The Fed admits it’s a failure

In a recent speech, Fed chair Jerome Powell talked about “balance sheet normalization” in terms that strike me as essentially admitting that the Fed is a failure as a central bank.

Here’s the quote:

The crisis revealed that banks, especially the largest and most complex, faced much more liquidity risk than had previously been thought. Because of both new liquidity regulations and improved management, banks now hold much higher levels of high-quality liquid assets than before the crisis. Many banks choose to hold reserves as an important part of their strong liquidity positions.

Source: Federal Reserve Board – Monetary Policy: Normalization and the Road Ahead

Powell seems to be suggesting that banks have chosen to treat reserves in the same way a gold-standard bank treated specie: as cash on hand to meet demands from depositors who want their money back.

I call this a failure because a big part of the reason behind the creation of the Federal Reserve was that this system—where every bank held some gold—was clearly inadequate. Commentators at the time likened it to a fire protection district which, instead of having a fire engine, required every household to have one bucket of water on hand.

By having a large common stockpile of gold at the Federal Reserve, a loss of confidence in any one bank could be easily handled. Faced with a bank run, a solvent but illiquid bank would bring some assets (loans, bonds, bills, etc.) to the discount window and receive enough gold to handle redemption requests.

Powell is saying that banks seem to have decided that they can’t count on the Fed to discount their illiquid assets—a basic function of a central bank. Instead they’re choosing to stockpile large quantities of reserves exactly the way nervous banks stockpiled gold reserves in the pre-Fed days.

I’m sure this is based on the experience of the financial crisis, where many banks held a bare minimum of reserves and safe assets, choosing instead to invest the maximum amount in complex derivative instruments, which were highly profitable until they suddenly became worthless (or at least of dubious value).

But that just means that this is a double failure by the Fed:

  1. As a lender of last resort it can’t be counted on to provide reserves to a solvent but illiquid bank.
  2. As a regulator it can’t be counted on to require that the banks hold enough high-quality assets with sufficiently transparent valuations to be usable at the discount window.

By paying interest on these reserves, the Fed is enabling this behavior—solving the old problem that “gold in the vault pays no return.” But banks should be in the business of facilitating commerce in the economy, not the business of using their depositor’s money to score some free cash from the Fed.

I completely understand the Fed not wanting to again put itself in the position of having to decide what discount rate is the right one to apply to 3rd tranche mortgage-backed subprime paper. But a strategy of “just hold more reserves” is a pretty poor solution to the problem, for exactly the same reason that “just hold more gold” was a poor solution in the pre-Fed days.

Why isn’t the 1% in a tizzy?

I marvel that the 1% is being so indifferent to the large and widening leftward political shift in the U.S. and elsewhere. It seems to me they should have already started telling their politicians, “Give the poor folks 20% of what they want, quick! We need to nip this in the bud!”

Of course, maybe they’re right and I’m wrong.

They got away with globalization, after all. And then they got away with the financial crisis. And so far they’ve gotten away with Trump’s tax cut.

Now, I can understand the first two. Globalization, despite how it crushed many individuals, families, and communities, did make people better off on average. Having the average person end up better off makes a policy supportable at some level. I can see it providing enough political cover for them to get away with it. Who doesn’t like buying cheap crap at WalMart? Nobody but freaks and weirdos like me.

The financial crisis is harder to understand, which I think is due mainly to it being harder to understand. There was a real sense that our whole economy could implode—and it was a real sense because it was actually true. The technocrats managed to save the economy, so they get some credit for that. They did it in a way that crushed homeowners, which is bad. They did it in a way that subverted the rule of law, which is bad. And they did it in a way that crushed a whole generation, which is also bad. But they did save the economy.

But now we’ve got multiple cohorts of people who have already turned against the system. It’s no longer just the freaks and weirdos who care about their local community and the natural systems that support life. It’s no longer just former homeowners whose homes were seized to save the banks. It’s no longer just millennials who graduated into a job market so bad that they’re a decade behind their parents’ generation in things like family formation (and further than that in preparing to retire).

Now it’s basically everybody except the 1% who is being harmed, and they’re being harmed right now, every day.

The Trump tax cut is just a naked grab at wealth by the wealthy. It didn’t help anybody else. Trump’s tariffs aren’t even that—they don’t help anything but Trump’s ego.

I cannot imagine that any amount of voter suppression and gerrymandering—even with the structural anti-democratic features of our constitution—will keep the supermajority of people being harmed by our current system from making some major changes.

If the 1% had any sense they’d have thrown some bones to the people already. I can’t imagine that the smart ones haven’t figured this out already.

