Kocherlakota's evolution shows Chairman Bernanke hasn't forgotten Professor Bernanke
Central bankers -- they're just like us! Sometimes they make mistakes. Less often, they admit those mistakes. And even less often than that, they change their minds. That's what makes Minneapolis Fed president Narayana Kocherlakota so refreshing -- he's been open to evidence, and willing to disregard his past positions.
Kocherlakota is a self-styled inflation hawk. You pretty much have to be if you want to be a central banker -- outside of, say, Zimbabwe circa 2005-09. But more than most at the Fed, Kocherlakota has worried that unconventional monetary policies will only increase inflation without increasing employment. He's been concerned our labor market problems are structural. In other words, that companies can't find the right people for their job openings, and the unemployed can't find companies that have the right job openings for them. This kind of mismatch, if it existed, would be another unhappy consequence of the housing bust. The idea is the unemployed don't have the right skills or live in the right places to find a job -- the former because they worked in a bubble industry like construction; the latter because they lived in a bubble area that's left them underwater and unable to move. Printing money would do nothing for these problems, but it might do something for inflation. It's an intuitively appealing story. Except for the evidence bit.
Economists have looked far and wide for any hint of mismatch. They haven't found much. As Mike Konczal of the Roosevelt Institute notes, unemployment has shot up across both high and low-skill occupations -- the opposite of what the structural story says should happen. Then there's the lack of labor shortages. If our unemployment problem is really a problem of not enough skilled labor, we would expect wages for skilled labor to jump. That hasn't happened, as Paul Krugman points out. You know what else hasn't been rising -- at least not very much? Prices. Core inflation has stayed subdued -- again, the opposite of what the structural story says should happen.
But this inconvenient lack of facts didn't stop Kocherlakota. He was a man on a mission to find a reason to tighten policy -- and the less proof there was, the less coherent he became. In 2010, Kocherlakota warned the Fed had to be careful about its low-interest-rate policy because it "must lead" to deflation. Yes, deflation. Economist Andy Harless compares this to saying umbrellas cause rain. It gets the causation completely backwards. The Fed lowers rates when inflation is low, but lowering rates doesn't lower inflation. The opposite. Imagine if Ben Bernanke promised to never raise interest rates, ever. (Leave aside the question of how credible this promise would be). Inflation of the "hyper" variety would very quickly set in.
Kocherlakota's reasoning changed a year later, but his conclusions did not. In August 2011, he dissented from the Fed's forward guidance that it expected economic conditions to warrant near zero rates through mid-2013, because ... inflation?
If you're wondering how Kocherlakota could worry about inflation when he had said low rates cause deflation, well, don't. It's not worth it. What is worth it is a reminder about what happened to the labor market when Kocherlakota said it had improved. The chart below looks at the employment-population ratio, which shows us what percent of working-age adults are in fact working. See the recovery? Try squinting.
I don't mean to pick on Kocherlakota. At least he was making evidence-based arguments, even if they weren't particularly good evidence-based arguments. That's more than could be said of the other so-called inflation hawks. And it's why Kocherlakota eventually broke with them.
What if I told you Kocherlakota had come up with one of the more aggressive plans for the Fed to fight unemployment. You'd probably say that sounds like the plot of one of those awful body-switching movies. (It's Freaky Friday meets the Federal Reserve!). Well, it's not. Kocherlakota not only said he would have voted for QE3 -- he does not have an FOMC vote this year -- but also outlined his own version of colleague Charlie Evans' plan to jumpstart the recovery. Kocherlakota wants the Fed to promise to keep rates near zero until either unemployment is below 5.5 percent or inflation is above 2.25 percent. The idea is that promising to keep rates low even after the recovery has picked up -- and explicitly defining what that means -- will get people to spend more now without getting much more inflation, as M.I.T. economist Ivan Werning has argued.
Why did Kocherlakota change his mind? Well, he didn't -- at least not entirely. If unemployment really is structural, then inflation will go up long before unemployment goes down to 5.5 percent. Kocherlakota is admitting he might have been wrong, and proposing a way to test if he was. It's not quite the radical break it seems at first, but it's a significant break nonetheless. That still leaves the question of what made him think he might be wrong. The answer: lots of emails from Ben Bernanke. Here's what Fed whisperer Jon Hilsenrath of the Wall Street Journal tells us about Kocherlakota's evolution.
"I've learned a lot by talking to [Bernanke]," Mr. Kocherlakota said in an interview after the September meeting. Mr. Bernanke's "thinking is framed by data and models," he said. "It beats coming in there with just your gut."
