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.
For toymakers like Lego, where is the line between making products children love and telling kids how they should play?
Two years ago, a 7-year-old girl named Charlotte wrote a letter to the toymaker Lego with a straightforward request.
“I love Legos,” she wrote, “but I don’t like that there are more lego boy people and barely any lego girls.” The girls in the Lego universe, Charlotte had noticed, seemed preoccupied with sitting at home, going to the beach, and shopping—while the boys had jobs, saved people, and went on adventures.
Charlotte, Lego acknowledged, had a point. “It’s fair,” said Michael McNally, a Lego spokesman who says the company receives letters from kids all the time. “Why wouldn’t there be more female representation?”
Years before Charlotte sent her letter, Lego was already keenly focused on how girls perceived the brand. It was 2008 when the toymaker decided to gather global data about who buys Legos. What they found was startling. In the United States, roughly 90 percent of Lego sets being sold were intended for boys. In other words, there was a huge untapped market of girls who weren’t building with Legos.
Whatever banking’s post-recession connotations may be, the historian William Goetzmann argues that monetary innovations have always played a critical role in developing civilization.
The title of the financial historian William Goetzmann’s new book is hard to argue with: Money Changes Everything.
In his book, Goetzmann, a professor of finance and the director of the International Center for Finance at the Yale School of Management, has documented how financial innovations—from the invention of money to capital markets—have always played a critical role in developing every culture around the world. In the fallout from the Great Recession, it’s been commonplace to vilify those working in the financial-services industry. But Goetzmann argues that finance is a worthwhile endeavor, beyond just earning a ton of money: Its innovations have made the growth of human civilization possible.
LBJ led crucial legislation in 1965, changing the demographics of the U.S. But it offers a difficult model for future presidents to follow.
Nearly every new American president of the modern era has viewed the nation’s immigration policies as deeply flawed. Yet few of these modern executives have been willing to make immigration reform—one of the most dangerous issues in American politics—central to their agenda. Even fewer have had a measure of success doing so. Even the most dramatic and successful of all—Lyndon Johnson’s landmark 1965 reform—came with high political costs and uneven results. Yet, Johnson’s battle for reform underscores the way immigration policy can be a potent political tool and offers a model for future presidents.
Today, as in the past, efforts to significantly revise U.S. immigration laws and policies have divided even the most unified party coalitions. Campaigns for sweeping reform in this arena have regularly followed a tortured path of false starts, prolonged negotiation, and frustrating stalemate. And when non-incremental reforms have passed, rival goals and interests have complicated enactment. The result has been legislation that is typically unpopular among ordinary citizens and stakeholder groups alike, and which often places new and sometimes competing policy demands on the government. These dynamics—intraparty conflicts, elusive problem definition, difficult compromises, and unpopular outcomes—have typically frustrated most American presidents.
Narcissism, disagreeableness, grandiosity—a psychologist investigates how Trump’s extraordinary personality might shape his possible presidency.
In 2006, Donald Trump made plans to purchase the Menie Estate, near Aberdeen, Scotland, aiming to convert the dunes and grassland into a luxury golf resort. He and the estate’s owner, Tom Griffin, sat down to discuss the transaction at the Cock & Bull restaurant. Griffin recalls that Trump was a hard-nosed negotiator, reluctant to give in on even the tiniest details. But, as Michael D’Antonio writes in his recent biography of Trump, Never Enough, Griffin’s most vivid recollection of the evening pertains to the theatrics. It was as if the golden-haired guest sitting across the table were an actor playing a part on the London stage.
“It was Donald Trump playing Donald Trump,” Griffin observed. There was something unreal about it.
It’s not easy fitting 1.2 million annual visitors onto an island of 330,000 residents.
Iceland may be beautiful, but it’s dangerously close to full. This is the message currently filtering out from the North Atlantic island as it struggles to absorb unprecedented numbers of visitors. Last year, the nation hosted 1.26 million tourists, a staggering number for a chilly island whose population barely scrapes past 330,000 citizens.
