Recoveries have been getting weaker and weaker because that's how the Fed wants them
It's time to talk about everybody's least favorite Davos buzzword -- New Normal.
With GDP unexpectedly contracting 0.1 percent in the fourth quarter of 2012 (though the private sector mostly kept up, despite the obstacles we've thrown in its way), it's enough to make you wonder if this time really is different. In other words, has the economy settled into a, well, new normal of slower growth?
If it has, it's not quite new, at least when it comes to recoveries. As you can see in this Minneapolis Fed chart of job gains following recessions, something changed after 1981. Recoveries went from being V-shaped affairs characterized by rapid bouncebacks in employment to U-shaped ones better described as nasty, brutish, and long.
(Note: I excluded the recovery from the 1980 recession, because the double-dip in 1981 cut it short).
The story of the jobless recovery is one of what the Fed isn't doing. As Paul Krugman points out, recessions have become post-(or perhaps pre-) modern. Through the 1980s, postwar recessions happened when the Fed decided to raise rates to head off inflation, and recoveries happened when the Fed decided things had tamed down enough to lower rates. But now recessions happen when bubbles burst, with financial deregulation and the global savings glut making these more of a recurring feature of our economy, and the Fed hasn't been able to cut interest rates enough to generate strong post-crash recoveries. Or maybe it hasn't wanted to.
Here's a stupid question. Why have interest rates and inflation mostly been falling for the past 30 years? In other words if the Fed has been de facto, and later de jure, targeting inflation for most of this period (and it has), why has inflation been on a down trend (and it has)? As you can see in the chart below, core PCE inflation, which excludes food and energy costs, fell substantially from the Reagan recovery through the bursting tech bubble, and has more or less held steady since, though a bit more on the less side recently.
Say hello to "opportunistic disinflation." Okay, let's translate this from Fed-ese. Remember, the Fed is supposed to target 2 percent inflation, meaning it raises rates when prices rise by more than that much and lowers them once the economy's cooled off enough, but it wasn't always so. Back in the mid-1980s, inflation was hovering around 4 percent, a major achievement following the stagflation of the previous decade, but the Fed wanted it to go lower -- here's the crucial bit -- without taking the blame for it. The Volcker Fed had come in for quite a bit of abuse when it whipped inflation at the expense of the severe 1981-82 downturn, and the Fed seems to have learned it was better not to leave its fingerprints on the business cycle.
In other words, Let recessions do their dirty work for them.
It's not hard for central bankers to get what they want without doing anything, as long as what they want is less inflation (and that's almost always what central bankers want). They just have to wait for a recession to come along ... and then keep waiting until inflation falls to where they want it. Then, once prices have declined enough for their taste, they cut rates (or buy bonds) to stabilize inflation at this new, lower level. But it's one thing to stabilize inflation at a lower level; it's another to keep it there. The Fed has to raise rates faster than it otherwise would during the subsequent recovery to keep inflation from going back to where it was before the recession. It's what the Fed calls "opportunistic disinflation," and it's hard to believe this wasn't their strategy looking at falling inflation the previous few decades. Not that we have to guess. Fed president Edward Boehene actually laid out this approach in 1989, and Fed governor Laurence Meyer endorsed the idea of "reducing inflation cycle-to-cycle" in a 1996 speech -- the same year the Wall Street Journal leaked an internal Fed memo outlining the policy.
In short: Recoveries have been jobless, because that's how the Fed likes them.
But it gets worse. Pushing inflation progressively lower means recoveries get progressively weaker, since the Fed has to choke off inflation, and hence the recovery, at lower and lower levels. Now, to be fair, the Fed, and Ben Bernanke in particular, have awoken to the dangers of this approach. The danger, of course, is that the Fed gets in a situation where short-term rates are stuck at zero, but the economy stays stuck in a slump. Sound familiar? Bernanke realized this was a threat in 2002 when the economy was flirting with deflation despite 1.34 interest rates, and vowed not to let it happen here. (Remember, "disinflation" means falling inflation, and "deflation" means negative inflation).
The Fed, of course, did let it happen here. But it didn't let prices actually start to fall, which would make debt and borrowing more expensive at the worst possible moment, due to the Fed's bond-buying and to wages that are sticky downwards. Bernanke got the Fed to accept that opportunistic disinflation had gone too far with QE1 and QE2, but it's not clear that he's gotten them to give up on the idea altogether. Core inflation has settled in below 2 percent, and the Fed's economic projections don't show it rising above that level anytime soon. That's pushed nominal GDP growth -- the growth of the total size of the economy -- down to 4 percent for each of the past three years; a low level the Fed is apparently comfortable with. Bernanke seems to be trying to shift the consensus towards undoing some of this disinflation -- unlike previous rounds of bond-buying, QE3 was aimed at lowering unemployment, and not stopping lower prices, while the Evans rule explicitly says the Fed will tolerate inflation up to 2.5 percent -- but there's been no shift in the data so far. The Fed needs to realize there is no try when it comes to reflation. It has to promise to do whatever it takes.
