Ben Bernanke listened to his critics, but the recovery is still stuck. What went wrong?
To print or not to print? That is the question dividing the Federal Reserve.
Back in September the Fed launched its latest, and most ambitious, bond-buying program to date, dubbed QE3. Unlike before, the Fed hasn't committed to buying a specific dollar amount of bonds with QE3; instead, it's committed to buying $85 billion of bonds a month until the labor market improves "substantially". But what's "substantial" and what's not? And what if the Fed loses its nerve before the economy arrives at this mysterious moment of "substantial" improvement?
This latter question has gripped markets after the Fed's January meeting when "a number" of members said it should "taper" its bond purchases even before, you guessed it, there's any substantial improvement in unemployment. In other words, an increasing, and increasingly vocal, minority at the Fed are nervous about keeping open-ended bond-buying quite so open-ended. Now, a vocal minority is still a minority -- and besides, Bernanke tends to get his way -- but this hawkish talk has been enough to spook markets that thought QE3 wouldn't end much before 2014.
But there's a better question than how long QE3 will last. That's how much QE3 will work. Let's back up for a minute. Whether you want to call it "quantitative easing" (QE) or "bond-buying" or "large-scale asset purchases" (LSAP), the idea here is fairly simple: the Fed is printing money and buying pieces of paper. It's doing this because it can't boost the economy like it normally does by cutting short-term interest rates; those rates are stuck at zero, and can't go lower. Okay, that's not entirely true. The Fed can't cut nominal rates now, but it can cut real ones -- in other words, it can push up inflation, thereby reducing inflation-adjusted borrowing costs. That's what the Fed has done by printing money and buying long-term bonds from banks. Even if this freshly-printed money ends up as bank reserves (which it mostly has), the Fed is signaling that it wants more inflation.
Take a look at the chart below of what markets (roughly) think will happen with inflation over the next 5 years, annotated with the Fed's unconventional policies. Markets expect more inflation every time the Fed eases, and less every time it stops ... until QE3. Then, almost nothing. That's crazy. QE3 is open-ended, whereas previous rounds were not. This difference should have convinced markets that this time the Fed was really serious about jump-starting the recovery. Has QE hit a wall of diminishing returns? (Note: The black line shows the Fed's 2 percent inflation target).
Look again, but this time, focus on the black line. QE has hit a wall, but it's a wall of incredibly well-anchored inflation expectations, not diminishing returns. In other words, the Fed has quite easily been able to push inflation expectations back up to its 2 percent target, but no more. QE1 and QE2 had big effects, because they came when expected inflation was well below 2 percent and falling; QE3 has not, because expected inflation was already around 2 percent.
But wait. The Fed unveiled the Evans rule back in December, telling us it wouldn't raise rates before unemployment falls to 6.5 percent or inflation rises to 2.5 percent. In other words, isn't the Fed's 2 percent inflation target really a 2.5 percent inflation target now? Not exactly. The Fed is telling us it will tolerate 2.5 percent inflation, not that it will create it -- indeed, the Fed doesn't think inflation will stray at all above 2 percent over the next few years.
The best way to figure out what the Fed wants is to listen. After all, it tells us what it thinks will happen with GDP, unemployment, and inflation over 1, 2, and 3-year periods. Now, it's GDP and unemployment predictions have been, in the spirit of generosity, a tad optimistic, but not so for inflation (which, not-so-coincidentally, is the only above variable the Fed controls directly). The chart below looks at the Fed's core PCE inflation projections since late 2008; upper-range estimates for 1, 2, and 3-year periods are in red, and lower ranges ones are in blue. This is what a 2 percent inflation ceiling looks like.
