Could the Fed Actually Be Right?

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by Jim Rickards, Daily Reckoning:

You can’t have it both ways, but that doesn’t mean you can’t try. That’s what Joe Biden is doing right now.

On the one hand, Biden policies are, at least, partly responsible for the recent rise in unemployment and might be largely responsible.

They’re also responsible for the inability of employers to hire employees so they can reopen their businesses and return to full capacity. If that sounds like a contradiction, it’s not.

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The unemployment rate is rising, and job losses are still high. In addition to those actually counted as unemployed, there’s a huge group of Americans, perhaps ten million or more individuals, who don’t have jobs but are not technically counted as unemployed because they’re not looking for jobs.

There are always some people in this category who may be retired, homemakers, students or have other duties that keep them out of the workforce. But that does not account for the steep decline in labor force participation in recent years.

So, if unemployment is high and labor force participation is low, why are employers having difficulties finding employees?

Why Work When You Can Make More Sitting at Home?

There are literally millions of able-bodied Americans between the ages of 25-59 who are sitting around without jobs. Why won’t they take the jobs being offered?

The reason is that millions of Americans make more money on unemployment and other benefits than they could make working. Unemployment benefits have been increased and extended with a $300 per week supplement on top of regular benefits.

Other benefit programs come into play, including childcare tax credits, low-income tax credits, Obamacare credits, etc. It’s not difficult to make up to $40,000 per year with such benefit programs (and with very low tax liabilities).

Why work for McDonald’s or Walmart for $31,200 per year (that’s a full-time job at $15.00 per hour with benefits and training) when you can get $40,000 per year to stay home?

People can do the math, and they choose to stay home. And by the way, you can expect to pay more for a McDonald’s hamburger if they’re going to pay entry-level workers $15 per hour. They’ll try to pass along their increased labor costs to customers, as businesses generally do.

One way to solve this problem is to cut the benefits and programs. Then people would take up the job openings available, and the country would move closer to self-sustaining growth.

Instead, Biden is proposing more “rescue” benefits, continued high unemployment payouts and other goodies that gave rise to the labor shortage in the first place.

Biden’s plan will be a headwind to growth in the year ahead. But it’s music to the ears of the progressives, who are actually in charge behind the scenes, calling the shots.

Inflation: The Biggest Financial Story Today

Economists had expected over one million jobs to be created in April. The actual number was 266,000, and March’s numbers were revised lower.

Do last month’s woeful unemployment numbers undercut the mainstream theory that falling unemployment will lead to inflation?

The biggest financial story today is fear of inflation. Inflation has spooked the bond market and raised expectations that the Fed will soon have to raise interest rates to fight inflation.

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