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.
The Democratic insurgent’s campaign is losing steam—but his supporters are not ready to give up.
SANTA MONICA, Calif.—This is how a revolution ends: its idealism tested, its optimism drained, its hope turned to bitterness.
But if Bernie Sanders’s revolution has run aground in California, which will be one of the last states to vote in the Democratic primary on June 7, he was not about to admit it here, where thousands gathered on a sun-drenched high-school football field of bright green turf.
“We are going to win here in California!” Sanders said, to defiant cheers. In the audience, a man waved a sign that said, “Oh HILL no!”
This is Sanders’s last stand, according to the official narrative of the corrupt corporate media, and if there is anything we have learned in the past year, it is the awesome power of the official narrative—the self-reinforcing drumbeat that dictates everything.
A rock structure, built deep underground, is one of the earliest hominin constructions ever found.
In February 1990, thanks to a 15-year-old boy named Bruno Kowalsczewski, footsteps echoed through the chambers of Bruniquel Cave for the first time in tens of thousands of years.
The cave sits in France’s scenic Aveyron Valley, but its entrance had long been sealed by an ancient rockslide. Kowalsczewski’s father had detected faint wisps of air emerging from the scree, and the boy spent three years clearing away the rubble. He eventually dug out a tight, thirty-meter-long passage that the thinnest members of the local caving club could squeeze through. They found themselves in a large, roomy corridor. There were animal bones and signs of bear activity, but nothing recent. The floor was pockmarked with pools of water. The walls were punctuated by stalactites (the ones that hang down) and stalagmites (the ones that stick up).
Nicholas and Erika Christakis stepped down from their positions in residential life months after student activists called for their dismissal over a Halloween kerfuffle.
Last fall, student protesters at Yale University demanded that Professor Nicholas Christakis, an academic star who has successfully mentored Ivy League undergraduates for years, step down from his position as faculty-in-residence at Silliman College, along with his wife, Erika Christakis, who shared in the job’s duties.
The protesters had taken offense at an email sent by Erika Christakis.
Dogged by the controversy for months, the couple finally resigned their posts Wednesday. Because the student protests against them were prompted by intellectual speech bearing directly on Erika Christakis’s area of academic expertise, the outcome will prompt other educators at Yale to reflect on their own positions and what they might do or say to trigger or avoid calls for their own resignations. If they feel less inclined toward intellectual engagement at Yale, I wouldn’t blame them.
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.
A gay-rights amendment takes down a House appropriations bill, and with it might go the speaker’s grand plan to revive the congressional spending process.
The state-by-state fight for gay and transgender rights has reached the floor of the House of Representatives, and it is ruining Speaker Paul Ryan’s carefully-laid plans for reviving the congressional spending process.
Republicans and Democrats voted down an annual bill appropriating funds for energy and water programs on Thursday morning after Democrats succeeded in attaching an amendment to bar federal contractors from discriminating on the basis of sexual orientation or gender identity. The provision drew bipartisan support only days after GOP leaders scrambled to defeat a similar amendment that Democrats tried to add to another appropriations bill—an embarrassing moment in which rank-and-file Republicans were cajoled into flipping their votes so the measure would fail. The attempt succeeded this time, but it became moot hours later when the underlying $37.4 billion measure went down in a landslide vote of 305-112, with majorities of both parties voting against it. The meltdown happened so quickly that it appeared to catch the House Appropriations Committee, which wrote the bill, off guard. The committee sent out a statement from Chairman Hal Rogers with a headline heralding its passage just minutes before it was voted down; it was quickly rescinded.
A year after Obama saluted the families for their spirit of forgiveness, his administration seeks the death penalty for the Charleston shooter.
