Chicago Fed president Charles Evans has gone from dissenter to intellectual leader in just a year. The future of the recovery might be at stake.
Some revolutionaries wear Guy Fawkes masks and talk about the 1 percent, and some revolutionaries wear suits and talk about policy thresholds. Chicago Fed president Charles Evans is one of the latter.
A year ago Evans was the rare dovish dissenter at the Fed. He didn't think it was taking the unemployment half of its dual mandate seriously enough, so he proposed a new, eponymous rule for it to do better. He certainly wasn't the first Fed president to have his own ideas about monetary policy, but a funny thing happened on his way to heterodoxy -- his ideas quickly became the consensus. Now, just a year later, the Fed has fully embraced the so-called Evans rule by linking interest rates to the unemployment rate.
Ain't no revolution like a monetary policy revolution.
It's been a brave, old world for central banks the past four years. Short-term interest rates have been stuck at zero, which, outside of Japan, hasn't happened since the 1930s. It's what economists call a liquidity trap, and it means central banks can't stimulate growth like they normally do by cutting short-term interest rates. They can't cut below zero. This doesn't mean central banks are powerless, just that they have to try new things.
These new things come in two varieties: promises and purchases. Central banks can pledge to hold short-term rates at zero even after the recovery accelerates, or they can buy long-term bonds to push down long-term rates; the former is what Paul Krugman calls "credibly promising to be irresponsible" and the latter is what we call "quantitative easing." These sound like big changes from standard operating procedure, but the goal with both is the same as normal -- to reduce interest rates. It's just harder to do in a liquidity trap. Central banks have to increase expected inflation to lower inflation-adjusted rates when nominal, that is headline, rates are at zero. That's the point of these promises and purchases, and that's been the point of the Fed saying it expects to keep rates at zero through mid-2015 and buying $85 billion of mortgage and Treasury bonds a month. But as much as the Fed has done, there's still much more it can do -- like making its promises more explicit -- which it started to do with its latest policy move. Let's break it down into two pieces.
(1) THE EVANS RULE
The Fed's big announcement was that it won't raise rates before unemployment falls to 6.5 percent or inflation rises to 2.5 percent. Notice the word "before" here. The Fed won't automatically raise rates if unemployment or inflation hits one of these thresholds, but it won't do so until at least then. These are the exact thresholds Evans endorsed a few weeks ago, which are modest tweaks from his original thresholds last year of 7 percent unemployment and 3 percent inflation.
Why all the fuss? This Evans rule doesn't seem to tell us anything the Fed wasn't already telling us. Just look at the Federal Open Market Committee's (FOMC) latest economic projections. The Fed doesn't think unemployment will fall below 6.5 percent until 2015 -- and it never thinks inflation will rise above 2 percent -- which implies rates will stay at zero until then. That's exactly what they were saying before.
In truth, the Evans revolution is less a revolution itself and more a significant step on the way to the actual revolution -- NGDP targeting. We'll come back to this larger point, but first let's talk about why the Evans rule matters. Its virtue is it should make the Fed's decision-making more transparent, and that should affect people's expectations more. Contrast the Evans rule with what the Fed told us before -- say from October -- about how long zero interest rates would last.
[The Fed] currently anticipates that exceptionally low levels for the federal runds rate are likely to be warranted at least through mid-2015.
Is this a promise, maybe? That's how most people interpreted it, but it's not entirely clear. Read it again. The Fed was saying it expected the economy to be crummy enough to justify zero rates until mid-2015. But what if the economy picked up before then? Would the Fed raise rates then? Good question! The Evans rule clears this up a bit -- though not entirely -- but more importantly, it clears up whether the Fed has a 2 percent inflation target or ceiling.
The Fed has been trying to answer that question for the past year. As Greg Ip of The Economist pointed out, the Fed rather significantly announced back in January that it thought the inflation and unemployment halves of its mandate were equally important, and changed its long-run inflation target from 1.5-2 percent to 2 percent. This was the Fed's way of saying it wouldn't necessarily raise rates if inflation crept over 2 percent as long as unemployment was still high and long-run inflation expectations didn't rise. In other words, the Fed's inflation target was not a 2 percent speed limit on the recovery. Or was it? Look at that table again. The Fed doesn't project inflation to go above 2 percent at all. That sure looks like a ceiling, still. The Evans rule tries to correct this -- though it would help if these latest projections were symmetrical around 2 percent -- by explicitly saying the Fed really, seriously will tolerate inflation as high as 2.5 percent in the short run.
