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.
One reason the president cannot resist commenting on every issue in American life is that he seemingly cannot stand the actual work of American politics.
In a flurry of comments historically unsuited to any head of state, yet hardly shocking for the current American president, Donald Trump this weekend targeted the two most popular sports in the country and elicited sharp criticism from some of their most important figures.
On Friday, Trump encouraged franchise owners in the National Football League to fire players who protest during the national anthem. “Wouldn’t you love to see one of these NFL owners, when somebody disrespects our flag, to say, ‘Get that son of a bitch off the field right now, out. He’s fired,’” the president said at an Alabama rally.
Trump’s comment provoked Roger Goodell, the typically reticent commissioner of the NFL, to issue a strong statement condemning the president’s divisive language. The comment was particularly surprising, since most NFL owners who elect the league commissioner are staunch Republicans. Many of the most prominent owners donated to the Trump campaign.
The foundation of Donald Trump’s presidency is the negation of Barack Obama’s legacy.
It is insufficient to statethe obvious of Donald Trump: that he is a white man who would not be president were it not for this fact. With one immediate exception, Trump’s predecessors made their way to high office through the passive power of whiteness—that bloody heirloom which cannot ensure mastery of all events but can conjure a tailwind for most of them. Land theft and human plunder cleared the grounds for Trump’s forefathers and barred others from it. Once upon the field, these men became soldiers, statesmen, and scholars; held court in Paris; presided at Princeton; advanced into the Wilderness and then into the White House. Their individual triumphs made this exclusive party seem above America’s founding sins, and it was forgotten that the former was in fact bound to the latter, that all their victories had transpired on cleared grounds. No such elegant detachment can be attributed to Donald Trump—a president who, more than any other, has made the awful inheritance explicit.
A new film details the reason the star postponed her recent tour—and will test cultural attitudes about gender, pain, and pop.
“Pain without a cause is pain we can’t trust,” the author Leslie Jamison wrote in 2014. “We assume it’s been chosen or fabricated.”
Jamison’s essay “Grand Unified Theory of Female Pain” unpacked the suffering-woman archetype, which encompasses literature’s broken hearts (Anna Karenina, Miss Havisham) and society’s sad girls—the depressed, the anorexic, and in the 19th century, the tubercular. Wariness about being defined by suffering, she argued, had led many modern women to adopt a new pose. She wrote, “The post-wounded woman conducts herself as if preempting certain accusations: Don’t cry too loud; don’t play victim.” Jamison questioned whether this was an overcorrection. “The possibility of fetishizing pain is no reason to stop representing it,” she wrote. “Pain that gets performed is still pain.”
The oozing yellow organism has no neurons, but it can solve mazes, make decisions, and learn by merging together.
Sometimes, Audrey Dussutour enters her lab in Toulouse to find that one of the creatures within it has escaped. They tend to do so when they’re hungry. One will lift the lid of its container and just crawl out. These creatures aren’t octopuses, which are known for their escape artistry. They’re not rats, mice, flies, or any of the other standard laboratory animals. In fact, they’re not animals at all.
They are slime molds —yellow, oozing, amoeba-like organisms found on decaying logs and other moist areas. They have no brains. They have no neurons. Each consists of just a single, giant cell. And yet, they’re capable of surprisingly complicated and almost intelligent behaviors. The species that Dussutour studies, Physarum polycephalum, can make decisions, escape from traps, and break out of Petri dishes. “It’s a unicellular organism but it looks smart,” she says.
A North Korean official has hinted about conducting a nuclear test at sea, which would have severe environmental consequences.
The latest fiery exchange between the United States and North Korea has produced a new kind of threat. On Tuesday, during his speech at the United Nations, President Trump said his government would “totally destroy North Korea” if necessary to defend the United States or its allies. On Friday, Kim Jong Un responded, saying North Korea “will consider with seriousness exercising of a corresponding, highest level of hard-line countermeasure in history.”
