Rubio's call for a single mandate for the Federal Reserve is a dangerous, and potentially disastrous, idea. Unless that single mandate is targeting nominal GDP instead of inflation.
Marco Rubio wants to be president, and unfortunately for him that means he's supposed to have an opinion about everything. I say unfortunately because Rubio has had a hard enough time figuring out the age of the earth, let alone one of the great mysteries like what the Fed should be doing now. The latter came up during Rubio's acceptance speech at the Jack Kemp foundation, and, as Dave Weigel of Slate reports, it did not go well. Hey, he's not a central banker, man.
A long time ago in an administration far, far away, the Republicans were the party of Milton Friedman. It was 2004. As Paul Krugman points out, then-chairman of the Council of Economic Advisers Greg Mankiw advocated aggressive monetary policy as a way to mitigate recessions. This was economic boilerplate, but it was only boilerplate because of Friedman. After the Great Depression, economists didn't think central banks could do much to revive the economy if interest rates fell to zero -- the so-called liquidity trap -- and monetary policy consequently took a backseat to fiscal policy when it came to demand management. Friedman reversed this. He and Anna Schwarz argued the Great Depression was only so great because the Fed's inaction made it so. In other words, central banks were only powerless if they thought they were. They could do plenty, even in a liquidity trap, if they just printed money and promised to keep printing money -- what we rather prosaically call "quantitative easing" nowadays. It was a message conservatives could, and did, love. The government didn't need to spend more to stabilize the economy during a downturn as long as the Fed did its job.
And then the Great Recession happened.
With interest rates stuck at zero and the economy stuck in a growth slump, we're very much back in Friedman's world. But now conservatives aren't so sure about that "aggressive monetary policy" thing anymore. Zero interest rates just seem wrong, and quantitative easing must be a big government bailout on the road to Zimbabwe -- at least that's what they've told themselves, despite stubbornly low inflation. Of course, some conservatives claim inflation is "really" much higher than the government says, but, as Ramesh Ponnuru of National Review points out, this conspiracy theory doesn't withstand much more than two seconds of scrutiny.
This paranoid style in monetary policy has inspired a rather odd political crusade -- the crusade against the Fed's dual mandate. Most central banks are only tasked with worrying about inflation, but the Fed is tasked with worrying about inflation and unemployment. (Or, in Fed-speak, fostering the maximum level of employment consistent with price stability). This has become a bête noire for conservatives, because they think that were it not for the Fed caring about unemployment -- the horror! -- then it wouldn't have expanded its balance sheet so much, and that this expanded balance sheet will inevitably mean higher inflation down the road. Apparently Marco Rubio is one of these conservatives who sees the stagflationary 1970s around every corner. Here's what he said to say about the Fed.
Sound monetary policy would also encourage middle class job creation. The arbitrary way in which interest rates and our currency are treated is yet another cause of unpredictability injected into our economy. The Federal Reserve Board should publish and follow a clear monetary rule -- to provide greater stability about prices and what the value of a dollar will be over time.
Translation: Repeal the dual mandate and replace it with a single mandate for inflation only. This is all kinds of uninformed. As we have pointed out before, inflation has been lower with over four times less variance since Congress gave the Fed its dual mandate in 1978. And with inflation mostly undershooting its 2 percent target since Lehman failed, it's not as if the Fed even needed the dual mandate to justify easing -- a sole inflation mandate would have been enough.
But Rubio is right that the Fed needs a better, clearer monetary rule nowadays. That's not to say that Fed policy has been arbitrary, but just that its rule needs some modernizing. For most of the so-called Great Moderation, the Fed followed something close to a Taylor rule, setting policy based on inflation and unemployment, and it served the Fed well. Greg Mankiw has his own simple version of a Taylor rule, which Paul Krugman tweaked slightly, that gives us a good idea of how the Fed thought then, as you can see below.
You can see why the Great Moderation gave way to the Great Recession. Our Taylor rule says the Fed should have made interest rates negative in late 2008, but the Fed can't make interest rates negative. Well, at least not nominal rates. The Fed can increase inflation, which reduces real rates, to get borrowing costs to where they "should" be -- which is what Ben Bernanke has done, in fits and starts, the past four years. You can see all these fits and starts in the chart below that compares our same Taylor rule to Fed policy since 2006. It's not easy to get real rates down to -7 percent.
There have been far too many fits and not nearly enough starts since 2008. Yes, the Fed tried unconventional easing in late 2008, early 2009, late 2010, late 2011 and late 2012, but it should have been easing this whole time. The Taylor rule has been negative this whole time, which means that the Fed should have been cutting interest rates, and cutting them a lot, this whole time. Instead, we got zero rates. Because inflation hasn't been that far off target, Bernanke has had a hard time convincing the rest of the FOMC to go along with quantitative easing -- so easing has been far less quantitative than the situation calls for. In other words, policy hasn't quite been arbitrary as much as ad hoc, with the unhappy result being an era of tight money.
Imagine the Fed had a single mandate, but not for inflation. Imagine instead the Fed had a single mandate for the total size of the economy, which goes by the unwieldy name of nominal GDP (NGDP). During the Great Moderation, NGDP grew about 5 percent a year, but it's only grown about 2.85 percent a year since 2008. If the Fed had an NGDP target of 5 percent a year, and was supposed to make up for any over-or-undershooting, it would have been aggressively easing the entire time since 2008. It's a dual mandate that doesn't get confused by low inflation and low growth.
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.
It wasn’t that bad. But it did help me understand why it made people so angry.
