Edward Conard

Top Ten New York Times Bestselling Author

  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

AI Summary. Unemployment has stayed at or below the Federal Reserve's estimated non-accelerating inflation rate of unemployment of under 4.5% for 57 months, tied for the longest such streak on record. The author argues this persistent labor market tightness is a key reason inflation has remained elevated and that keeping interest rates higher for longer is needed to reach the 2% target.

Torsten Sløk Apollo
Date Posted:
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Database

US unemployment has been under the Fed’s 4.5% estimate of the non-accelerating inflation rate of unemployment (NAIRU) for 57 months. Sløk argues “persistent tightness is a key reason inflation has remained elevated.”

Does a persistently tight labor market keep inflation above target?

Core argument: U.S. unemployment has stayed at or below the Fed's estimated NAIRU of under 4.5% for 57 months, tied for the longest such streak on record, leaving the labor market in excess-demand territory for an unusually long time.

With the Fed estimating the non-accelerating inflation rate of unemployment (NAIRU) at below 4.5%, and unemployment having stayed at or below that level for 57 months, tied for the longest such streak on record, the labor market has been operating in excess-demand territory for an unusually long time. That persistent tightness is a key reason inflation has remained elevated: when unemployment runs below NAIRU, wages and prices face sustained upward pressure. Prior episodes of sub-4.5% unemployment were typically far shorter. The current one is one of the longest on record, which helps explain why the ongoing inflation overshoot since 2021 has been so stubborn. The bottom line is that a strong economy is the reason why inflation has been high, and only by keeping rates higher for longer can the Fed cool inflation down towards the FOMC’s 2% inflation target.

Takeaways by Macro Roundup® AI

  1. U.S. unemployment has stayed at or below the Fed's estimated NAIRU of under 4.5% for 57 months, tied for the longest such streak on record, leaving the labor market in excess-demand territory for an unusually long time.
  2. When unemployment runs below NAIRU, wages and prices face sustained upward pressure, which the author identifies as a key reason inflation has remained elevated since the overshoot began in 2021.
  3. Prior episodes of sub-4.5% unemployment were typically far shorter, and the author argues that only by keeping rates higher for longer can the Fed cool inflation toward the FOMC's 2% target.

Related Articles:

  • The U.S. Job Market is (Still) Inflationary — Prices for locally produced U.S. services are rising about 1–1.5 percentage points faster than in the years just before the pandemic, leaving underlying inflation as far from the Federal Reserve's goals as it was three years ago. Prices for manufacturing components and data-center-related loaded circuit boards have also risen.
  • Labor Force Participation Is High If You Measure It Right — The headline labor force participation rate — the share of people 16 and older working or looking for work — is a limited gauge of labor market health because participation varies greatly by age. Aging baby boomers and the addition of nearly 1.7m Americans 65 and older to population estimates add distortion.
  • Baby Busts and Growth Booms: Demographic Change and the Macroeconomy — A 1pp lower birth rate 20 years earlier is associated with 22 log points higher output per worker 20 years later and 29 log points higher after 40 years, about 0.73pp faster annual growth. The authors find lower birth rates are also associated with more labor-saving patents, larger high-tech shares, and higher productivity growth.
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