Sure, there are plenty of dumb ones who figure that they can build a survival bunker in Alaska or New Zealand and survive the ensuing revolution and climate catastrophe. But are they really all that dumb?

Evidence so far suggests they are.

Or maybe they’re right and I’m wrong.

Weird (horrifying) study of human movement

A couple of weeks ago the New York Times linked to a new study on age-related declines in human movement. It’s an odd study, but not because of the result (which shows that children start moving less at age 6), because that seems entirely predictable to me, despite the general understanding previously having been that the decline started in adolescence.

Rather, what makes the study seem odd to me is the weird blind spot the researchers seem to have about when and how organisms (including humans) choose to move.

In the study itself the researchers make clear that they had considered the obvious presumption—that kids start moving less when they start going to school: “The overt explanation for this earlier decline could be the increased sitting times due to school.”

The  blind spot I’m talking about is presented in the next sentence, where they immediately qualified that:

However, time-specific analysis of [physical activity] has revealed that in addition to the increased [sedentary behavior] during school hours, there was also a distinct decline on weekends, out-of-school days, and during lunchtime.

Schwarzfischer P, Gruszfeld D, Stolarczyk A, et al. Physical Activity and Sedentary Behavior From 6 to 11 Years.Pediatrics. 2019;143(1):e20180994

What’s weird and horrifying is that they make that statement seemingly without it occurring to them that forcing children to sit still for hours on 5/7ths of the days of the week might affect their behavior on the other 2/7ths of the days.

Right off the top of my head I can think of four obvious reasons that would be true:

  1. The required behavior in school normalizes the behavior of extended sitting.
  2. Even a few weeks of enforced extended sitting will result in the kids becoming deconditioned aerobically, making physical activity more difficult and less appealing.
  3. Extended periods spent in any static posture—especially the static posture of sitting—will begin the process of reducing their range of motion (they’ll pretty quickly lose the ability to squat, for example), again making physical activity more difficult and less appealing.
  4. The addition of “physical education” to the kids’ daily schedule sets the pattern of replacing movement with exercise—a time-bound, regimented activity which attempts to pack the health benefits of a week’s worth of movement into just a few hours. (I’ve written about this before.)

Just one instance of this blind spot is bad enough, but it shows up again in a key reference. The researchers say that it is accepted that physical activity declines with age: “A natural and biologically determined decline of total [physical activity] throughout the life span seems likely.” They support that assertion with a couple of references, one of which looks specifically at movement in non-human animals.

Unfortunately that study (Ingram, D. K. Age-related decline in physical activity: generalization to nonhumans. Med. Sci. Sports Exerc., Vol. 32, No. 9, pp. 1623-1629, 2000, which is sadly behind a pay-wall.) has exactly the same blind spot: All the animals studied were captive animals. That study looked at how animal movement varies when an animal is moved from its “home cage” to some other cage. I can’t say I’m the least bit surprised the behavior of those captive animals closely resembles the behavior of children moved from home to school and back again.

I would be very interested in studies that included some free-range animals. (Which isn’t something I can do, but which seems at least possible now that accelerometers  are cheap.)

Of course school isn’t the only factor that inhibits children from moving more. The restrictions on self-directed play so well documented by Lenore Skenazy of Let Grow no doubt feed in as well.

So it would be great if there were studies of movement in free-range kids as well.

The final weird and horrifying thing isn’t anything new, but is something I hadn’t really been aware of before: The assumption that an age-related reduction in movement is “natural and biologically determined,” has led directly to public policies that normalize it:

This decline is also represented in recommendations from the World Health Organization (WHO): preschool-aged children should accumulate a minimum of 180 minutes per day of total [physical activity], children and adolescents (4–17 years old) at least 60 minutes per day, and adults only a minimum of 30 minutes per day in moderate-to-vigorous physical activity (MVPA).

To which I say, “Argh!”

I probably wouldn’t be so struck by this if I weren’t already tracking my own movement. (Cheap accelerometers again.)

For some time now I’ve been working to a goal of 105 minutes of movement per day, and over the last few weeks I’ve come pretty close, averaging just over 102 minutes of movement per day, according to Google Fit. (This number, based primarily on steps, somewhat underestimates my movement. In particular it gives me almost no credit for the time I spend teaching taiji, because although there’s plenty of movement, there’s not much stepping.)

The WHO recommendations make me strongly motivated to upgrade my goal for movement to 180 minutes per day.

Why should kids under 6 get all the fun?

(The image at the top is topical only in that it is is a photo from our afternoon walk yesterday.)

Workers skipping the stress and paperwork of resigning

Despite the unnecessary casting of aspersions on millennials in the setup to this piece, it’s both pretty good and pretty satisfying.