From the Gray Lady, a Modest Dip Proposal. On Microblogging Platform, a Furor. For Peas, a New Use. There are times when The Times out-Timeses itself, and then there was Wednesday. The country's largest newspaper smugly tweeted a link to a recipe for guacamole. One made with peas. "Trust us," it read.
The Republican hopeful’s comments about Hispanics have been disastrous for his brand and reputation, which he values at an outlandish $3.3 billion.
Donald Trump’s run for the presidency is premised on one fact above all: He’s a fabulously successful businessman. And yet, paradoxically, running for president may be the most disastrous business decision he’s made—or, at the very least, his worst in a while.
The trouble started with Trump’s rambling announcement speech on June 16. “When Mexico sends its people, they’re not sending the best,” Trump said of immigrants to the United States. “They’re sending people that have lots of problems and they’re bringing those problems. They’re bringing drugs, they’re bringing crime. They’re rapists and some, I assume, are good people, but I speak to border guards and they’re telling us what we’re getting.”
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.
Can a movie about male strippers be a loud affirmation of feminism? Three Atlantic writers discuss.
Spencer Kornhaber: Magic Mike XXL offers a hint about its politics—yes, it has politics—during the first and perhaps only real moment of conflict in the entire film. It happens when Channing Tatum’s Mike suggests to his roadstripping buddies that they retire their sexy-fireman routine and come up with something new. After some resistance, and under the influence of drugs, Joe Manganiello’s Big Dick Richie relents, and starts babbling out a grand plan for a bold, fresh set piece.
His idea: a striptease … as a wedding ceremony.
Before proceeding, a word about looking for deeper meaning here. Yes, XXL is a skintastic sequel with a plot as slight as Donald Glover in a Hugh Hefner robe, designed to cool down 4th of July audiences just like ice-cream toppings do to Adam Rodriguez’s abs at the film’s climax. But it’s also groundbreaking. Between the Mike franchise and 50 Shadesof Grey, we’re watching the formation of a would-be-blockbuster genre, one that celebrates and profits from the sexual appetites of people other than straight men. XXL’s big male-entertainer convention may well turn into a source of storytelling conventions once Hollywood’s imitation machine revs all the way up.
The last time the labor-participation rate was as low as June 2015 was almost 40 years ago. Who was working and where back then?
As long as you don’t look too far into it, Thursday’s June jobs report looks like good news: The economy added 223,000 jobs, close to expectations, and the unemployment rate fell again, to 5.3 percent. So far, so good—still a slower recovery than anyone might like, but a recovery nonetheless.
The more concerning signs are hidden beneath the surface. Some people have been sounding the alarm about labor-participation rates for years now—Republicans tried, mostly unsuccessfully, to make them an issue in the 2012 election. But as several analysts have pointed out, the June rate of 62.6 percent is the lowest since October of 1977. The decline is part of a long-term trend, as this graph shows:
On Wednesday, the United States and Cuba announced that they would reopen embassies in each other’s capitals, thus restoring diplomatic relations for the first time since 1961. The agreement doesn’t mean that Washington-Havana ties will go back to where they were before Fidel Castro’s revolution: Congress still maintains an economic embargo on the island, a policy that’s unlikely to change anytime soon. But the re-establishment of embassies, scheduled to occur on July 20, is nonetheless a major breakthrough in the long-acrimonious relationship between the two countries.
According to The New York Times, the overture to Cuba leaves just three countries with which the United States has no diplomatic relations. Two of these are easy enough to guess: Iran and North Korea. Washington severed ties with Tehran in 1980, months after Iranian students seized the U.S. embassy there and took 52 Americans hostage. U.S. ties with North Korea, meanwhile, have been fraught throughout the latter country’s existence, and have only grown worse since Kim Jong Un assumed control of the country in 2011.
The meaning of the Confederate flag is best discerned in the words of those who bore it.
This afternoon, in announcing her support for removing the Confederate flag from the capitol grounds, South Carolina Governor Nikki Haley asserted that killer Dylann Roof had “a sick and twisted view of the flag” which did not reflect “the people in our state who respect and in many ways revere it.” If the governor meant that very few of the flag’s supporters believe in mass murder, she is surely right. But on the question of whose view of the Confederate Flag is more twisted, she is almost certainly wrong.
Roof’s belief that black life had no purpose beyond subjugation is “sick and twisted” in the exact same manner as the beliefs of those who created the Confederate flag were “sick and twisted.” The Confederate flag is directly tied to the Confederate cause, and the Confederate cause was white supremacy. This claim is not the result of revisionism. It does not require reading between the lines. It is the plain meaning of the words of those who bore the Confederate flag across history. These words must never be forgotten. Over the next few months the word “heritage” will be repeatedly invoked. It would be derelict to not examine the exact contents of that heritage.
This Independence Day, we should take a page from the Founding Fathers, as well as our ancestors around the world, who imbibed gallons of low-alcohol beer pretty much all the time.
“Beer,” writes the Egyptologist Wolfgang Helck, “could easily have been discovered by chance.” The Babylonians and ancient Egyptians didn’t have microbrewing supplies, but they had grains—grains that would, from time to time, get wet, interact with airborne yeasts, and voila, a brewski was born.
That’s according to Ian Spencer Hornsey, who describes in his book, A History of Beer and Brewing, the long, global history of fermented beverages.
Today, most beer is made either by multinational conglomerates or careful artisans, but originally, all men were (rather careless) home-brewers. The Babylonians would mix crumbled bread with water, add yeast, and just forget about it for a while. One of the Sumerians’ few female deities was Ninkasi, “Lady of the inebriating fruit,” who watched over the “cooked mash” as it cooled.
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.