The new normal doesn't have to be new or normal if the Fed doesn't want it to be.
Unlike past presidents-elect, Donald Trump hasn’t expanded his support since the election. His belligerent attitude toward his critics may be one reason why.
Donald Trump always seems most grounded in chaos. He thrives on contradicting his aides, surprising his allies, disparaging his opponents. He revels in the tempest.
This combustible approach has touched a chord with his base of primarily non-college-educated and non-urban white voters who have felt eclipsed both economically and culturally and slighted by the nation’s leadership. But he will arrive at his inaugural Friday facing more resistance in public opinion than any newly elected president in the history of polling, and with lingering clouds over his legitimacy—symbolized by the surprisingly widespread House Democratic boycott of the ceremony. Trump’s agenda is polarizing enough, but the intensity of that opposition appears rooted even more in his relentless belligerence toward any critical voice or institution.
A history of the first African American White House—and of what came next
In the waning days of President Barack Obama’s administration, he and his wife, Michelle, hosted a farewell party, the full import of which no one could then grasp. It was late October, Friday the 21st, and the president had spent many of the previous weeks, as he would spend the two subsequent weeks, campaigning for the Democratic presidential nominee, Hillary Clinton. Things were looking up. Polls in the crucial states of Virginia and Pennsylvania showed Clinton with solid advantages. The formidable GOP strongholds of Georgia and Texas were said to be under threat. The moment seemed to buoy Obama. He had been light on his feet in these last few weeks, cracking jokes at the expense of Republican opponents and laughing off hecklers. At a rally in Orlando on October 28, he greeted a student who would be introducing him by dancing toward her and then noting that the song playing over the loudspeakers—the Gap Band’s “Outstanding”—was older than she was.
For one thing, she’s never attended or taught at a public school.
Betsy DeVos is likely to be confirmed as the next secretary of education. There’s nothing unusual about the Senate supporting a president-elect’s choice to lead the U.S. Department of Education. But DeVos is a more controversial choice than nominees in recent memory.
At his hearing, the outgoing education secretary, John King, faced friendly questioning from the senators on the education committee in charge of moving nominations forward, including from the Republican chairman, Lamar Alexander. King’s predecessor, Arne Duncan, was confirmed in the Senate by a voice vote. It’s not just Democrats who have had easy confirmations, either. Both of George W. Bush’s education secretaries—Rod Paige and Margaret Spellings—were also confirmed by voice vote and received praise during their hearings from Republicans and Democrats alike.
The president-elect’s filings with the Federal Election Commission offer the best (and only) glimpse into what he owns and owes. Here they are for the first time in a searchable, easy-to-read format.
One hallmark of President-elect Donald Trump’s behavior is a tension between brazen exhibitionism and near-total opacity. Trump is highly outspoken, especially on Twitter, and has been in the public eye for decades; his supporters and surrogates frequently maintain that these make him transparent. However, when it comes to any information that could help hold Trump accountable, such as the details of his policy positions, he has not been forthcoming, a tendency which poses an enormous threat to a system of governance built on the idea of checks and balances.
Among the most notable manifestations of this opacity is that, during the 2016 presidential campaign, Donald Trump broke decades of tradition by refusing to release his tax returns. Although he initially said he would release them, as the campaign wore on, he and his staff began proffering a number of explanations for why he didn’t. Though none of those excuses held up under scrutiny, Trump still hasn’t released the returns, which means that, though he is vastly wealthier than any of his predecessors, the American public knows significantly less about his finances than it has about any president’s since Richard Nixon. Given that Trump is entering the presidency with a business empire of unprecedented scale—and potential conflicts of interest of unprecedented complexity—the dearth of information significantly restricts the public’s understanding of how his financial entanglements may influence his decision-making in office.
The headliner at Donald Trump’s inauguration co-wrote and starred in an abysmal 2008 vanity project that nonetheless presents an occasionally interesting self-portrait of red state America.
Almost a decade before starring tonight at an inaugural event for Donald Trump, country standout Toby Keith starred in a 2008 film called Beer for My Horses, a cinematic endeavor that managed the exceptional feat of earning 0 percent on the review aggregator Rotten Tomatoes. To be fair, this score was based on a statistically inadequate total of six reviews. But having belatedly caught up with the film, I can attest that its critical reputation is well-earned.