There's a lot going on here, but there's a depressingly simple message in this chart: QE3 isn't working, because the Fed doesn't want it to work. The Fed revised its inflation projections up after QE1 and QE2, and markets followed; the Fed has kept its inflation projections steady after QE3, and, again, markets have followed. Now, this doesn't mean QE3 is entirely useless -- it's at least stopping inflation expectations from falling -- just that it could be doing much more if the Fed let it. That would be simple enough. The Fed could make its forecasts symmetrical around 2 percent, rather than peaking at 2 percent. Or it could say it expected (or is that wanted?) inflation well above 2 percent over the next two years, but not after that; in other words, make its target more explicitly flexible.
That leaves us with one last question. The Fed has shown time and again it can push inflation expectations (which largely determine inflation) up to 2 percent, even when short-term rates are parked at zero. But is that as much inflation as the Fed can create? It's hard to see why that would be the case, other than the Fed's self-imposed 2 percent ceiling. But the great thing about self-imposed problems is you can stop imposing them. The Fed doesn't need a new mandate (like NGDP targeting) to speed up the recovery; it just needs to tell us it wants -- gasp! -- 3 percent inflation for a year or two.
Until then, the recovery will suffer the outrageous slings and arrows of our 2 percent ceiling.
As the public’s fear and loathing surge, the frontrunner’s durable candidacy has taken a dark turn.
MYRTLE BEACH, South Carolina—All politicians, if they are any good at their craft, know the truth about human nature.
Donald Trump is very good, and he knows it better than most.
Trump stands alone on a long platform, surrounded by a rapturous throng. Below and behind him—sitting on bleachers and standing on the floor—they fill this city’s cavernous, yellow-beige convention center by the thousands. As Trump will shortly point out, there are a lot of other Republican presidential candidates, but none of them get crowds anything like this.
Trump raises an orange-pink hand like a waiter holding a tray. “They are not coming in from Syria,” he says. “We’re sending them back!” The crowd surges, whistles, cheers. “So many bad things are happening—they have sections of Paris where the police are afraid to go,” he continues. “Look at Belgium, the whole place is closed down! We can’t let it happen here, folks.”
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.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
Why are so many kids with bright prospects killing themselves in Palo Alto?
The air shrieks, and life stops. First, from far away, comes a high whine like angry insects swarming, and then a trampling, like a herd moving through. The kids on their bikes who pass by the Caltrain crossing are eager to get home from school, but they know the drill. Brake. Wait for the train to pass. Five cars, double-decker, tearing past at 50 miles an hour. Too fast to see the faces of the Silicon Valley commuters on board, only a long silver thing with black teeth. A Caltrain coming into a station slows, invites you in. But a Caltrain at a crossing registers more like an ambulance, warning you fiercely out of its way.
The kids wait until the passing train forces a gust you can feel on your skin. The alarms ring and the red lights flash for a few seconds more, just in case. Then the gate lifts up, signaling that it’s safe to cross. All at once life revives: a rush of bikes, skateboards, helmets, backpacks, basketball shorts, boisterous conversation. “Ew, how old is that gum?” “The quiz is next week, dipshit.” On the road, a minivan makes a left a little too fast—nothing ominous, just a mom late for pickup. The air is again still, like it usually is in spring in Palo Alto. A woodpecker does its work nearby. A bee goes in search of jasmine, stinging no one.
A yearlong investigation of Greek houses reveals their endemic, lurid, and sometimes tragic problems—and a sophisticated system for shifting the blame.
One warm spring night in 2011, a young man named Travis Hughes stood on the back deck of the Alpha Tau Omega fraternity house at Marshall University, in West Virginia, and was struck by what seemed to him—under the influence of powerful inebriants, not least among them the clear ether of youth itself—to be an excellent idea: he would shove a bottle rocket up his ass and blast it into the sweet night air. And perhaps it was an excellent idea. What was not an excellent idea, however, was to misjudge the relative tightness of a 20-year-old sphincter and the propulsive reliability of a 20-cent bottle rocket. What followed ignition was not the bright report of a successful blastoff, but the muffled thud of fire in the hole.
Mary Beard’s sweeping history is a new read of citizenship in the ancient empire.
