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Bernanke cautious on American recovery

Increase in jobs out-of-sync with increase in growth.

The chairman of the United States Federal Reserve, Ben Bernanke, used a speech to the National Association of Business Economists yesterday to deliver his first comment on the strong employment figures released earlier this month – and he wasn't optimistic.

Despite the fact that employment rose by over 200,000 people in February's figures alone, with yet more being grandfathered in due to revisions of previous month's data, Bernanke warned that there was every chance that what we were seeing was not a recovery, but merely a temporary in what is otherwise still a strongly cyclical depression.

He told the conference:

What we may be seeing now is the flip side of the fear-driven layoffs that occurred during the worst part of the recession, as firms have become sufficiently confident to move their workforces into closer alignment with the expected demand for their products

To the extent that this reversal has been completed, further significant improvements in the unemployment rate will probably require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.

The reason for this note of caution is Bernanke's application of an economic theory known as Okun's law, which says that unemployment and growth should be related. In 2009, unemployment was "too large" for the contraction, and now the growth in employment is "too large" compared to the underlying economic growth. This has lead some to refer to the last few months in the US as a "growthless recovery" (a reference to the fact that recoveries for most of the prior decade ended up being "jobless recoveries", where strong growth wasn't matched by job creation).

Bernanke also quashed two popular alternative explanations for the phenonemenon. The first, that there is perhaps underlying growth which is not being picked up on, was dismissed because other measures of economic activity, such as gross domestic income, show the same thing. In fact, "gross domestic income is currently estimated to have increased less quickly than GDP in 2011 and so does not point to an explanation of the drop in the unemployment rate." [Emphasis in the original]

If growth isn't being underestimated, perhaps job creation could be being overestimated. But Bernanke doesn't buy that, either:

A story centered on potential workers dropping out of the labor force might seem in line with the low level of the labor force participation rate.  But other data cast doubt on that idea.  For example, a broad measure of labor underutilization that includes people only marginally attached to the labor force has declined about in line with the unemployment rate since late 2010.

There is a silver lining to the pessimism, though. It makes it far more likely that the current depression is cyclical rather than structural, and so the recovery, when it eventually comes, should be relatively pain-free:

This pattern is consistent with cyclical factors accounting for the bulk of the recent increase in long-term unemployment. Similarly, the fact that labor demand appears weak in most industries and locations is suggestive of a general shortfall of aggregate demand rather a worsening mismatch of skills and jobs.

This may be true of the US, but we shall have to wait and see whether the same is true domestically. Attempts to "rebalance" the economy by moving large numbers of workers from the public to the private sector may be the cornerstone of the government's preferred policy of "expansionary fiscal contraction", but if it carries the risk of turning a cyclical slump into a structural one, it should be approached with trepidation indeed.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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No, David Cameron’s speech was not “left wing”

Come on, guys.

There is a strange journalistic phenomenon that occurs when a party leader makes a speech. It is a blend of groupthink, relief, utter certainty, and online backslapping. It happened particularly quickly after David Cameron’s speech to Tory party conference today. A few pundits decided that – because he mentioned, like, diversity and social mobility – this was a centre-left speech. A leftwing speech, even. Or at least a clear grab for the liberal centre ground. And so that’s what everyone now believes. The analysis is decided. The commentary is written. Thank God for that.

Really? It’s quite easy, even as one of those nasty, wicked Tories, to mention that you actually don’t much like racism, and point out that you’d quite like poor children to get jobs, without moving onto Labour's "territory". Which normal person is in favour of discriminating against someone on the basis of race, or blocking opportunity on the basis of class? Of course he’s against that. He’s a politician operating in a liberal democracy. And this isn’t Ukip conference.

Looking at the whole package, it was actually quite a rightwing speech. It was a paean to defence – championing drones, protecting Britain from the evils of the world, and getting all excited about “launching the biggest aircraft carriers in our history”.

It was a festival of flagwaving guff about the British “character”, a celebration of shoehorning our history chronologically onto the curriculum, looking towards a “Greater Britain”, asking for more “national pride”. There was even a Bake Off pun.

He also deployed the illiberal device of inculcating a divide-and-rule fear of the “shadow of extremism – hanging over every single one of us”, informing us that children in UK madrassas are having their “heads filled with poison and their hearts filled with hate”, and saying Britain shouldn’t be “overwhelmed” with refugees, before quickly changing the subject to ousting Assad. How unashamedly centrist, of you, Mr Prime Minister.

Benefit cuts and a reduction of tax credits will mean the Prime Minister’s enthusiasm for “equality of opportunity, as opposed to equality of outcome” will be just that – with the outcome pretty bleak for those who end up losing any opportunity that comes with state support. And his excitement about diversity in his cabinet rings a little hollow the day following a tubthumping anti-immigration speech from his Home Secretary.

If this year's Tory conference wins the party votes, it’ll be because of its conservative commitment – not lefty love bombing.

Anoosh Chakelian is deputy web editor at the New Statesman.