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.
“Here is what I would like for you to know: In America, it is traditional to destroy the black body—it is heritage.”
Last Sunday the host of a popular news show asked me what it meant to lose my body. The host was broadcasting from Washington, D.C., and I was seated in a remote studio on the Far West Side of Manhattan. A satellite closed the miles between us, but no machinery could close the gap between her world and the world for which I had been summoned to speak. When the host asked me about my body, her face faded from the screen, and was replaced by a scroll of words, written by me earlier that week.
The host read these words for the audience, and when she finished she turned to the subject of my body, although she did not mention it specifically. But by now I am accustomed to intelligent people asking about the condition of my body without realizing the nature of their request. Specifically, the host wished to know why I felt that white America’s progress, or rather the progress of those Americans who believe that they are white, was built on looting and violence. Hearing this, I felt an old and indistinct sadness well up in me. The answer to this question is the record of the believers themselves. The answer is American history.
New data shows that students whose parents make less money pursue more “useful” subjects, such as math or physics.
In 1780, John Adams wrote a letter to his wife, Abigail, in which he laid out his plans for what his children and grandchildren would devote their lives to. Having himself taken the time to master “Politicks and War,” two revolutionary necessities, Adams hoped his children would go into disciplines that promoted nation-building, such as “mathematicks,” “navigation,” and “commerce.” His plan was that in turn, those practical subjects would give his children’s children room “to study painting, poetry, musick, architecture, statuary, tapestry, and porcelaine.”
Two-hundred and thirty-five years later, this progression—“from warriors to dilettantes,” in the words of the literary scholar Geoffrey Galt Harpham—plays out much as Adams hoped it would: Once financial concerns have been covered by their parents, children have more latitude to study less pragmatic things in school. Kim Weeden, a sociologist at Cornell, looked at National Center for Education Statistics data for me after I asked her about this phenomenon, and her analysis revealed that, yes, the amount of money a college student’s parents make does correlate with what that person studies. Kids from lower-income families tend toward “useful” majors, such as computer science, math, and physics. Those whose parents make more money flock to history, English, and performing arts.
Most adults can’t remember much of what happened to them before age 3 or so. What happens to the memories formed in those earliest years?
My first memory is of the day my brother was born: November 14, 1991. I can remember my father driving my grandparents and me over to the hospital in Highland Park, Illinois, that night to see my newborn brother. I can remember being taken to my mother’s hospital room, and going to gaze upon my only sibling in his bedside cot. But mostly, I remember what was on the television. It was the final two minutes of a Thomas the Tank Engine episode. I can even remember the precise story: “Percy Takes the Plunge,” which feels appropriate, given that I too was about to recklessly throw myself into the adventure of being a big brother.
In sentimental moments, I’m tempted to say my brother’s birth is my first memory because it was the first thing in my life worth remembering. There could be a sliver of truth to that: Research into the formation and retention of our earliest memories suggests that people’s memories often begin with significant personal events, and the birth of a sibling is a textbook example. But it was also good timing. Most people’s first memories date to when they were about 3.5 years old, and that was my age, almost to the day, when my brother was born.
In 1992, the neuroscientist Richard Davidson got a challenge from the Dalai Lama. By that point, he’d spent his career asking why people respond to, in his words, “life’s slings and arrows” in different ways. Why are some people more resilient than others in the face of tragedy? And is resilience something you can gain through practice?
The Dalai Lama had a different question for Davidson when he visited the Tibetan Buddhist spiritual leader at his residence in Dharamsala, India. “He said: ‘You’ve been using the tools of modern neuroscience to study depression, and anxiety, and fear. Why can’t you use those same tools to study kindness and compassion?’ … I did not have a very good answer. I said it was hard.”
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.
Defining common cultural literacy for an increasingly diverse nation
Is the culture war over?
That seems an absurd question. This is an age when Confederate monuments still stand; when white-privilege denialism is surging on social media; when legislators and educators in Arizona and Texas propose banning ethnic studies in public schools and assign textbooks euphemizing the slave trade; when fear of Hispanic and Asian immigrants remains strong enough to prevent immigration reform in Congress; when the simple assertion that #BlackLivesMatter cannot be accepted by all but is instead contested petulantly by many non-blacks as divisive, even discriminatory.
And that’s looking only at race. Add gender, guns, gays, and God to the mix and the culture war seems to be raging along quite nicely.
Gentrification is pushing long-term residents out of urban neighborhoods. Can collective land ownership keep prices down permanently?
AUSTIN, Tex.—Not long ago, inner cities were riddled with crime and blight and affluent white residents high-tailed it to the suburbs, seeking better schools, safer streets, and, in some cases, fewer minority neighbors.
But today, as affluent white residents return to center cities, people who have lived there for years are finding they can’t afford to stay.
Take the case of the capital city of Texas, where parts of East Austin, right next to downtown, are in the process of becoming whiter, and hip restaurants, coffee shops, and even a barcatering to bicyclists are opening. Much of Austin’s minority population, meanwhile, is priced out, and so they’re moving to far-out suburbs such as Pflugerville and Round Rock, where rents are affordable and commutes are long.
The unwillingness of the former secretary of state to take questions from the press contrasts sharply with Jeb Bush’s marked affinity for public disclosure.
Howard Kurtz reported on Sunday night that the Hillary Clinton campaign has decided to open itself to more press interviews. Kurtz quoted the campaign’s communications director, Jennifer Palmieri: “By not doing national interviews until now, Palmieri concedes, ‘we’re sacrificing the coverage. We’re paying a price for it.’”
Meanwhile Jeb Bush chatted July 2 with the conservative website, the Daily Caller. The Daily Caller interview broke an unusually protracted no-interview period for Bush. It had been more than two weeks since he appeared on the Tonight show with Jimmy Fallon. Bush spoke that same day, June 17, to Sean Hannity’s radio show and ABC News. Five days earlier, he’d spoken to Germany’s Der Spiegel—altogether, five interviews in the month of June. That brought his total, since the beginning of February, to 39, according to the Bush campaign.*
Chicago has seen a double-digit increase in the percentage of kids graduating from high school. Skeptics say educators and kids are manipulating the numbers—but does that even matter?
Desiree Cintron’s name used to come up a lot during “kid talk,” a weekly meeting at Chicago’s North-Grand High School at which teachers mull over a short list of freshmen in trouble.
No shock there, says Desiree now, nearly three years later.
“I was gangbanging and fighting a lot,” she says, describing her first few months of high school. “I didn’t care about school. No one cared, so I didn’t care.”
Had Desiree continued to fail in her freshman year, she would have dropped out. She is sure of that. It was only because of a strong program of academic and social supports put together by her teachers that she stuck it out. Desiree pulled up a failing grade and several Ds. She gave up gangbanging and later started playing softball. She connected with a school determined to connect with her.