But there's plenty that still isn't clear. Like how and whether this will work. The Evans rule sounds straightforward enough, but these thresholds are not. The Fed left itself a bit of wiggle room. When it comes to unemployment, the Fed will look at other labor force measures like the participation rate. In other words, it will consider whether unemployment is falling because people are finding jobs or because people have given up on finding jobs. It gets murkier when it comes to inflation. The Fed will use its 1-2 year inflation forecasts for its threshold. Yes, forecasts. That gives the Fed some needed flexibility to ignore commodity surges, like oil in 2011, but it's not the clearest of guides.
Remember, clarity is supposed to be the point. The idea is that the more markets understand the Fed's plans, the more the Fed's plans will shape markets' expectations. It's a bit like a Jedi mind trick. If people think things will be better in the future, then things will be better in the future, because that will get them spending and investing more now. Making us expect a better tomorrow might be the best the Fed can do today. Especially when you consider how short-lived the effects have been from the Fed's other unconventional easing. You can see that in the chart below that looks at market-based inflation expectations for 1, 2, and 10 year periods. Inflation expectations rise every time the Fed does something, and then retreat a few months later.
(Note: These break-evens measure the differences between Treasury and TIPS, or inflation-protected, bonds. They aren't always reliable because TIPS are so lightly traded -- their nickname is "terribly illiquid pieces of," well, we'll let you figure out the rest -- but they're a decent proxy. All data is from Bloomberg).
Inflation expectations should tick up again, especially if we disarm the austerity bomb known as the fiscal cliff, but the overall pattern of peaks and valleys probably isn't going to go away yet.
(2) ASSET PURCHASES
The Fed's other (slightly less) big announcement was that it will continue its $85 billion of monthly asset purchases, albeit with a slight, um, twist. Here's what hasn't changed: the Fed will buy $45 billion of Treasury bonds and $40 billion of mortgage bonds each and every month until unemployment "substantially" improves. What has changed is how the Fed will pay for its $45 billion of Treasury bond purchases. Before, the Fed had been selling $45 billion of short-term bonds to pay for the $45 billion of long-term bonds it was buying, which went by the dramatic name of "Operation Twist". It was a way to lower long-term borrowing costs without printing money, back when more Fed members were worried about potential inflation. But with its supply of short-term Treasuries running, well, short, the Fed will turn Twist into QE. In other words, it will now print money to pay for the $45 billion of Treasuries it buys. The Fed's balance sheet will grow more than before, though its monthly flow of purchases remains the same.
It's okay if you have that Animal Farm feeling. There's been a revolution, but nothing has changed. The Fed still thinks it's first rate hike will come in 2015-ish, and it's still buying $85 billion of bonds a month. This is a true fact. But it undersells the intellectual shift at the Fed. It's gone from mostly thinking about inflation to creating a framework to guide its thinking about inflation and unemployment. And it's done that in just a year. This framework, the Evans rule, is really just a quasi-NGDP target. It's not exactly the catchiest of phrases, but NGDP, or nominal GDP, targeting would be a real revolution in central banking. In plain English, it's the idea that central banks should target the size of the economy, unadjusted for inflation, and make up for any past over-or-undershooting. In theory, a flexible enough inflation target should mimic an NGDP target, which is why the Evans rule is so historic. It's an incremental step on the way to regime change at the Fed.
That doesn't mean we should expect the Fed to move towards NGDP targeting anytime soon. A risk-averse institution like the Fed will want to see another country try it first -- and it might get that chance soon. Incoming Bank of England chief Mark Carney, who currently heads the Bank of Canada, endorsed the idea in a recent speech, and British Treasury officials indicated they might be open to it too -- which is significant because the British Treasury can unilaterally change its central bank's mandate. It might not be long till NGDP targeting comes to Britain, and from there, the world. If it does, you can be sure that Charles Evans will be figuring out how to make it work here.
The Evans rule won't save the economy today, but it might tomorrow -- if it leads to better central banking. It should. It's a big conceptual step forward. And it's a big conceptual step forward we're going to need if Evan Soltas is right that we're likely to hit the zero bound more often in the future.
A British broadcaster doggedly tried to put words into the academic’s mouth.
My first introduction to Jordan B. Peterson, a University of Toronto clinical psychologist, came by way of an interview that began trending on social media last week. Peterson was pressed by the British journalist Cathy Newman to explain several of his controversial views. But what struck me, far more than any position he took, was the method his interviewer employed. It was the most prominent, striking example I’ve seen yet of an unfortunate trend in modern communication.
First, a person says something. Then, another person restates what they purportedly said so as to make it seem as if their view is as offensive, hostile, or absurd.
