They go up, they go down. It doesn't sound confusing. But it is. Even for economists. Just ask James Bullard, the president of the St. Louis Federal Reserve.
Let's step back for a moment. What does the Federal Reserve do exactly? The story you usually hear is all about interest rates. The Fed raises rates when the economy is too hot, and lowers them when it's too cool. But there's a problem. The Fed can't cut short-term interest rates now. They've been stuck at zero since 2008. But longer-term interest rates aren't. So the Fed has tried to push those longer rates down to spur stronger growth.
The big question now is whether the Fed should do more. This shouldn't be a big question if the Fed believes its own economic projections -- which show inflation staying too low and unemployment too high for years to come. So why did the Fed basically sit pat at its latest meeting? For one, Ben Bernanke wants to see more data confirming a slowdown before doing more. For another, James Bullard -- and some other FOMC members -- don't think the Fed needs to do more.
Bullard thinks Europe is doing the Fed's job for it. Or something. Here's what Bullard had to say recently about why he doesn't think further easing is called for:
Treasury yields have gone to extraordinarily low levels. That took some
of the pressure off the FOMC since a lot of our policy actions would be
trying to get exactly that result.
In other words, the Fed doesn't need to push down long-term interest rates because long-term interest rates have already been pushed down by investors looking for a financial safe haven. This would be right if the point of Fed policy was lower interest rates. But the point of Fed policy isn't lower interest rates.
The point is more growth. Lower interest rates only matter insofar as they promote more growth. Lower interest rates do not matter unto themselves. Think about it this way. Interest rates might fall for good or bad reasons. The Fed buying bonds is a good reason. Investors buying bonds due to fears of eurogeddon is a bad reason. They are not equivalent.
Don't take my word for it. Ask the markets. The chart below from Bloomberg gives us a sense of how much inflation markets have expected in five years time.
So-called breakevens just take the borrowing costs on normal Treasury bonds and subtract the borrowing costs from inflation-protected Treasury bonds. That difference should be a decent proxy of expected inflation. That's not always the case because inflation-protected Treasury bonds are traded so little that they're prone to fairly violent swings.
But why do we care about inflation? Well, when the Fed pushes up growth, it also pushes up inflation. Breakevens have jumped dramatically whenever the Fed has eased -- whether that was QE2 in late 2010, Operation Twist in late 2011, or extended guidance in early 2012. But breakevens are falling dramatically now. In other words, markets expect less growth and less inflation right now. That's a weeee bit different than what happens when the Fed eases.
And that brings us to the paradox of interest rates. (Feel free to skip to the next paragraph for the big reveal, if your'e so inclined.) Take a look at the breakeven chart again. Whenever the Fed eases, it says that it's trying to reduce long-term borrowing costs. For breakevens to rise while Treasury yields fall, inflation-protected Treasuries would have to fall even more. Now, that's happened a bit. But not enough to explain the rise in breakevens.
In other words, Treasury yields rise when the Fed eases. Huh? Isn't the whole point to lower interest rates? Technically, yes. But if the Fed succeeds in reducing borrowing costs, that increases inflation. And when inflation increases, investors demand higher yields on Treasuries. So if the Fed succeeds, we'd expect interest rates to rise. If the Fed fails, we'd expect interest rates to fall. It's an upside down world.
There's no big mystery why our economic recovery hasn't felt like much of one. The Fed has run far too tight a policy for far too long. The worst part is that too many Fed officials don't seem to understand that. They think policy has been loose. That's a shame.
Maybe it's time for them to start doing the opposite.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
As the public’s fear and loathing surge, the frontrunner’s durable candidacy has taken a dark turn.
MYRTLE BEACH, South Carolina—All politicians, if they are any good at their craft, know the truth about human nature.
Donald Trump is very good, and he knows it better than most.
Trump stands alone on a long platform, surrounded by a rapturous throng. Below and behind him—sitting on bleachers and standing on the floor—they fill this city’s cavernous, yellow-beige convention center by the thousands. As Trump will shortly point out, there are a lot of other Republican presidential candidates, but none of them get crowds anything like this.
Trump raises an orange-pink hand like a waiter holding a tray. “They are not coming in from Syria,” he says. “We’re sending them back!” The crowd surges, whistles, cheers. “So many bad things are happening—they have sections of Paris where the police are afraid to go,” he continues. “Look at Belgium, the whole place is closed down! We can’t let it happen here, folks.”
Why the ingrained expectation that women should desire to become parents is unhealthy
In 2008, Nebraska decriminalized child abandonment. The move was part of a "safe haven" law designed to address increased rates of infanticide in the state. Like other safe-haven laws, parents in Nebraska who felt unprepared to care for their babies could drop them off in a designated location without fear of arrest and prosecution. But legislators made a major logistical error: They failed to implement an age limitation for dropped-off children.
Within just weeks of the law passing, parents started dropping off their kids. But here's the rub: None of them were infants. A couple of months in, 36 children had been left in state hospitals and police stations. Twenty-two of the children were over 13 years old. A 51-year-old grandmother dropped off a 12-year-old boy. One father dropped off his entire family -- nine children from ages one to 17. Others drove from neighboring states to drop off their children once they heard that they could abandon them without repercussion.
The Nebraska state government, realizing the tremendous mistake it had made, held a special session of the legislature to rewrite the law in order to add an age limitation. Governor Dave Heineman said the change would "put the focus back on the original intent of these laws, which is saving newborn babies and exempting a parent from prosecution for child abandonment. It should also prevent those outside the state from bringing their children to Nebraska in an attempt to secure services."
