Yellen's No. 1 theory: The badly paid don't work hard

IS SHE KIDDING WITH THIS COMMENT?? WE ARE IN DEEP TROUBLE!!!

President Barack Obama's choice of Janet Yellen to head the Federal Reserve was surely bolstered by the fact that her concerns about unemployment outweigh her concerns about inflation. It must have gratified him, then, to learn that her most famous theory attempts to pinpoint the specific cause behind unemployment.

Co-written with her husband, Nobel-winning economist George Akerlof, Yellen's most widely cited paper is borne out of a simple premise: "if people do not get what they think they deserve, they get angry." Yellen and Akerlof go on to argue that workers who receive less than what they perceive to be a fair wage will purposely work less hard as a way to take revenge on their employer. And the worse they are paid, the less hard they will work. Or, as the paper puts it, "workers proportionally withdraw effort as their actual wage falls short of their fair wage."

In the 1990 paper, the economists christen their theory "the fair wage-effort hypothesis," and go on to explain why the phenomenon could explain unemployment.

(Read more: Stocks shrug off Yellen, so I'm getting short: Pro)

But before that is elucidated, it is important to understand that under the admittedly "rudimentary model" used by these economists, unemployment is a bit of a riddle. After all, if the cost of hiring a worker is greater than the value that worker adds, then firms will hire no one.

Via: CNBC News

Continue Reading....

Yellen Unlikely to Stop Fed’s Money-Printing Addiction

Chairman of the Federal Reserve, Fed Vice Chairman Janet L. Yellen holding the bag for Ben Bernanke's Keynesian-inspired insanity

Now that former Clinton Treasury Secretary Treasury and former Harvard University president Larry Summers has withdrawn his name from consideration as the next chairman of the Federal Reserve, Fed Vice Chairman Janet L. Yellen has seeminglybecome the leading candidate for the job. She would replace Ben Bernanke whose term expires in January. If appointed, Yellen would be the first woman to chair the Fed.

Yellen’s apparent good fortune was engendered by Summers’ withdrawal, triggered in large part by the staunch opposition to his nomination by at least five Democratic senators, including Elizabeth Warren (D-MA). Many of them believed Summers’ relationship with Wall Street was too cozy, and that he bore considerable responsibility for the economic meltdown of 2008. Warren made it clear that she was happy with the sudden turn of events. “Janet Yellen, I hope, will make a terrific Federal Reserve chair,” Warren said on MSNBC. “The president will make his decision, but I hope that happens.”

The stock market was equally elated. The announcement of Summers’ withdrawal led to a Dow rally of 118 points, as well as a lowering of interest rates, due to the market’s perception that Summers was less committed to the Fed’s current monetary stimulus program, known as Quantitative Easing (QE), than Yellen might be. That elation wasunderscored by a monthly CNBC poll of “economists, traders and strategists” who weigh in on Fed issues. In July, when the question of who Obama would replace Bernanke with was raised, 70 percent of respondents said Yellen, compared to only 25 percent who said Summers. When they were asked who they wanted to replace Bernanke, the figures were even more lopsided, with 50 percent giving Yellen the nod, compared to a paltry 2.5 percent who favored Summers.

Via: Canada Free Press

Continue Reading....