Twitter, Facebook, Tumblr, and various Fox News hosts all feature and reward this rhetorical technique. And the Peterson interview has so many moments of this kind that each successive example calls attention to itself until the attentive viewer can’t help but wonder what drives the interviewer to keep inflating the nature of Peterson’s claims, instead of addressing what he actually said.
All parents remember the moment when they first held their children—the tiny crumpled face, an entire new person, emerging from the hospital blanket. I extended my hands and took my daughter in my arms. I was so overwhelmed that I could hardly think.
Afterward I wandered outside so that mother and child could rest. It was three in the morning, late February in New England. There was ice on the sidewalk and a cold drizzle in the air. As I stepped from the curb, a thought popped into my head: When my daughter is my age, almost 10 billion people will be walking the Earth. I stopped midstride. I thought, How is that going to work?
For some Americans, sub-minimum-wage online tasks are the only work available.
Technology has helped rid the American economy of many of the routine, physical, low-paid jobs that characterized the workplace of the last century. Gone are the women who sewed garments for pennies, the men who dug canals by hand, the children who sorted through coal. Today, more and more jobs are done at a computer, designing new products or analyzing data or writing code.
But technology is also enabling a new type of terrible work, in which Americans complete mind-numbing tasks for hours on end, sometimes earning just pennies per job. And for many workers living in parts of the country where other jobs have disappeared—obviated by technology or outsourcing—this work is all that’s available for people with their qualifications.
Saffron has been altering people’s moods for hundreds of years.
It’s the poshest spice of all, often worth its weight in gold. But saffron also has a hidden history as a dye, a luxury self-tanner, and even a serotonin stimulant. That’s right, this episode we’re all about those fragile red threads plucked from the center of a purple crocus flower. Listen in as we visit a secret saffron field to discover why it’s so expensive, talk to a clinical psychologist to explore the science behind saffron’s reputation as the medieval Prozac, and explore the spice’s off-menu role as an all-purpose beautifier for elites from Alexander the Great to Henry VIII.
Saffron’s origins are a mystery, with competing claims placing the wild plant’s origins in regions along a wide, semiarid swath from Greece, in the eastern Mediterranean, to Central Asia. Today, the vast majority is still grown in that belt, with Iran leading the world’s production. But in the 1500s and 1600s, the center of the saffron universe briefly shifted from the sun-baked Mediterranean to rainy England. One particular region of England became so internationally famous for its saffron—in fact, each autumn, the entire area was carpeted in purple petals—that the local market town of Chepying Walden changed its name to Saffron Walden. But by the 1800s, England’s saffron fields had vanished entirely. Two hundred years later, a restless geophysicist named David Smale decided to try cultivating English saffron again. This episode, we visit his field at a secret location in Essex to learn how saffron is grown, hand-harvested, and dried—and about Smale’s uphill battle to uncover the lost art of successfully coaxing saffron from England’s soggy soils.
Corporate goliaths are taking over the U.S. economy. Yet small breweries are thriving. Why?
The monopolies are coming. In almost every economic sector, including television, books, music, groceries, pharmacies, and advertising, a handful of companies control a prodigious share of the market.
The beer industry has been one of the worst offenders. The refreshing simplicity of Blue Moon, the vanilla smoothness of Boddingtons, the classic brightness of a Pilsner Urquell, and the bourbon-barrel stouts of Goose Island—all are owned by two companies: Anheuser-Busch InBev and MillerCoors. As recently as 2012, this duopoly controlled nearly 90 percent of beer production.
This sort of industry consolidation troubles economists. Research has found that the existence of corporate behemoths stamps out innovation and hurts workers. Indeed, between 2002 and 2007, employment at breweries actually declined in the midst of an economic expansion.
The Trump administration is making it easier for medical providers to object to procedures on religious grounds. Will patients suffer as a result?
In 2014, a 27-year-old nurse-midwife named Sara Hellwege applied for a job at Tampa Family Health Centers, a federally qualified health center. She was a member of the American Association of Pro-Life Obstetricians and Gynecologists, a professional association that opposes abortion.
“Due to religious guidelines,” Hellwege wrote to the clinic’s HR director, Chad Lindsey, in an email, “I am able to counsel women regarding all forms of contraception, however, cannot Rx [prescribe] it unless pathology exists—however, have no issue with barrier methods and sterilization.”
In his response, Lindsey cited the health center’s participation in a government family-planning program, Title X, as grounds for rejecting her as an applicant. “Due to the fact we are a Title X organization and you are a member of AAPLOG, we would be unable to move forward in the interviewing process,” he wrote. The clinic did not, he added, have any positions available for practitioners who wouldn’t prescribe birth control.
