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.
Also notable about this brazen show of might is that the missiles traveled through two countries, Iran and Iraq, before hitting their 11 targets in Syria. This means that both countries either gave their permission or simply didn’t confront Putin about the use of their airspace on his birthday.
It leaves people bed-bound and drives some to suicide, but there's little research money devoted to the disease. Now, change is coming, thanks to the patients themselves.
This past July, Brian Vastag, a former science reporter, placed an op-ed with his former employer, the Washington Post. It was an open letter to the National Institutes of Health director Francis Collins, a man Vastag had formerly used as a source on his beat.
“I’ve been felled by the most forlorn of orphan illnesses,” Vastag wrote. “At 43, my productive life may well be over.”
There was no cure for his disease, known by some as chronic fatigue syndrome, Vastag wrote, and little NIH funding available to search for one. Would Collins step up and change that?
“As the leader of our nation’s medical research enterprise, you have a decision to make,” he wrote. “Do you want the NIH to be part of these solutions, or will the nation’s medical research agency continue to be part of the problem?”
“If the office is going to become a collection of employees not working together, it essentially becomes no different than a coffee shop.”
There’s plenty of research out there on the benefits of remote and flexible work. It’s been shown to lead to increased productivity, and has an undeniable benefit for work-life balance. But what does it do to everyone back at the office?
In a 2013 memo to workers explaining why the company was eliminating policies that allowed remote work, Jackie Reses, Yahoo’s head of human resources,argued that some of the “best decisions and insights come from hallway and cafeteria discussion,” and that actual presence in the office encourages better collaboration and communication.
Why Americans tend more and more to want inexperienced presidential candidates
The presidency, it’s often said, is a job for which everyone arrives unprepared. But just how unprepared is unprepared enough?
Political handicappers weigh presidential candidates’ partisanship, ideology, money, endorsements, consultants, and, of course, experience. Yet they too rarely consider an element of growing importance to voters: freshness. Increasingly, American voters view being qualified for the presidency as a disqualification.
In 2003, I announced in National Journal the 14-Year Rule. The rule was actually discovered by a presidential speechwriter named John McConnell, but because his job required him to keep his name out of print, I graciously stepped up to take credit. It is well known that to be elected president, you pretty much have to have been a governor or a U.S. senator. What McConnell had figured out was this: No one gets elected president who needs longer than 14 years to get from his or her first gubernatorial or Senate victory to either the presidency or the vice presidency.* Surprised, I scoured the history books and found that the rule works astonishingly well going back to the early 20th century, when the modern era of presidential electioneering began.
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.
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.
What will happen to digital collections of books, movies, and music when the tech giants fall?
When you purchase a movie from Amazon Instant Video, you’re not buying it, exactly. It’s more like renting indefinitely.
This distinction matters if your notion of “buying” is that you pay for something once and then you get to keep that thing for as long as you want. Increasingly, in the world of digital goods, a purchasing transaction isn’t that simple.
There are two key differences between buying media in a physical format versus a digital one. First, there’s the technical aspect: Maintaining long-term access to a file requires a hard copy of it—that means, for example, downloading a film, not just streaming from a third party’s server. The second distinction is a bit more complicated, and it has to do with how the law has shaped digital rights in the past 15 years. It helps to think about the experience of a person giving up CDs and using iTunes for music purchases instead.
American politicians are now eager to disown a failed criminal-justice system that’s left the U.S. with the largest incarcerated population in the world. But they've failed to reckon with history. Fifty years after Daniel Patrick Moynihan’s report “The Negro Family” tragically helped create this system, it's time to reclaim his original intent.
By his own lights, Daniel Patrick Moynihan, ambassador, senator, sociologist, and itinerant American intellectual, was the product of a broken home and a pathological family. He was born in 1927 in Tulsa, Oklahoma, but raised mostly in New York City. When Moynihan was 10 years old, his father, John, left the family, plunging it into poverty. Moynihan’s mother, Margaret, remarried, had another child, divorced, moved to Indiana to stay with relatives, then returned to New York, where she worked as a nurse. Moynihan’s childhood—a tangle of poverty, remarriage, relocation, and single motherhood—contrasted starkly with the idyllic American family life he would later extol.
Somewhere in Europe, a man who goes by the name “Mikro” spends his days and nights targeting Islamic State supporters on Twitter.
In August 2014, a Twitter account affiliated with Anonymous, the hacker-crusader collective, declared “full-scale cyber war” against ISIS: “Welcome to Operation Ice #ISIS, where #Anonymous will do it’s [sic] part in combating #ISIS’s influence in social media and shut them down.”
In July, I traveled to a gloomy European capital city to meet one of the “cyber warriors” behind this operation. Online, he goes by the pseudonym Mikro. He is vigilant, bordering on paranoid, about hiding his actual identity, on account of all the death threats he has received. But a few months after I initiated a relationship with him on Twitter, Mikro allowed me to visit him in the apartment he shares with his girlfriend and two Rottweilers. He works alone from his chaotic living room, using an old, battered computer—not the state-of-the-art setup I had envisaged. On an average day, he told me, he spends up to 16 hours fixed to his sofa. He starts around noon, just after he wakes up, and works late into the night and early morning.