I know what you're thinking -- there are people at the Fed who just go by their guts? Yes. Dallas Fed President and perpetual inflation hawk Richard Fisher said he opposed QE2 because "his gut" told him that it would "result in some unpleasant general price inflation." It didn't. Remember, Fisher even opposed cutting interest rates to zero in December 2008 -- when the financial apocalypse was upon us -- before Bernanke apparently brow-beat him into reversing himself.
Central banking isn't really about interest rates. It's about making and keeping promises. That's why central bankers worry so much about their "credibility", and why Bernanke was so slow to start QE3. When short-term interest rates are stuck at zero, central banks have to promise to keep policy easy in the future to get the economy moving again -- what Paul Krugman called a "credible promise to be irresponsible" in his 1998 paper on Japan. But there's the small challenge of making promises about the future when you might not be around in the future. Like Bernanke. His term is up in 2014, but QE3 makes promises beyond that. Markets might not believe the Fed's promises today if they think those promises will change if the Fed's leadership changes. In other words, Bernanke didn't want to do QE3 until he had persuaded all of the persuadable members of the Fed to support it. Like Kocherlakota.
This answers the big psychodrama surrounding the Fed -- what does Ben Bernanke think of Ben Bernanke? In other words, why wasn't Bernanke following the advice he gave the Bank of Japan to be much more aggressive amidst a depressed economy? Had he been assimilated into the "Fed borg", as Paul Krugman worried? No. It turns out Chairman Bernanke remembers Professor Bernanke plenty well. He was just making sure his colleagues did too.
Orr: “It’s a pleasure to meet you, Your Grace. My name is Tyrion Lannister.”
At last! I know I speak for quite a few book readers when I say that pretty much the only thing that kept me going through the eleventy thousand discursive, digressive pages of George R. R. Martin’s fifth tome, A Dance With Dragons, was the promise of Tyrion finally meeting up with Daenerys Targaryen. And, of course, after eleventy thousand pages, it never happened. So on behalf of myself and everyone else who sacrificed sleep, work, family, and friends waiting for this moment, let me say thank you, David Benioff and D. B. Weiss. Bonus points for what seemed to be a cameo by Strong Belwas (a book character who was written out of the show) as the nameless fighter who freed Tyrion from his chains.
New research confirms what they say about nice guys.
Smile at the customer. Bake cookies for your colleagues. Sing your subordinates’ praises. Share credit. Listen. Empathize. Don’t drive the last dollar out of a deal. Leave the last doughnut for someone else.
Sneer at the customer. Keep your colleagues on edge. Claim credit. Speak first. Put your feet on the table. Withhold approval. Instill fear. Interrupt. Ask for more. And by all means, take that last doughnut. You deserve it.
Follow one of those paths, the success literature tells us, and you’ll go far. Follow the other, and you’ll die powerless and broke. The only question is, which is which?
Of all the issues that preoccupy the modern mind—Nature or nurture? Is there life in outer space? Why can’t America field a decent soccer team?—it’s hard to think of one that has attracted so much water-cooler philosophizing yet so little scientific inquiry. Does it pay to be nice? Or is there an advantage to being a jerk?
Lindsey Graham’s comments about Iranians confirm that some prejudices remain acceptable within the 2016 Republican field.
In important ways, America in recent years has become a less bigoted country. In today’s U.S. Senate, there is no equivalent to Jesse Helms, who during his 1984 reelection race filibustered a federal holiday for Martin Luther King and his 1990 reelection race aired an ad showing a pair of white hands crumpling a job rejection letter as the narrator declared that “they had to give it to a minority because of a racial quota.”
In today’s Republican presidential field, there is no equivalent to Pat Buchanan, who won the 1996 New Hampshire primary after having asked, “Who speaks for the Euro-Americans who founded the U.S.A.?” and having declared that “women are simply not endowed by nature with the same measures of single-minded ambition and the will to succeed in the fiercely competitive world of Western capitalism …. The momma bird builds the nest. So it was, so it ever shall be.” Even the politicians who still wish to deny gays and lesbians equal-marriage rights now insist desperately that they harbor them no malice.
The country’s political dysfunction has undermined all efforts to build an effective fighting force.
The Obama administration has run out of patience with Iraq’s Army. On Sunday, Secretary of Defense Ashton Carter appeared on CNN’s “State of the Union” to discuss the recent fall of Ramadi, one of Iraq’s major cities, to ISIS. Despite possessing substantial advantages in both numbers and equipment, he said, the Iraqi military was unable to prevent ISIS forces from capturing the city.
