Yglesias

Paul Ryan’s Plan Counts On Reducing Unemployment To Below “Full Employment” Level — By Magic!

Tim Fernholz reports: “An analysis performed by the conservative Heritage Foundation at Ryan’s request found the unemployment rate would be reduced to 4 percent in 2015 by Ryan’s budget, an incredibly low number when many economists believe the economy will not return to so-called “full employment” of about 5 percent until years after that.”

It’s worth noting that this is not just unrealistic, it’s impossible. When unemployment drops beneath 5 percent, the Federal Reserve starts raising interest rates until a recession pushes it back up. This is deemed necessary to prevent inflationary wage increases. I think serious questions can be asked about the wisdom of pursuing this course of action at a time when political developments in China, India, and elsewhere have vastly expanded the pool of globally available low wage labor. But this is an issue in monetary policy and central bank governance, and not something federal budget writers can change. If Ryan were promising a rapid drop to 5.5 percent unemployment, he’d be engaged in wishful thinking and unrealistic promises. But promising a rapid drop to 4 percent unemployment is rank dishonesty.