Can we predict romantic prospects just from looking at a face?
By the time you swear you're his, / Shivering and sighing. / And he vows his passion is/ Infinite, undying. / Lady, make a note of this — /One of you is lying. ― Dorothy Parker
Edward Royzman, a psychology professor at the University of Pennsylvania, asks me to list four qualities on a piece of paper: physical attractiveness, income, kindness, and fidelity. Then he gives me 200 virtual “date points” that I’m to distribute among the four traits. The more I allocate to each attribute, the more highly I supposedly value that quality in a mate.
This experiment, which Royzman sometimes runs with his college classes, is meant to inject scarcity into hypothetical dating decisions in order to force people to prioritize.
Twenty-five years ago, the lip-syncing models were dethroned—and a class of more sophisticatedly manufactured stars took their place.
One of the stranger images in pop culture this year has been the one above, of Drake’s face pasted onto the body of a Milli Vanilli member. It came courtesy of Meek Mill, the rapper who picked a fight on Twitter over the summer by claiming that Drake doesn’t write his own songs. In one of the diss tracks to result, Mill (nickname: “Meek Milli!”) called Drake a “Milli Vanilli-ass n*****.” T-Pain, commenting on the controversy, boiled it down to being a “Milli Vanilli thing.”
Among the many importantimplications of this headline-making beef is the notion that, despite or perhaps because of the best efforts of some of pop culture’s watchdog forces, Milli Vanilli hasn’t been forgotten. November 27 marks a quarter century since the Grammys revoked the Best New Artist trophy from the act whose songs, it turned out, were sung not by the European models Fab Morvan and Rob Pilatus but by uncredited musicians working with the producer Frank Farian. It’s one of the most important scandals in pop history, especially when viewed in the context of today’s cultural wars over realness and fakeness.
Students at Princeton University are protesting the ways it honors the former president, who once threw a civil-rights leader out of the White House.
The Black Justice League, in protests on Princeton University’s campus, has drawn wider attention to an inconvenient truth about the university’s ultimate star: Woodrow Wilson. The Virginia native was racist, a trait largely overshadowed by his works as Princeton’s president, as New Jersey’s governor, and, most notably, as the 28th president of the United States.
As president, Wilson oversaw unprecedented segregation in federal offices. It’s a shameful side to his legacy that came to a head one fall afternoon in 1914 when he threw the civil-rights leader William Monroe Trotter out of the Oval Office.
Trotter led a delegation of blacks to meet with the president on November 12, 1914 to discuss the surge of segregation in the country. Trotter, today largely forgotten, was a nationally prominent civil-rights leader and newspaper editor. In the early 1900s, he was often mentioned in the same breath as W.E.B. Du Bois and Booker T. Washington. But unlike Washington, Trotter, an 1895 graduate of Harvard, believed in direct protest actions. In fact, Trotter founded his Boston newspaper, The Guardian, as a vehicle to challenge Washington’s more conciliatory approach to civil rights.
What one woman learned from 10 years of teaching in a New York City public school
Laurel Sturt was a 46-year-old fashion designer in New York City whose career trajectory took an unlikely shift one day on the subway. A self-proclaimed social activist, Sturt noticed an ad for a Teaching Fellows program. Then and there, she decided to quit her job in fashion design and shift her focus to her real passion: helping others. She enrolled in the two-year program and was assigned to teach at an elementary school in a high-poverty neighborhood near the South Bronx.
The frenzied day after Thanksgiving, as we know it, may be dying. That is an extremely good thing.
BlackFridayDeathCount.com keeps a running list of the casualties incurred by the rites and rituals of the day after Thanksgiving. Since 2006, the site says, Black Friday has claimed 97 deaths and injuries—seven of the former, 90 of the latter—as the result of the tramplings, pepper-sprayings, shootings, stabbings, and other tragedies that can occur when the term "doorbuster" is taken too literally.
Ancient Romans filled their Colosseum with throngs thirsting for fights; Americans fill our own arena—our TVs and newspapers and mobile screens—with, among so much else, an annual event that makes bargain-hunting a matter of athletic competition. Black Friday is a media ceremony; it is also an extremely commercialized, and oddly moralized, form of bloodlust. "People are crazy," we say, watching the news reports and shaking our heads and assuring ourselves that we are not part of the "people" in question. "How could they just trample someone?"
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
Retailers are experimenting with a bold new strategy for the commercial high holiday: boycotting themselves.
It starts with a scene of touch football in the yard. Next, a woman and a girl, cooking together in the kitchen. “Imagine a world,” a soothing voice intones, “where the only thing you have to wrestle for on Thanksgiving is the last piece of pumpkin pie, and the only place we camped out was in front of a fire, and not the parking lot of a store.” And, then, more scenes: a man, cuddling with kids on a couch. An older woman, rolling pie dough on the counter. A fire, crackling in the fireplace. Warmth. Wine. Togetherness. Laughter.
It’s an ad, unsurprisingly, but it’s an ad with a strange objective: to tell you not to buy stuff. Or, at least, to spend a day not buying stuff. “At T.J. Maxx, Marshall’s, and HomeGoods, we’re closed on Thanksgiving,” the spot’s velvet-voiced narrator informs us, “because family time comes first.” And then: more music. More scenes of familiar/familial delights. More laughter. More pie. The whole thing concludes: “Let’s put more value on what really matters. This season, bring back the holidays—with T.J. Maxx, Marshall’s, and HomeGoods.”