A british college student named Megan Beech recently published a poetry collection called When I Grow Up I Want to Be Mary Beard. Beech is not alone in her admiration for Beard, who was for a time the only female classics lecturer at Cambridge University and has since become the most prominent representative of a field once associated with dusty male privilege. In 2013, Beard was appointed to the Order of the British Empire for “services to Classical Scholarship.” A prolific authority on Roman culture, she construes those services broadly. Her academic work ranges from studies of Roman religion and Roman victory practices to reflections on Roman laughter, and she has written lively books about Pompeii and the Colosseum. As the erudite docent on a BBC series three years ago titled Meet the Romans, Beard introduced a bigger audience to a bigger Rome: a citizenry far beyond the handful of Latin-speaking men who populated the Senate, served as emperors, or wrote (often dictating to their slaves) the books that we call “Roman literature.” Whatever the context (she also writes a blog, “A Don’s Life,” for the Times Literary Supplement), Beard does precisely what few popularizers dare to try and plenty of dons can’t pull off: She conveys the thrill of puzzling over texts and events that are bound to be ambiguous, and she complicates received wisdom in the process.
Retailers are experimenting with a bold new strategy for the commercial high holiday: boycotting themselves.
It starts with a scene of touch football in the yard. Next, a woman and a girl, cooking together in the kitchen. “Imagine a world,” a soothing voice intones, “where the only thing you have to wrestle for on Thanksgiving is the last piece of pumpkin pie, and the only place we camped out was in front of a fire, and not the parking lot of a store.” And, then, more scenes: a man, cuddling with kids on a couch. An older woman, rolling pie dough on the counter. A fire, crackling in the fireplace. Warmth. Wine. Togetherness. Laughter.
It’s an ad, unsurprisingly, but it’s an ad with a strange objective: to tell you not to buy stuff. Or, at least, to spend a day not buying stuff. “At T.J. Maxx, Marshall’s, and HomeGoods, we’re closed on Thanksgiving,” the spot’s velvet-voiced narrator informs us, “because family time comes first.” And then: more music. More scenes of familiar/familial delights. More laughter. More pie. The whole thing concludes: “Let’s put more value on what really matters. This season, bring back the holidays—with T.J. Maxx, Marshall’s, and HomeGoods.”
An entire industry has been built on the premise that creating gourmet meals at home is simple and effortless. But it isn’t true.
I write about food for a living. Because of this, I spend more time than the average American surrounded by cooking advice and recipes. I’m also a mother, which means more often than not, when I return from work 15 minutes before bedtime, I end up feeding my 1-year-old son squares of peanut-butter toast because there was nothing in the fridge capable of being transformed into a wholesome, homemade toddler meal in a matter of minutes. Every day, when I head to my office after a nourishing breakfast of smashed blueberries or oatmeal I found stuck to the pan, and open a glossy new cookbook, check my RSS feed, or page through a stack of magazines, I’m confronted by an impenetrable wall of unimaginable cooking projects, just sitting there pretending to be totally reasonable meals. Homemade beef barbacoa tacos. Short-rib potpie. “Weekday” French toast. Make-ahead coconut cake. They might as well be skyscraper blueprints, so improbable is the possibility that I will begin making my own nut butters, baking my own sandwich bread, or turning that fall farmer’s market bounty into jars of homemade applesauce.
America loves its freeways. After the 1956 Federal Highway Bill created the pathway for a41,000 mile interstate highway system, states and cities jockeyed for the funding to build ever-more extensive networks of pavement that could carry Americans quickly between cities. Sometimes, they built these highways right in the middle of cities, displacing communities and razing old buildings and homes.
“This was a program which the twenty-first century will almost certainly judge to have had more influence on the shape and development of American cities, the distribution of population within metropolitan areas and across the nation as a whole, the location of industry and various kinds of employment opportunities,”Daniel Moynihan wrote in 1970 about the federal program that built these thousands of miles of highways.