“That says to me and, I think, to most of us, that we have an issue with the will of the Iraqis to fight ISIL and defend themselves.”
Carter’s frustrations are shared by his boss. When asked about the war against ISIS in a recent interview with TheAtlantic’s Jeffrey Goldberg, President Obama said that “if the Iraqis are not willing to fight for the security of their country, then we cannot do it for them.”
For many intellectually disabled people, large campuses or farmsteads may be better options than small group homes. But new state laws could make it hard for big facilities to survive.
In December 2014, I watched 24-year-old Andrew Parles fit wood shapes into a simple puzzle in the new vocational building at the Bancroft Lakeside Campus, a residential program in New Jersey that serves 47 adults with autism and intellectual disabilities. The task wasn’t challenging for Andrew, but his team was taking it slow: Andrew was still recovering from surgery after detaching his own retinas through years of self-injurious behavior. A staff member stood nearby—not hovering, exactly, but close enough to intervene if Andrew suddenly started to hit himself in the head. His mother, Lisa, was hopeful that he’d soon able to participate in the programs he had enjoyed before his surgery: working in Lakeside’s greenhouse, painting in the art studio, delivering food for Meals on Wheels.
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.
Changing neighborhoods may be a class issue, but in America, that means it's also a racial one.
Ask city-dwellers to describe what, precisely, gentrification is you’ll get an array of answers. The term is a murky one, used to describe the many different ways through which money and development enter poorer or less developed neighborhoods, changing them both economically and demographically.
For some, gentrification and gentrifiers are inherently bad—pushing out residents who are often older, poorer, and darker than the neighborhood’s new occupants. For others, a new group of inhabitants brings the possibility of things residents have long hoped for, better grocery stores, new retail, renovations, and an overall revitalization that often eludes low-income neighborhoods.
Some fans are complaining that Zack Snyder’s envisioning of the Man of Steel is too grim—but it’s less a departure than a return to the superhero’s roots.
Since the official teaser trailer for Batman v Superman: Dawn of Justice debuted online in April, fans and critics alike have been discussing the kind of Superman Zack Snyder is going to depict in his Man of Steel sequel. The controversy stems from Snyder’s decision to cast Superman as a brooding, Dark Knight-like character, who cares more about beating up bad guys than saving people. The casting split has proved divisive among Superman fans: Some love the new incarnation, citing him as an edgier, more realistic version of the character.
But Snyder’s is a different Superman than the one fans grew up with, and many have no problem expressing their outrage over it. Even Mark Waid, the author of Superman: Birthright (one of the comics the original film is based on), voiced his concern about Man of Steel’s turn toward bleakness when it came out in 2013:
Video of the encounter suggests another instance of needless escalation and excessive force.
When the Border Patrol stopped Jessica A. Cooke at a checkpoint, the 21-year-old was about to earn her degree in law-enforcement leadership from New York’s public-university system. Due to her course work, she knew her rights as an American. She chose to complain when her rights were violated. And, as a result of that decision, the unarmed woman was pushed, thrown against her car, and tased.
The Watertown Daily Timestells her story, but there’s no substitute for watching the altercation that left her on the ground screaming in pain and incomprehension:
Cooke is an American citizen. The Border Patrol stopped her inside the United States. Although she was close to the Canadian border, she had not crossed into that country. And she produced a New York state driver’s license to confirm her identity. Even if one believes that the Border Patrol ought to operate internal checkpoints within the United States—which I do not—showing a valid I.D. ought to be enough to allow motorists to proceed.
In an interview, the U.S. president ties his legacy to a pact with Tehran, argues ISIS is not winning, warns Saudi Arabia not to pursue a nuclear-weapons program, and anguishes about Israel.
On Tuesday afternoon, as President Obama was bringing an occasionally contentious but often illuminating hour-long conversation about the Middle East to an end, I brought up a persistent worry. “A majority of American Jews want to support the Iran deal,” I said, “but a lot of people are anxiety-ridden about this, as am I.” Like many Jews—and also, by the way, many non-Jews—I believe that it is prudent to keep nuclear weapons out of the hands of anti-Semitic regimes. Obama, who earlier in the discussion had explicitly labeled the supreme leader of Iran, Ayatollah Ali Khamenei, an anti-Semite, responded with an argument I had not heard him make before.
“Look, 20 years from now, I’m still going to be around, God willing. If Iran has a nuclear weapon, it’s my name on this,” he said, referring to the apparently almost-finished nuclear agreement between Iran and a group of world powers led by the United States. “I think it’s fair to say that in addition to our profound national-security interests, I have a personal interest in locking this down.”