Bundesbank chief Jens Weidmann gets basic facts wrong and thinks his colleagues are the devil.
Have you heard of "inflation"? Good. Have you heard that "inflation" can make your borrowing costs appear ... inflated? Yes? Congratulations, you know more about money than Bundesbank president Jens Weidmann.
As Germany's member of the European Central Bank's (ECB) governing council, Weidmann has opposed doing anything to solve the euro crisis. Because, inflation! (Pay no attention to the core inflation behind the curtain of 1.5 percent in September). Weidmann is one of those people who thinks it's always 1923 -- that Weimar hyperinflation is always just around the corner. Despite this preoccupation with anything resembling a price increase, Weidmann mysteriously develops amnesia about inflation when it comes to figuring out real government borrowing costs. Here's what he had to say about rising bond yields in Europe's periphery, via Linda Yueh of Bloomberg.
Government borrowing costs over 7 percent haven't caused the end of world in the past and the euro zone wouldn't fall apart if some had to temporarily pay such rates.
This is just a basic fallacy. Weidmann is confusing real and nominal rates. It's easy to pay 7 percent to borrow when inflation is high, but not so much when inflation is low. The chart below compares unadjusted and inflation-adjusted Spanish borrowing costs since 1978.
(Note: I used headline CPI as the deflator).
I'm not sure how many words this picture is worth, but there are two big stories here. First, Spain used to pay much more than 7 percent to borrow in nominal terms, but that was back in its pre-euro days when inflation was much higher. Second, Spain even used to pay more than 7 percent to borrow in real terms, but that was back when it actually had real growth. It's a bit harder to pay 7 percent when growth and inflation have both flatlined.
In other words, you can't pay your debts if you have no income. The chart below looks at Spain's borrowing costs less its nominal GDP growth rate -- that is, real growth and inflation together. When the blue line runs up, borrowing outpaces income growth. Spain today is what insolvency looks like.
Now, positive rates here aren't themselves a sign of doom. Far from it. We did for much of the Great Moderation. But rates above 5 percent? That's doom territory. It sets off a debt trap. Spain's national income can't support its borrowing costs, so they have to do austerity -- austerity that only pushes its income down and its borrowing costs up even more.
Weidmann doesn't think this is a problem. The opposite, actually. He thinks it's a good thing, because it pushes Spain to do the austerity and labor market reforms the ECB wants it to do. But the ECB thinks this austerity is a punishment. Weidmann thinks it's actually a medicine. In other words, the ECB thinks austerity is the price Spain should pay for the ECB to push its borrowing costs down, and Weidmann thinks austerity alone will push its borrowing costs down. The former has become the ECB's de facto policy -- a policy it's fair to say Weidmann does not like. He implied it shows the ECB is now under the influence of the devil. As in the one with the pitchfork.
That's not the kind of argument you make when the facts are on your side.
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.
I spent a year in Tromsø, Norway, where the “Polar Night” lasts all winter—and where rates of seasonal depression are remarkably low. Here’s what I learned about happiness and the wintertime blues.
Located over 200 miles north of the Arctic Circle, Tromsø, Norway, is home to extreme light variation between seasons. During the Polar Night, which lasts from November to January, the sun doesn’t rise at all. Then the days get progressively longer until the Midnight Sun period, from May to July, when it never sets. After the midnight sun, the days get shorter and shorter again until the Polar Night, and the yearly cycle repeats.
So, perhaps understandably, many people had a hard time relating when I told them I was moving there.
“I could never live there,” was the most common response I heard. “That winter would make me so depressed,” many added, or “I just get so tired when it’s dark out.”
But the Polar Night was what drew me to Tromsø in the first place.
For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?
1. Youngstown, U.S.A.
The end of work is still just a futuristic concept for most of the United States, but it is something like a moment in history for Youngstown, Ohio, one its residents can cite with precision: September 19, 1977.
For much of the 20th century, Youngstown’s steel mills delivered such great prosperity that the city was a model of the American dream, boasting a median income and a homeownership rate that were among the nation’s highest. But as manufacturing shifted abroad after World War II, Youngstown steel suffered, and on that gray September afternoon in 1977, Youngstown Sheet and Tube announced the shuttering of its Campbell Works mill. Within five years, the city lost 50,000 jobs and $1.3 billion in manufacturing wages. The effect was so severe that a term was coined to describe the fallout: regional depression.
The social network learns more about its users than they might realize.
Facebook, you may have noticed, turned into a rainbow-drenched spectacle following the Supreme Court’s decision Friday that same-sex marriage is a Constitutional right.
By overlaying their profile photos with a rainbow filter, Facebook users began celebrating in a way we haven't seen since March 2013, when 3 million peoplechanged their profile images to a red equals sign—the logo of the Human Rights Campaign—as a way to support marriage equality. This time, Facebook provided a simple way to turn profile photos rainbow-colored. More than 1 million people changed their profile in the first few hours, according to the Facebook spokesperson William Nevius, and the number continues to grow.