Like ERs and doctors across the country, administrators at Michigan State assured Nassar’s victims that nothing was wrong.
As a freshman on the Michigan State University softball team, Tiffany Thomas Lopez went to Larry Nassar, the school sports therapist, for back pain. Nassar’s “special treatment”—a technique he’s used on many of his patients, including U.S. Olympic gymnasts—involved him inserting his fingers into her vagina. Thomas Lopez thought something seemed off. But when she reported the behavior to Destiny Teachnor-Hauk, an MSU athletic trainer, she said Teachnor-Hauk told her not to worry: This was “actual medical treatment.”
“She brushed me off, and made it seem like I was crazy,” Thomas Lopez told ESPN.
Last week, almost 100 women shared similar stories about Larry Nassar in a county courtroom in Lansing, Michigan. Many of them were MSU students—and, according to a recent Detroit News investigation, at least six reported the abuse to university administrators. All said they received versions of the same response: “He’s an Olympic doctor.” “No way.” You “must be misunderstanding what was going on.” A 2014 Title IX investigation reached a similar conclusion: Nassar’s conduct “was not of a sexual nature.” Kristine Moore, the university’s Title IX investigator, said the women likely did not understand the “nuanced difference” between proper medical procedure and sexual abuse.
Stories of gray areas are exactly what more men need to hear.
The story of Aziz Ansari and “Grace” is playing out as a sort of Rorschach test.
One night in the lives of two young people with vintage cameras is crystallizing debate over an entire movement. Depending on how readers were primed to see the ink blot, it can be taken as evidence that the ongoing cultural audit is exactly on track—getting more granular in challenging unhealthy sex-related power dynamics—or that it has gone off the rails, and innocent men are now suffering, and we are collectively on the brink of a sex panic.
Since the story’s publication on Saturday (on the website Babe, without comment from Ansari, and attributed to a single anonymous source), some readers have seen justice in Ansari’s humiliation. Some said they would no longer support his work. They saw in this story yet another case of a man who persisted despite literal and implied cues that sex was not what a woman wanted.Some saw further proof that the problems are systemic, permeating even “normal” encounters.
More comfortable online than out partying, post-Millennials are safer, physically, than adolescents have ever been. But they’re on the brink of a mental-health crisis.
One day last summer, around noon, I called Athena, a 13-year-old who lives in Houston, Texas. She answered her phone—she’s had an iPhone since she was 11—sounding as if she’d just woken up. We chatted about her favorite songs and TV shows, and I asked her what she likes to do with her friends. “We go to the mall,” she said. “Do your parents drop you off?,” I asked, recalling my own middle-school days, in the 1980s, when I’d enjoy a few parent-free hours shopping with my friends. “No—I go with my family,” she replied. “We’ll go with my mom and brothers and walk a little behind them. I just have to tell my mom where we’re going. I have to check in every hour or every 30 minutes.”
Those mall trips are infrequent—about once a month. More often, Athena and her friends spend time together on their phones, unchaperoned. Unlike the teens of my generation, who might have spent an evening tying up the family landline with gossip, they talk on Snapchat, the smartphone app that allows users to send pictures and videos that quickly disappear. They make sure to keep up their Snapstreaks, which show how many days in a row they have Snapchatted with each other. Sometimes they save screenshots of particularly ridiculous pictures of friends. “It’s good blackmail,” Athena said. (Because she’s a minor, I’m not using her real name.) She told me she’d spent most of the summer hanging out alone in her room with her phone. That’s just the way her generation is, she said. “We didn’t have a choice to know any life without iPads or iPhones. I think we like our phones more than we like actual people.”
“Consumers are jaded about advertising in a way they weren’t several decades ago.”
MasterCard unveiled its new logo earlier this summer, and as far as rebrandings go, the tweaks were subtle: The company kept its overlapping red and yellow balls intact, and moved its name, which was previously front and center, to beneath the balls, while making the text lowercase. With increasing frequency, MasterCard said, it would do away with using its name in the logo entirely. The focus would be more on the symbol than the words.
MasterCard’s move reflects a wider shift among some of the most widely recognized global brands to de-emphasize the text in their logos, or remove it altogether. Nike was among the first brands to do this, in 1995, when its swoosh began to appear with the words “Just Do It,” and then without any words at all. Apple, McDonald’s, and other brands followed a similar trajectory, gravitating toward entirely textless symbols after a period of transition with logos that had taglines like “Think Different” or “I’m lovin’ it.”