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.
Forget the Common Core, Finland’s youngsters are in charge of determining what happens in the classroom.
“The changes to kindergarten make me sick,” a veteran teacher in Arkansas recently admitted to me. “Think about what you did in first grade—that’s what my 5-year-old babies are expected to do.”
The difference between first grade and kindergarten may not seem like much, but what I remember about my first-grade experience in the mid-90s doesn’t match the kindergarten she described in her email: three and a half hours of daily literacy instruction, an hour and a half of daily math instruction, 20 minutes of daily “physical activity time” (officially banned from being called “recess”) and two 56-question standardized tests in literacy and math—on the fourth week of school.
That American friend—who teaches 20 students without an aide—has fought to integrate 30 minutes of “station time” into the literacy block, which includes “blocks, science, magnetic letters, play dough with letter stamps to practice words, books, and storytelling.” But the most controversial area of her classroom isn’t the blocks nor the stamps: Rather, it’s the “house station with dolls and toy food”—items her district tried to remove last year. The implication was clear: There’s no time for play in kindergarten anymore.
A new study finds that people today who eat and exercise the same amount as people 20 years ago are still fatter.
There’s a meme aimed at Millennial catharsis called “Old Economy Steve.” It’s a series of pictures of a late-70s teenager, who presumably is now a middle-aged man, that mocks some of the messages Millennials say they hear from older generations—and shows why they’re deeply janky. Old Economy Steve graduates and gets a job right away. Old Economy Steve “worked his way through college” because tuition was $400. And so forth.
We can now add another one to that list: Old Economy Steve ate at McDonald’s almost every day, and he still somehow had a 32-inch waist.
A study published recently in the journal Obesity Research & Clinical Practice found that it’s harder for adults today to maintain the same weight as those 20 to 30 years ago did, even at the same levels of food intake and exercise.
David Hume, the Buddha, and a search for the Eastern roots of the Western Enlightenment
In2006, i was 50—and I was falling apart.
Until then, I had always known exactly who I was: an exceptionally fortunate and happy woman, full of irrational exuberance and everyday joy.
I knew who I was professionally. When I was 16, I’d discovered cognitive science and analytic philosophy, and knew at once that I wanted the tough-minded, rigorous, intellectual life they could offer me. I’d gotten my doctorate at 25 and had gone on to become a professor of psychology and philosophy at UC Berkeley.
I knew who I was personally, too. For one thing, I liked men. I was never pretty, but the heterosexual dance of attraction and flirtation had always been an important part of my life, a background thrum that brightened and sharpened all the rest. My closest friends and colleagues had all been men.
Even in big cities like Tokyo, small children take the subway and run errands by themselves. The reason has a lot to do with group dynamics.
It’s a common sight on Japanese mass transit: Children troop through train cars, singly or in small groups, looking for seats.
They wear knee socks, polished patent-leather shoes, and plaid jumpers, with wide-brimmed hats fastened under the chin and train passes pinned to their backpacks. The kids are as young as 6 or 7, on their way to and from school, and there is nary a guardian in sight.
A popular television show called Hajimete no Otsukai, or My First Errand, features children as young as two or three being sent out to do a task for their family. As they tentatively make their way to the greengrocer or bakery, their progress is secretly filmed by a camera crew. The show has been running for more than 25 years.
Meaning comes from the pursuit of more complex things than happiness
"It is the very pursuit of happiness that thwarts happiness."
In September 1942, Viktor Frankl, a prominent Jewish psychiatrist and neurologist in Vienna, was arrested and transported to a Nazi concentration camp with his wife and parents. Three years later, when his camp was liberated, most of his family, including his pregnant wife, had perished -- but he, prisoner number 119104, had lived. In his bestselling 1946 book, Man's Search for Meaning, which he wrote in nine days about his experiences in the camps, Frankl concluded that the difference between those who had lived and those who had died came down to one thing: Meaning, an insight he came to early in life. When he was a high school student, one of his science teachers declared to the class, "Life is nothing more than a combustion process, a process of oxidation." Frankl jumped out of his chair and responded, "Sir, if this is so, then what can be the meaning of life?"
There are many Americas. There is an America of white picket fences. There is an America of towering skyscrapers. There is the America of dusty plains, cowboys, and ranches. There is an America of cliffs and beaches and sun-kissed surfers. And then there is the America just beyond these postcards, idyllic in its landscape but largely unfamiliar. It is not a land of plenty, nor opportunity, yet it is America nonetheless.
Photographer Danny Ghitis happened upon one of these regions in 2012: Dutchess County. Just a few miles north of New York City, Dutchess was once a thriving area with successful iron mining and dairy-farming industries that have long since gone. “There are small pockets of wealth exported from the big city ... and feeble attempts at small-town tourism,” Ghitis said, noting the economic divide between the western and eastern sides, the latter of which he photographed. “Mostly, the Harlem Valley exists in between the past and future.”
What happens when a father, alarmed by his 13-year-old daughter's nightly workload, tries to do her homework for a week
Memorization, not rationalization. That is the advice of my 13-year-old daughter, Esmee, as I struggle to make sense of a paragraph of notes for an upcoming Earth Science test on minerals. “Minerals have crystal systems which are defined by the # of axis and the length of the axis that intersect the crystal faces.” That’s how the notes start, and they only get murkier after that. When I ask Esmee what this actually means, she gives me her homework credo.
Esmee is in the eighth grade at the NYC Lab Middle School for Collaborative Studies, a selective public school in the Chelsea neighborhood of Manhattan. My wife and I have noticed since she started there in February of last year that she has a lot of homework. We moved from Pacific Palisades, California, where Esmee also had a great deal of homework at Paul Revere Charter Middle School in Brentwood. I have found, at both schools, that whenever I bring up the homework issue with teachers or administrators, their response is that they are required by the state to cover a certain amount of material. There are standardized tests, and everyone—students, teachers, schools—is being evaluated on those tests. I’m not interested in the debates over teaching to the test or No Child Left Behind. What I am interested in is what my daughter is doing during those nightly hours between 8 o’clock and midnight, when she finally gets to bed. During the school week, she averages three to four hours of homework a night and six and a half hours of sleep.
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.
Fifty years after its passage, it’s clear that the law’s ultimate effects are at odds with its original intent.
The 1965 Immigration and Nationality Act, whose 50th anniversary comes on October 3, officially committed the United States, for the first time, to accepting immigrants of all nationalities on a roughly equal basis. The law eliminated the use of national-origin quotas, under which the overwhelming majority of immigrant visas were set aside for people coming from northern and western Europe.
In the subsequent half century, the pattern of U.S. immigration changed dramatically. The share of the U.S. population born outside the country tripled and became far more diverse. Seven out of every eight immigrants in 1960 were from Europe; by 2010, nine out of ten were coming from other parts of the world. The 1965 Immigration Act was largely responsible for that shift. No law passed in the 20th century altered the country’s demographic character quite so thoroughly. But its effects were largely inadvertent. The law’s biggest impact on immigration patterns resulted from provisions meant to thwart its ability to change much at all.