On Tuesday, Attorney General Loretta Lynch announced she would seek the death penalty for Dylann Roof. It has not been a year since Roof walked into Emanuel African Methodist Episcopal Church and murdered nine black people as they worshipped. Roof justified this act of terrorism in chillingly familiar language—“You rape our women and you’re taking over our country.” The public display of forgiveness offered to Roof by the families of the victims elicited bipartisan praise from across the country. The president saluted the families for “an expression of faith that is unimaginable but that reflects the goodness of the American people.” How strange it is to see that same administration, and these good people, who once saluted the forgiveness of Roof, presently endorse his killing.
Washington voters handed Hillary Clinton a primary win, symbolically reversing the result of the state caucus where Bernie Sanders prevailed.
Washington voters delivered a bit of bad news for Bernie Sanders’s political revolution on Tuesday. Hillary Clinton won the state’s Democratic primary, symbolically reversing the outcome of the state’s Democratic caucus in March where Sanders prevailed as the victor. The primary result won’t count for much since delegates have already been awarded based on the caucus. (Sanders won 74 delegates, while Clinton won only 27.) But Clinton’s victory nevertheless puts Sanders in an awkward position.
Sanders has styled himself as a populist candidate intent on giving a voice to voters in a political system in which, as he describes it, party elites and wealthy special-interest groups exert too much control. As the primary election nears its end, Sanders has railed against Democratic leaders for unfairly intervening in the process, a claim he made in the aftermath of the contentious Nevada Democratic convention earlier this month. He has also criticized superdelegates—elected officials and party leaders who can support whichever candidate they chose—for effectively coronating Clinton.
Despite a nearly three week flap over her claim of "being Native American," the progressive consumer advocate has been unable to point to evidence of Native heritage except for a unsubstantiated thirdhand report that she might be 1/32 Cherokee. Even if it could be proven, it wouldn't qualify her to be a member of a tribe: Contrary to assertions in outlets from The New York Times to Mother Jones that having 1/32 Cherokee ancestry is "sufficient for tribal citizenship," "Indian enough" for "the Cherokee Nation," and "not a deal-breaker," Warren would not be eligible to become a member of any of the three federally recognized Cherokee tribes based on the evidence so far surfaced by independent genealogists about her ancestry.
How committee meetings, memos, and largely arbitrary decisions ushered in the nuclear age
On May 10, 1945, three days after Germany had surrendered to the Allied powers and ended World War II in Europe, a carefully selected group of scientists and military personnel met in an office in Los Alamos, New Mexico. With Germany out of the war, the top minds within the Manhattan Project, the American effort to design an atomic bomb, focused on the choices of targets within Japan. The group was loosely known as the Target Committee, and the question they sought to answer essentially was this: Which of the preserved Japanese cities would best demonstrate the destructive power of the atomic bomb?
General Leslie Groves, the Army engineer in charge of the Manhattan Project, had been ruminating on targets since late 1944; at a preliminary meeting two weeks earlier, he had laid down his criteria. The target should: possess sentimental value to the Japanese so its destruction would “adversely affect” the will of the people to continue the war; have some military significance—munitions factories, troop concentrations, and so on; be mostly intact, to demonstrate the awesome destructive power of an atomic bomb; and be big enough for a weapon of the atomic bomb’s magnitude.
The popular gene-editing technique can deliver a step-by-step account of how a single-cell embryo becomes a trillion-cell animal.
Like every other animal, the nematode worm C. elegansbegins life as a single fertilized cell. This divides into two, and then four, and then eight. By the time the worm is an adult, that original cell has become either 959 or 1031, depending on its sex. The number of cells never changes—it’s the same from one individual to another. And we know where every single one of them came from because a man named John Sulston spent 18 long months in the early 1980s, hand-drawing worms in a darkened room.
Sulston worked alone, in silence, hunched over a microscope for eight hours a day. By studying and drawing worms of various ages, he figured out the ancestor and descendants of each of their cells. It was a monumental piece of science. Sulston mapped the complete history of an individual, the comprehensive family tree of a single body. “We had the entire story of the worm’s cells from fertilized egg to adult,” he later said, upon accepting the Nobel Prize for his work.