The North Korean leader didn’t elaborate on the nature of this countermeasure, but his foreign minister provided a hint: North Korea might test a hydrogen bomb in the Pacific Ocean.
“It could be the most powerful detonation of an H-bomb in the Pacific,” Foreign Minister Ri Yong-ho told reporters at the United Nations General Assembly in New York. “We have no idea about what actions could be taken as it will be ordered by leader Kim Jong Un.”
Its faith-based 12-step program dominates treatment in the United States. But researchers have debunked central tenets of AA doctrine and found dozens of other treatments more effective.
J.G. is a lawyer in his early 30s. He’s a fast talker and has the lean, sinewy build of a distance runner. His choice of profession seems preordained, as he speaks in fully formed paragraphs, his thoughts organized by topic sentences. He’s also a worrier—a big one—who for years used alcohol to soothe his anxiety.
J.G. started drinking at 15, when he and a friend experimented in his parents’ liquor cabinet. He favored gin and whiskey but drank whatever he thought his parents would miss the least. He discovered beer, too, and loved the earthy, bitter taste on his tongue when he took his first cold sip.
His drinking increased through college and into law school. He could, and occasionally did, pull back, going cold turkey for weeks at a time. But nothing quieted his anxious mind like booze, and when he didn’t drink, he didn’t sleep. After four or six weeks dry, he’d be back at the liquor store.
In a speech Friday night, Trump urged NFL owners to fire players who protest. “Get that son of a bitch off the field right now, out. He’s fired. He’s fired!”
Speaking to a crowd in Huntsville, Alabama Friday night, President Trump said he hoped NFL players who knelt during the national anthem—which they've done to protest unjustified police killings of black Americans—would lose their jobs.
“Wouldn’t you love to see one of these NFL owners, when somebody disrespects our flag,” Trump said, “to say, ‘Get that son of a bitch off the field right now, out. He’s fired. He’s fired!’ ” The crowd of supporters erupted in cheers. The president appeared to be referring to former San Francisco 49ers quarterback Colin Kaepernick, who last year began kneeling during the national anthem to draw attention to unjustified killings of black men by law enforcement.
A new book by the economist Tim Harford on history’s greatest breakthroughs explains why barbed wire was a revolution, paper money was an accident, and HVACs were a productivity booster.
In the beginning, it wasn’t the heat, but the humidity. In 1902, the workers at Sackett & Wilhelms Lithographing & Printing Company in New York City were fed up with the muggy summer air, which kept morphing their paper and ruining their prints. To fix the problem, they needed a humidity-control system. The challenge fell to a young engineer named Willis Carrier. He devised a system to circulate air over coils that were cooled by compressed ammonia. The machine worked beautifully, alleviating the humidity and allowing New York’s lithographers to print without fear of sweaty pages and runny ink.
But Carrier had a bigger idea. He recognized that a weather-making device to control humidity had even more potential to control heat. He went on to mass-manufacture the first modern air-conditioning unit at the Carrier Corporation (yes, that Carrier Corporation), which is still one of the largest HVAC manufacturers in the world. Air-conditioning went on to change far more than modern printing—it shaped global productivity, migration, and even politics.
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.”
Two new books explore America’s changing romantic landscape.
C.S. Lewis’s wife, Joy Davidman, died of bone cancer on July 13, 1960. The next day, the famous author wrote a letter to Peter Bide, the priest who had married them, to tell him the news.
“I’d like to meet,” Lewis writes, suggesting the two grab lunch sometime soon. “For I am—oh God that I were not—very free now. One doesn’t realize in early life that the price of freedom is loneliness. To be happy is to be tied.”
When it comes to romance, Americans are freer than they’ve ever been. Freer to marry, freer to divorce, freer to have sex when and with whom they like with fewer consequences, freer to cohabitate without getting married, freer to remain single, freer to pursue open relationships or polyamory.