I got this article from Keith the other day about how 5.6% unemployment was categorized by CNN as 'low' in 1996 under Clinton while 5.6% is categorized as 'high' today under Bush. The reason? Liberal media conspiracy of course. :)

Actually, there are two very important reasons why this is reported differently over time and neither have anything to do with what administration is in power. The first is quite obvious -- what is categorized as 'high' vs. 'low' is relative and based on expectations. When Bush won the election in November 2000, the unemployment rate was 3.9%, so 5.6% is almost a 50% increase in this rate. On the other hand, when Clinton was elected in 1992, the unemployment rate was 7.4%, so 5.6% is almost a 25% decrease in this rate. Thus from the experience of the recent past, the current unemployment is 'high,' whereas the unemployment experienced by people in 1996 was 'low'. In my economics classes I came across a newspaper editorial from Britain in the 50s that was criticizing the government for keeping the unemployment too high at 2%, just to give you an example of how historical perspective can change how unemployment is reported.

The second reason is a little more complicated and has to do with economic theory. Since stagflation in the 70s, the school of economics known as Monitarism has been popular in economic circles and in national policy. At the risk of oversimplifying, one of the primary concerns of monetarist is minimizing the rate of inflation. This is important to our unemployment discussion because it was generally recognized that there is an inverse trade-off between inflation and unemployment known as the Phillips Curve, where a decrease in unemployment leads to an increase in inflation and vice versa. Since monetarists were primarily concerned with inflation, they prescribed policies, like greatly increasing the prime rate for instance, that would slow inflation, but with the adverse impact of high unemployment.

Tied into all of this was a concept called NAIRU, or the Non-Accellerating Inflation Rate of Unemployment, which was seen as a theoretical limit to unemployment below which any additional stimulus would just create inflation. For about 20 years from the 70s to the early 90s, attempting to reduce employment too much was seen as futile lest you just end up starting an inflationary spiral. When Clinton came into office, the NAIRU was calculated, depending on the source, as anywhere between 6% to 7%, so having an unemployment rate of 5.6% would be considered -very- low, given that economic theory predicted that such a rate should be impossible.

Of course, what eventually happened is that unemployment continued to drop without any real uptick in inflation, more or less discrediting the idea of NAIRU. But it also had the effect of making unemployment rates that previously would seem acceptable on the grounds that you didn't want to spark inflation all of a sudden seem very unacceptable, since if you can lower unemployment to 3.8% like the Clinton administration did without any adverse inflationary impacts, why wouldn't you?

So there you go, no left-wing CNN media conspiracy, just an effect of expectations and changes in economic theory.