“This is probably a Facebook experiment!” joked the MIT network scientist Cesar Hidalgo on Facebook yesterday. “This is one Facebook study I want to be included in!” wrote Stacy Blasiola, a communications Ph.D. candidate at the University of Illinois, when she changed her profile.
A day after default, there's no deal in sight—and Greece’s defiant prime minister says Sunday's referendum will still happen.
July 1, 2015 11:01 a.m.
The referendum will go on, says Greece’s Prime Minister Alexis Tsipras. Yesterday, there was doubt about whether Sunday’s referendum—where Greeks would decide whether to accept its creditors conditions—would still happen. If Greece had managed to secure a third bailout, or an extension from the IMF, there would theoretically be no need for the referendum.
Neither of those two things happened, and Tsipras addressed the nation on Greek television an hour ago to confirm that the referendum will take place. He’s also not backing down from his original position, strongly urging Greeks to vote “no.” Tsipras has since tweeted 18 updates on his position, including this: “You're being blackmailed & urged to vote Yes to all of institutions' measures without any solution to exiting the crisis.”
People labeled “smart” at a young age don’t deal well with being wrong. Life grows stagnant.
At whatever agesmart people develop the idea that they are smart, they also tend to develop vulnerability around relinquishing that label. So the difference between telling a kid “You did a great job” and “You are smart” isn’t subtle. That is, at least, according to one growing movement in education and parenting that advocates for retirement of “the S word.”
The idea is that when we praise kids for being smart, those kids think: Oh good, I'm smart. And then later, when those kids mess up, which they will, they think: Oh no, I'm not smart after all. People will think I’m not smart after all. And that’s the worst. That’s a risk to avoid, they learn.“Smart” kids stand to become especially averse to making mistakes, which are critical to learning and succeeding.
In 1908, photographer Lewis Hine traveled across the U.S. to document child laborers and their workplaces. His portraits were used by reformers to drive legislation that would protect young workers or prohibit their employment.
At the start of the 20th century, labor in America was in short supply, and laws concerning the employment of children were rarely enforced or nonexistent. While Americans at the time supported the role of children working on family farms, there was little awareness of the other forms of labor being undertaken by young hands. In 1908, photographer Lewis Hine was employed by the newly-founded National Child Labor Committee (NCLC) to document child laborers and their workplaces nationwide. His well-made portraits of young miners, mill workers, cotton pickers, cigar rollers, newsboys, pin boys, oyster shuckers, and factory workers put faces on the issue, and were used by reformers to raise awareness and drive legislation that would protect young workers or prohibit their employment. After several stalled attempts in congress, the NCLC-backed Fair Labor Standards Act passed in 1938 with child labor provisions that remain the law of the land today, barring the employment of anyone under the age of 16.
The untold story of the improbable campaign that finally tipped the U.S. Supreme Court.
On May 18, 1970, Jack Baker and Michael McConnell walked into a courthouse in Minneapolis, paid $10, and applied for a marriage license. The county clerk, Gerald Nelson, refused to give it to them. Obviously, he told them, marriage was for people of the opposite sex; it was silly to think otherwise.
Baker, a law student, didn’t agree. He and McConnell, a librarian, had met at a Halloween party in Oklahoma in 1966, shortly after Baker was pushed out of the Air Force for his sexuality. From the beginning, the men were committed to one another. In 1967, Baker proposed that they move in together. McConnell replied that he wanted to get married—really, legally married. The idea struck even Baker as odd at first, but he promised to find a way and decided to go to law school to figure it out.
The question is at the center of the Greek crisis.
In 1961, the economist Robert Mundell published a paper laying out, per the title, “A Theory of Optimum Currency Areas.” In it, he inquired about the appropriate geographic extent of a shared unit of money. Was it the world? A country? Part of a country? A border-spanning region of, say, the western parts of the United States and Canada, with a separate currency circulating in the eastern parts of the two countries?
“It might seem at first that the question is purely academic,” he wrote, “since it hardly seems within the realm of political feasibility that national currencies would ever be abandoned in favor of any other arrangement.” But it was worth considering anyway, in part because “certain parts of the world are undergoing processes of economic integration and disintegration,” and an idea of what an “optimum currency area” would look like could help “clarify the meaning of these experiments.”
Mike Huckabee and Ted Cruz are suggesting there might be ways for states and cities to nullify the justices’ ruling. They’re wrong.
The Supreme Court’s decision last week did make gay marriage legal around the nation. Unfortunately for social conservatives, it did not, however, make nullification legal around the nation.
Nullification is the historical idea that states can ignore federal laws, or pass laws that supersede them. This concept has a long but not especially honorable pedigree in U.S. history. Its origins date back to antebellum America, where Southern states tried to nullify tariffs and Northern states tried to nullify fugitive-slave laws. In the 1950s, after Brown v. Board of Education, some Southern states tried to pass laws to avoid integrating schools. It didn’t work, because nullification is not constitutional.