The movie was written by Keith and the comedian/country singer Rodney Carrington (who also co-stars), and it is the sole feature directed by Michael Salomon, a music-video director known for his frequent collaborations with Keith.Given the extreme lack of relevant expertise on hand—that is to say, acting, screenwriting, and filmmaking—it is perhaps no surprise that the movie is a generally inept undertaking: by turns, a comedy that isn’t funny, a drama devoid of tension, and an action movie in sore need of a shot of epinephrine.
Republicans love to blame the Environmental Protection Agency for some of the country’s economic woes. Is that a fair assertion?
It was in the early days of Ronald Reagan’s campaign for president that America first started frequently hearing the term “job-killing regulations” in response to an increasing number of environmental laws. Reagan criticized the Carter administration for doing a terrible job with the economy, and said these failures were related to Carter’s “continuing devotion to job-killing regulation.” Reagan used this phrase a lot on the campaign trail, according to Cary Coglianese, a professor at the University of Pennsylvania and the editor of Does Regulation Kill Jobs?
Within a few years, other Republicans had picked up the term. As Coglianese writes, California’s governor Pete Wilson in 1991 blamed environmental regulation for imposing “job-killing burdens” on the state’s economy, for instance, and Oklahoma Senator Don Nickles called Clinton-era rules “the most intrusive, expensive and job-killing regulation handed down.” Michele Bachman, the congresswoman from Minnesota, in 2011 said she wanted to rename the Environmental Protection Agency “the job-killing organization of America” and Mitt Romney lamented that “Day by day, job-killing regulation by job-killing regulation, bureaucrat by bureaucrat, this president is crushing the dream.”
“Trump is absolutely trying to attack our democratic institutions and to make the country more authoritarian,” one Democratic lawmaker warns.
A steadily growing number of congressional Democrats are refusing to attend Donald Trump’s inauguration, sending a message of resistance at the outset of Trump’s presidency. It’s less clear, however, what exactly that message is, and whether it will do the Democratic Party much good as it attempts to find its way in the Trump era.
The high-profile protest was galvanized by the president-elect’s rebuke of civil rights icon John Lewis as “all talk” and no action” over the weekend after the Georgia congressman said he does not view Trump “as a legitimate president” and did not plan to attend Trump’s inauguration. At the latest count, more than 60 Democrats in Congress have now announced they will not show up. Painting a bleak picture of what the country now faces, some Democrats warn that the incoming Trump administration could fundamentally erode American democracy.
On July 7, 2015, Novak tweeted “hard to believe there's just 563 days until donald trump is sworn in as president of the united states.”
“is this going to be a thing?” someone replied.
It was indeed going to be a thing. Novak has kept this countdown thread going on his Twitter to this day, for a year and a half. (With a brief break, he says, when he became “depressed about the world” and didn’t feel like doing it, though he took it back up shortly thereafter.) It began as a joke, he says, but now it reads more like prophecy.
The president-elect filled out his Cabinet on Thursday by nominating former Georgia Governor Sonny Perdue for agriculture secretary.
Updated on January 19, 2017
A day before his inauguration, President-elect Donald Trump has filled out his Cabinet.
Trump on Thursday morning announced the nomination of former Georgia Governor Sonny Perdue as secretary of agriculture, completing a search that took the duration of his presidential transition.
Perdue, who served as governor from 2003 to 2011, grew up on a farm in Georgia and earned a doctorate in veterinary medicine. “Sonny Perdue is going to accomplish great things as Secretary of Agriculture,” Trump said in a statement. “From growing up on a farm to being governor of a big agriculture state, he has spent his whole life understanding and solving the challenges our farmers face, and he is going to deliver big results for all Americans who earn their living off the land.”
The president-elect’s lawyers have explained why they don’t think he’ll violate the Constitution’s foreign emoluments clause—but their arguments fall apart under closer scrutiny.
Last week, President-elect Donald Trump’s lawyers issued a brief, largely unnoticed memo defending Trump’s plan to “separate” himself from his businesses. We believe that memo arbitrarily limits itself to a small portion of the conflicts it purports to address, and even there, presents claims that depart from precedent and common sense. Trump can convince a lot of people of a lot of things—but neither he nor his lawyers can explain away the ethics train wreck that will soon crash into the Oval Office.
It’sbeenwidelyacknowledgedthat, when Trump swears the Oath of Office, he will stand in violation of the Constitution’s foreign-emoluments clause. The emoluments clause forbids any “Person holding any Office of Profit or Trust under [the United States]” from accepting any “any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State” (unless Congress explicitly consents).