cliché of the Fed. "Patience" has recently been added to this never-ending "considerable time" phrase, suggesting that the Fed will prolong this time with patience. The report prepared during the December meeting of the Federal Open Market Committee (FOMC), which makes key decisions about the Fed's monetary policies, suggests that the U.S. economy has made progress since the last FOMC meeting held in September. It was also emphasized in the report that the labor market improved due to a strong increase in employment and a decrease in unemployment. The report also disclosed a moderate rise in household expenditures, while the recovery in housing sector continued to be poor.
Furthermore, it was stated that inflation remained below the Fed's target of 2 percent due to falling oil prices, while expectations for long-term inflation followed a stable trend. The fact that the Fed failed to achieve 2 percent inflation means it couldn't come close to the natural rate of unemployment (NRU), which is a lower version of non-accelerating inflation rate of unemployment (NAIRU). This is a concept about inflation targeting in accordance with the Taylor rule, suggesting that an unemployment rate, which helps curb the inflation rise, is tolerable under low inflation conditions. According to this principle, even the unemployment of a qualified workforce is not a matter for concern, unless it leads to chronic inflation. I think that this understanding has collapsed.
According to the Evans rule, unemployment should remain stable at 7 percent before inflation exceeds 3 percent, in line with coming close to the NRU. Charles Evans put forward an understanding that went beyond the Taylor rule, which set inflation as a target alone. The Evans rule attached priority to the unemployment rate, rather than inflation, meaning that central banks, particularly the Fed, would determine a NRU for their countries as a primary objective. The Evans rule, essentially, did not only prefer financial markets as regulator of monetary policies, but also real economy and regulating production. Thus, the monetary and neoliberal policies that have continued since the early 1980s were left behind with the Evans rule. Well, did the Fed take steps to implement the Evans rule during Ben Bernanke's incumbency? It is possible to say that Bernanke and his team could not escape the inflation targeting, or rather, the Taylor rule, and therefore he was replaced by Janet Yellen. The Obama administration knew that unemployment in the U.S. was higher than the official figures suggested and the distribution of income was rapidly deteriorating in line with this. The protests that broke out in Ferguson were not about the conventional friction between the black and white segments of society, but rather the outcome of rising unemployment and poverty. Today, not only is the unqualified labor force unemployed, but also the qualified one, especially in the young population. Thus, the Fed's unofficial unemployment figures are much higher than disclosed figures. Furthermore, the distribution of income is deteriorating not only in the U.S., but also in all developed economies as a result of rising unemployment.
In his book "Capital in the Twenty-First Century," Thomas Piketty notes, "From 1900 to 1980, 70-80 percent of the global production of goods and services was concentrated in Europe and America, which incontestably dominated the rest of the world. By 2010, the European-American share had declined to roughly 50 percent, or approximately the same level as in 1860. In all probability, it will continue to fall and may go as low as 20-30 percent at some point in the 21st century. This was the level maintained up until the turn of the 19th century and would be consistent with the European-American share of the world's population.
In other words, the lead that Europe and America achieved during the Industrial Revolution allowed these two regions to claim a share of global output that was two to three times greater than their share of the world's population simply because their output per capita was two to three times greater than the global average. All signs are that this phase of divergence in per capita output is over and that we have embarked on a period of convergence."
These arguments of Piketty show us that the 2008 crisis was a milestone. Today, developed countries, particularly the U.S., cannot overcome systematic crises simply by prioritizing the financial markets and by turning to financialization in favor of themselves and to the detriment of developing countries. The Fed's report for December, therefore, shows that patience is needed so that "considerable time" brings unemployment to a "considerable" level. The target should be to bring not only the U.S.'s unemployment level down but also the whole world's unemployment to the level of NRU, which obviously requires a great deal of patience.
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