Those numbers are powered partly by a “Game of Thrones Effect” that has seen fans of the TV series flock to its shooting locations. The 2010 eruption of the Eyjafjallajökull volcano, which has since become a tourist attraction, also helped to push up its profile as a vacation spot—perversely so, given that the eruption initially led to 107,000 flights across Europe being canceled. Given the rocky waters the country has been sailing through since the 2008 financial crisis, the revenue brought in by this spike in tourism is no doubt welcome. But the sheer volume of visitors to what was until recent decades a remote part of the world is still causing major stress. So how can Iceland keep welcoming people while making sure it isn’t trampled underfoot?
In recent years, the idea that educators should be teaching kids qualities like grit and self-control has caught on. Successful strategies, though, are hard to come by.
In 2013, for the first time, a majority of public-school students in this country—51 percent, to be precise—fell below the federal government’s low-income cutoff, meaning they were eligible for a free or subsidized school lunch. It was a powerful symbolic moment—an inescapable reminder that the challenge of teaching low-income children has become the central issue in American education.
The truth, as many American teachers know firsthand, is that low-income children can be harder to educate than children from more-comfortable backgrounds. Educators often struggle to motivate them, to calm them down, to connect with them. This doesn’t mean they’re impossible to teach, of course; plenty of kids who grow up in poverty are thriving in the classroom. But two decades of national attention have done little or nothing to close the achievement gap between poor students and their better-off peers.
For centuries, philosophers and theologians have almost unanimously held that civilization as we know it depends on a widespread belief in free will—and that losing this belief could be calamitous. Our codes of ethics, for example, assume that we can freely choose between right and wrong. In the Christian tradition, this is known as “moral liberty”—the capacity to discern and pursue the good, instead of merely being compelled by appetites and desires. The great Enlightenment philosopher Immanuel Kant reaffirmed this link between freedom and goodness. If we are not free to choose, he argued, then it would make no sense to say we ought to choose the path of righteousness.
Today, the assumption of free will runs through every aspect of American politics, from welfare provision to criminal law. It permeates the popular culture and underpins the American dream—the belief that anyone can make something of themselves no matter what their start in life. As Barack Obama wrote in The Audacity of Hope, American “values are rooted in a basic optimism about life and a faith in free will.”
Bernie Sanders is contesting the Democratic primary to the end, just as Hillary Clinton did eight years ago—but that parallel has its limits.
In May of 2008, two Democrats were somehow still fighting over the nomination. The stronger of the two had a comfortable lead in delegates and made calls to unify the party. But the weaker contender, buoyed by a loyal base, refused to give up. It got awkward.
The difference in 2016, of course, is Hillary Clinton’s position in the drama. She played the spoiler eight years ago, refusing to concede to Barack Obama in a primary that dragged into June, to the consternation of party elders. (They were nervously eyeing John McCain, who had pluckily sewn up his nomination by late February). But this year, she is the candidate ascendant, impatient to wrap up this whole Bernie Sanders business and take on Donald Trump.
The commons outside of Cortina D’Ampezzo are governed by a medieval property-rights system that has almost completely disappeared from the rest of Europe.
When tourists arrive at Cortina d’Ampezzo, “medieval” is probably not the first word that comes to their minds. This wealthy town 80 miles north of Venice, a posh destination in the Italian Alps, regularly hosts Alpine Skiing World Cup races and is a popular vacation choice both for wealthy foreigners and Italian celebrities. When looking for a place to set Vacanze di Natale (“Christmas Holidays”), a classic Italian movie franchise that satirizes the eccentricities of the rich, the writers picked Cortina.
Yet, the town still manages a portion of its land with a system that dates back to the 11th century. The system is one of collective property, overseen by heads of family—making it one of the last places in Europe where most women are formally barred from inheriting and controlling land.
When new countries rise to power, the transition can end badly, often in war. Harvard’s Graham Allison has argued in The Atlantic that “judging by the historical record, war is more likely than not” between the United States, the world’s current reigning superpower, and China, a rising military and economic force. There is considerable debate on this point, but American pundits and presidential candidates often talk as if China were already an American adversary; Donald Trump has warned, for example, that China will “take us down.” Yet few in the United States seem worried about Asia’s other rising giant, India.
To the contrary, there’s a temptation to support India, a like-minded democracy, as a counterweight against the growing power of authoritarian China. But if American leaders feel confident India can accumulate power without becoming an antagonist, can they find a way to make the same true for China?