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.
What would the American culture wars look like if they were less about “values” and more about Jesus?
Evangelical Christianity has long had a stranglehold on how Americans imagine public faith. Vague invocations of “religion”—whether it’s “religion vs. science” or “religious freedom”—usually really mean “conservative, Protestant, evangelical Christianity,” and this assumption inevitably frames debates about American belief. For the other three-quarters of the population—Catholics, Jews, other Protestants, Muslims, Hindus, secular Americans, Buddhists, Wiccans, etc.—this can be infuriating. For some evangelicals, it’s a sign of success, a linguistic triumph of the culture wars.
But not for Russell Moore. In 2013, the 43-year-old theologian became the head of the Ethics and Religious Liberty Commission, the political nerve center of the Southern Baptist Convention. His predecessor, Richard Land, prayed with George W. Bush, played hardball with Democrats, and helped make evangelicals a quintessentially Republican voting bloc.
Many psychiatrists believe that a new approach to diagnosing and treating depression—linking individual symptoms to their underlying mechanisms—is needed for research to move forward.
In his Aphorisms, Hippocrates defined melancholia, an early understanding of depression, as a state of “fears and despondencies, if they last a long time.” It was caused, he believed, by an excess of bile in the body (the word “melancholia” is ancient Greek for “black bile”).
Ever since then, doctors have struggled to create a more precise and accurate definition of the illness that still isn’t well understood. In the 1920s, the German psychiatrist Kurt Schneider argued that depression could be divided into two separate conditions, each requiring a different form of treatment: depression that resulted from changes in mood, which he called “endogenous depression,” and depression resulting from reactions to outside events, or “reactive depression.” His theory was challenged in 1926, when the British psychologist Edward Mapother argued in the British Medical Journal that there was no evidence for two distinct types of depression, and that the apparent differences between depression patients were just differences in the severity of the condition.
Paul faced danger, Ani and Ray faced each other, and Frank faced some career decisions.
This is what happens when you devote two-thirds of a season to scene after scene after scene of Frank and Jordan’s Baby Problems, and Frank Shaking Guys Down, and Look How Fucked Up Ray and Ani Are, and Melancholy Singer in the Dive Bar Yet Again—and then you suddenly realize that with only a couple episodes left you haven’t offered even a rudimentary outline of the central plot.
The winners of the 27th annual National Geographic Traveler Photo Contest have just been announced.
The winners of the 27th annual National Geographic Traveler Photo Contest have just been announced. Winning first prize, Anuar Patjane Floriuk of Tehuacán, Mexico, will receive an eight-day photo expedition for two to Costa Rica and the Panama Canal for a photograph of divers swimming near a humpback whale off the western coast of Mexico. Here, National Geographic has shared all of this year’s winners, gathered from four categories: Travel Portraits, Outdoor Scenes, Sense of Place, and Spontaneous Moments. Captions by the photographers.
Why the obsession with our kids’ happiness may be dooming them to unhappy adulthoods. A therapist and mother reports.
If there’s one thing I learned in graduate school, it’s that the poet Philip Larkin was right. (“They fuck you up, your mum and dad, / They may not mean to, but they do.”) At the time, I was a new mom with an infant son, and I’d decided to go back to school for a degree in clinical psychology. With baby on the brain and term papers to write, I couldn’t ignore the barrage of research showing how easy it is to screw up your kids. Of course, everyone knows that growing up with “Mommy Dearest” produces a very different child from one raised by, say, a loving PTA president who has milk and homemade cookies waiting after school. But in that space between Joan Crawford and June Cleaver, where most of us fall, it seemed like a lot could go wrong in the kid-raising department.
What if Joe Biden is going to run for the Democratic nomination after all?
Most Democrats seem ready for Hillary Clinton—or at least appear content with her candidacy. But what about the ones who who were bidin’ for Biden? There are new signs the vice president might consider running for president after all.
Biden has given little indication he was exploring a run: There’s no super PAC, no cultivation of a network of fundraisers or grassroots organizers, few visits to early-primary states. While his boss hasn’t endorsed Clinton—and says he won’t endorse in the primary—many members of the Obama administration have gone to work for Clinton, including some close to Biden.
But Biden also hasn’t given any clear indication that he isn’t running, and a column by Maureen Dowd in Saturday’s New York Times has set off new speculation. One reason Biden didn’t get into the race was that his son Beau was dying of cancer, and the vice president was focused on being with his son. But before he died in May, Dowd reported, Beau Biden tried to get his father to promise to run. Now Joe Biden is considering the idea.
The jobs that are least vulnerable to automation tend to be held by women.
Many economists and technologists believe the world is on the brink of a new industrial revolution, in which advances in the field of artificial intelligence will obsolete human labor at an unforgiving pace. Two Oxford researchers recently analyzed the skills required for more than 700 different occupations to determine how many of them would be susceptible to automation in the near future, and the news was not good: They concluded that machines are likely to take over 47 percent of today’s jobs within a few decades.
This is a dire prediction, but one whose consequences will not fall upon society evenly. A close look at the data reveals a surprising pattern: The jobs performed primarily by women are relatively safe, while those typically performed by men are at risk.
Exceptional nonfiction stories from 2014 that are still worth encountering today
Each year, I keep a running list of exceptional nonfiction that I encounter as I publish The Best ofJournalism, an email newsletter that I send out once or twice a week. This is my annual attempt to bring some of those stories to a wider audience. I could not read or note every worthy article that was published last calendar year and I haven't included any paywalled articles or anything published at The Atlantic. But everything that follows is worthy of wider attention and engagement.
An activist group is trying to discredit Planned Parenthood with covertly recorded videos even as contraception advocates are touting a method that sharply reduces unwanted pregnancies.
Abortion is back at the fore of U.S. politics due to an activist group’s attempt to discredit Planned Parenthood, one of the most polarizing organizations in the country. Supporters laud its substantial efforts to provide healthcare for women and children. For critics, nothing that the organization does excuses its role in performing millions of abortions––a procedure that they regard as literal murder––and its monstrous character is only confirmed, in their view, by covertly recorded video footage of staffers cavalierly discussing what to do with fetal body parts.
If nothing else, that recently released footage has galvanized Americans who oppose abortion, media outlets that share their views, and politicians who seek their votes. “Defunding Planned Parenthood is now a centerpiece of the Republican agenda going into the summer congressional recess,” TheWashington Postreports, “and some hard-liners have said they are willing to force a government shutdown in October if federal support to the group is not curtailed.”
It’s impossible to “solve” the Iranian nuclear threat. This agreement is the next best thing.
Having carefully reviewed the lengthy and complex agreement negotiated by the United States and its international partners with Iran, I have reached the following conclusion: If I were a member of Congress, I would vote yes on the deal. Here are nine reasons why.
1. No one has identified a better feasible alternative. Before negotiations halted its nuclear advance, Iran had marched relentlessly down the field from 10 years away from a bomb to two months from that goal line. In response, the United States and its partners imposed a series of sanctions that have had a significant impact on Iran’s economy, driving it to negotiate. That strategy worked, and resulted in a deal. In the absence of this agreement, the most likely outcome would be that the parties resume doing what they were doing before the freeze began: Iran installing more centrifuges, accumulating a larger stockpile of bomb-usable material, shrinking the time required to build a bomb; the U.S. resuming an effort to impose more severe sanctions on Iran. Alternatively, Israel or the United States could conduct military strikes on Iran’s nuclear facilities, setting back the Iranian program by two years, or perhaps even three. But that option risks wider war in the Middle East, an Iran even more determined to acquire a bomb, and the collapse of consensus among American allies.