O.65. Employment, Investment

Lately it has been discussed in some blogs on the relationship between employment and investment.The first was John Taylor, responded by DeLong and Krugman, and counterpointed by Joao Nunes. Most of them use unemployment data, I use data on employment, which in the U.S. are different source. They would come out figures like this, where unemployment is opposed to private investment, in an obvious way.

If I use data of companies (graph below), I also reach a close relationship between  employment (blue line) andprivate investment / GDP (red line), as it is clear  no clear relation employment-consumption / GDP (green line), despite this is a much larger percentage of GDP.

FRED Graph

The employment-private investment correlation is 0.65, and employment-consumption is -0.68 (green line). For a period of 50 years, not bad. Other tests with public expenditure / GDP Investment / GDP, or with the same GDP, do not yield any results.
The sensitivity of employment to investment is, curiously, of Keynesian root. For Keynes, the job was created by the desire to invest, then consumption growth was a result of increased employment and income.
For Keynes, the investment was a function not reliable, since its theoretical dependence of profitability compared to the financial cost was not a stable function. Neoclassical economics preaches investment as a function of their marginal productivity minus the rate of interest. The interest rate would then be the variable with which “modulates” the demand for investment. But the investment would depend, according to Keynes, a series of impossible to quantify subjective factors, type decision-with-uncertainty. The investment is volatile with respect to the interest rate. Indeed, the rate of ten-year treasury (green dotted line) does not seem very influential in investment (private bond rates are but a few years ago.)

These correlations call into question many things accepted as true. At least, the simplest models of investment determined by the marginal efficiency in inverse proportion to the interest rate. It would be interesting to see what comes out in Spain. Morning.

New complications

The following figure represent the evolution of employment (green line, in thousand) compared with the parallel evolution of

FRED Graph

Balance of Payments (blue line, in NGDP terms).  A graph is not proving anything, but it´s quite clear that The rise in employment after the dot-tom burst, thanks in part to the loose monetary policy of Greenspan, had a counter effect in the huge rise of trade deficit per unit of GDP.

The great Recession contracted the employment down to below the level of 2003:  a tragedy. At the same time, BoP deficit also was reduced to a very near equilibrium level.

The very slow recovery of employment (following the QE  of Bernanke), has summed up the trade deficit/GDP, questioning the autonomous capacity of monetary policy to manage without problems the recovery of jobs.

That doesn´t depend on internal factors,as we saw few days ago: it depends on China ant other big players which maintain artificially its devalued exchange rate.

Now a  new  problem  appears in scene: the oil price and its both inflationary and recessionary effects. This complicate the  monetary policy a lot. First, it increase the upward deviation of net import; second, it increase the upward pressure on inflation. The Fed will have less margin of choice; meanwhile politicians will get on the nerves watching inflation and unemployment  rising jointly.

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