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.
Biology textbooks tell us that lichens are alliances between two organisms—a fungus and an alga. They are wrong.
In 1995, if you had told Toby Spribille that he’d eventually overthrow a scientific idea that’s been the stuff of textbooks for 150 years, he would have laughed at you. Back then, his life seemed constrained to a very different path. He was raised in a Montana trailer park, and home-schooled by what he now describes as a “fundamentalist cult.” At a young age, he fell in love with science, but had no way of feeding that love. He longed to break away from his roots and get a proper education.
At 19, he got a job at a local forestry service. Within a few years, he had earned enough to leave home. His meager savings and non-existent grades meant that no American university would take him, so Spribille looked to Europe.
Why some progressives are minimizing Russia’s election meddling
When it comes to possible collusion with Russia, Donald Trump’s most interesting defenders don’t reside on the political right. They reside on the political left.
Sean Hannity and Newt Gingrich aren’t defending a principle. They’re defending a patron. Until recently they were ultra-hawks. Now, to downplay Russia’s meddling in the 2016 elections, they sound like ultra-doves. All that matters is supporting their ally in the White House.
For left-wing defenders like Max Blumenthal and Glenn Greenwald, by contrast, ideology is king. Blumenthal and Greenwald loathe Trump. But they loathe hawkish foreign policy more. So they minimize Russia’s election meddling to oppose what they see as a new Cold War.
I used to adore the Pride and Prejudice author. But over the years I’ve grown more ambivalent toward her and the fervor for her work.
I once confessed to an audience gathered for a pre-show talk about Pride and Prejudice that I felt a bit salty to see so many of them in attendance. A few months earlier, I explained, I’d given an absolutely fascinating lecture on Mary Shelley to maybe five people, one of whom was my Aunt Carmen. The crowd for Jane Austen—and it was a crowd—laughed. A mix of students, folks from the surrounding towns, and my colleagues were there to see a stage adaptation of what is arguably the author’s most popular novel. It was my job to introduce the performance, and I was terrified. It’s no small thing to talk about Austen in public. There’s always a cluster of people who have been reading her since before they could walk, and they not only have strong opinions but also know her and her writing like my mother knew the Bible.
Many point to unromantic 20-somethings and women’s entry into the workforce, but an overlooked factor is the trouble young men have in finding steady, well-paid jobs.
TOKYO—Japan’s population is shrinking. For the first time since the government started keeping track more than a century ago, there were fewer than 1 million births last year, as the country’s population fell by more than 300,000 people. The blame has long been put on Japan’s young people, who are accused of not having enough sex, and on women, who, the narrative goes, put their careers before thoughts of getting married and having a family.
But there’s another, simpler explanation for the country’s low birth rate, one that has implications for the U.S.: Japan’s birth rate may be falling because there are fewer good opportunities for young people, and especially men, in the country’s economy. In a country where men are still widely expected to be breadwinners and support families, a lack of good jobs may be creating a class of men who don’t marry and have children because they—and their potential partners—know they can’t afford to.
In his new book, a Nobel laureate outlines how the huge disparity arose and the huge course correction needed to address it.
If there’s one thing Joseph Stiglitz wants to say about inequality, it’s that it has been a choice, not an unexpected, unfortunate economic outcome. That’s unnerving, but it also means that citizens and politicians have the opportunity to fix the problem before it gets worse.
In the hierarchy of relationships, friendships are at the bottom. Romantic partners, parents, children—all these come first.
This is true in life, and in science, where relationship research tends to focus on couples and families. When Emily Langan, an associate professor of communication at Wheaton College goes to conferences for the International Association of Relationship Researchers, she says, “friendship is the smallest cluster there. Sometimes it’s a panel, if that.”
Friendships are unique relationships because unlike family relationships, we choose to enter into them. And unlike other voluntary bonds, like marriages and romantic relationships, they lack a formal structure. You wouldn’t go months without speaking to or seeing your significant other (hopefully), but you might go that long without contacting a friend.
What’s gained and what’s lost when religion becomes an individualist—or even consumerist—endeavor?
Two perceived qualities of Orthodox Judaism—authenticity and ancientness—are enticing people outside this religious tradition to pay for the chance to sample it. In Israel, secular citizens and foreign visitors willing to fork over $20 to the tour company Israel-2Go can embark on a trip to an ultra-Orthodox neighborhood, where they’ll watch men in black hats and women in long skirts buying challah bread from a kosher bakery while a guide narrates the scene. They can also pay to take a tour of the menorahs in Jerusalem’s Old City alleyways during Hanukkah; eat a five-course Friday night Shabbat meal in the home of an observant family; or hear a lecture about the different nuances of the black-and-white garb worn by men from various ultra-Orthodox sects.
There’s a fine line between caring and controlling—but older adults and their grown children often disagree on where it is.
Several years ago, I wrote a book aimed at helping adult children of my generation manage the many challenges of caring for our aging parents. I interviewed women and men across the country about their struggles and successes. I also spoke with members of the helping professions: geriatricians, social workers, elder-law attorneys, administrators of assisted-living facilities, and just about anyone and everyone who I thought could shed light on the subject. Everybody, that is, except the aging parents.
That now strikes me as a glaring omission. No doubt it’s because I’ve since become an aging parent that I find myself looking at the matter of parent care from a different perspective. I nod in agreement when the son of a friend expresses concern to me about his dad driving after dark, but I also understand when my friend, his father, complains of “being badgered by my kids about my driving.” He and his children may have different answers to the situation’s key questions: How serious a problem is the father’s driving? And how capable is the father of making his own decisions? Certainly there are situations where an adult child’s intervention in the ailing parent’s life is clearly needed, but what if this isn’t one of those times?
On Flower Boy the rapper suggests he’s not straight—and struggles with a stigma he helped propagate.
Tyler, the Creator became famous, in part, for being hateful. When his rap collective Odd Future Wolf Gang Kill Them All (“Odd Future” is fine) caught buzz around 2010, it was because of their delirious energy and Eminem-like love of mayhem. But it was their threats against women and “faggots,” delivered in song and on social media, that elevated them from subculture phenomenon to become essay prompt and political flashpoint. The likes of GLAAD and the band Tegan and Sara declared Tyler poisonous and asked the music industry to stop supporting him. Theresa May, back when she was home secretary of the U.K., took the extraordinary step of banning him from her country because his lyrics “encourage violence and intolerance of homosexuality.”
A conservative group is resisting congressional efforts to kneecap FOIA.
The health-care clusterfudge continues. Senator John McCain has brain cancer. President Trump throws another public tantrum. Russia, Russia, Russia.
That about covers the Big Political Headlines of the week. Now for something really sexy: the creeping assault on the Freedom of Information Act.
Stop right there! No clicking over to that Tucker Carlson YouTube rant. This is another one of those ticky-tacky, below-the-radar issues that may sound like a nonprescription substitute for Ambien but is, practically speaking, super important—especially in the Age of Trump.
FOIA is what enables regular people to pester powerful federal agencies into handing over information about what they’ve been up to. FOIA’s website calls it “the law that keeps citizens in the know about their government.” Though a tad grandiose, that characterization is pretty much accurate. And never has such a tool been quite so vital as with the current White House, which has adopted a policy of unabashedly lying about pretty much everything.