There are many things about looking for a job that suck, and the way potential employers treat you—beginning with running your resume through an opaque filter that decides whether you get an interview or not, and ending with simply never telling you that you didn’t get the job—is near the top of the list.

Given that, I have considerable sympathy with employees who find a better job taking the easy way out for quitting: just not showing up. (Frankly, I’m sure employers would totally do the same thing if there wasn’t a Department of Labor telling them that they had to pay you for any hours that you work after they secretly let you go.)

It would be very easy for employers to avoid this fate almost entirely. First, by treating their employees with respect, like people who matter as individuals. Second, by making sure that their employee’s interest align with the interests of the enterprise, though things like an equity interest and bonuses that depend on the success of the enterprise (rather than on stupid metrics that supposedly measure the employee’s performance).

“Employees leave jobs that suck,” they said in an email. “Jobs where they’re abused. Jobs where they don’t care about the work. And the less engaged they are, the less need they feel to give their bosses any warning.”

Source: Workers are ghosting their employers like bad dates – The Washington Post

Hopeful about our democracy

After being briefly disappointed that the blue wave didn’t materialize as strongly as I’d hoped, I find that I am nevertheless rather hopeful about the future of our democracy.

This hopefulness springs from two causes. First, there are already more Democratic voters than there are Republican. Second, the Fifteenth Amendment is already part of the constitution.

We’re a majority

The number of votes cast for a Democratic House candidate exceeded the number cast for a Republican House candidate by well in excess of 4 million votes. We’re already in the majority by several percentage points.

The reasons don’t already control the levers of power are well understood. The Constitution, through the Senate and the Electoral College, give excess power to small states which currently lean Republican. The Republicans have been more shameless about gerrymandering. Voter suppression efforts targeted at ethnic minorities and at the young have been effective at reducing votes for Democrats.

Even if all of those things stay the same, we’re still a majority, and over time that will win out.

We will probably take control even before time (and demographic changes) bring us to that point. All it will take is a leader charismatic enough to produce some modest coattails, and we’ll once again have a Democratic government.

Once that happens, I very much hope, the Democrats will seize the opportunity to put an end to the gerrymandering and the voter suppression. That will put and end to the power of the racist wing of the Republican party, even if the Senate and the Electoral College remain unreformed.

How can that be done? Through the Fifteenth Amendment.

The Fifteenth amendment exists

Under the Fifteenth amendment, Congress has the power to enact appropriate legislation to ensure that “The right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of race, color, or previous condition of servitude.”

The Supreme Court struck down some of the rules enacted to do that, thereby enabling the recent spike in voter suppression. But the Supreme Court did not rule in favor of voter suppression. Rather, its decision turned rather narrowly on the “appropriate” part of the Congress’s power to legislate on the topic.

Supposedly, once the law had been in force for decades, it got too easy for Congress to just extend it, without doing the analysis to justify its appropriateness. Along those lines, the fact that the law treated some states (those that tried to suppress minority votes) differently from other states (those that did not) “despite our historic tradition that all the States enjoy equal sovereignty” was something the court objected to.

These things can be easily fixed. Congress can do the analysis to justify a long list of required and prohibited practices, and can apply those rules to all the states equally.

If we were a minority, the way the Republicans are, I’d be very worried. If we lacked a Fifteenth amendment, and had to fix this state-by-state, I’d be modestly worried.

As it is, I’m not so much worried as I am annoyed by what we’re having to go through at the moment.

Of course, I felt many of the same hopes back in 2012, and look where we ended up. No wonder some people think I’m a hopeless optimist.

Make my phone more like email

I used to love email. I still do, except so few people use it any more.

I used to use email almost like people use text messages now. I’d write little, one-topic messages and send them to one (or a few) people. Most of the people I exchanged email with had their email on for most of the day, so they’d get the message in just a few minutes and then be able to respond (or not, if they didn’t want to). If they (or I) didn’t want to be available to be contacted for a period of time, it was easy to put the computer to sleep, or turn off email notifications.

It was also easy to get a little more fancy than that. For example, I often set my email client to check email every hour or every half-hour, instead of the default of every few minutes. I was still able to be responsive to people who sent me email, but I wasn’t constantly interrupted by random notifications from random sources.

That’s half of what I’d like to be able to get my phone to do—batch up alerts, and then give them to me on a schedule that I pick.

The other half is to shut up about telling anybody else about what I’m doing. My email didn’t send any information back to people, except the information I told it to send back. (Sure, my mail server knew when I was connecting and from what IP address, but it kept that information to itself.)

If I was going batch up notifications so that I’d only get them every hour anyway, I’d like my phone to disconnect from the network for the 59 minutes in between. There’s no need for anybody, including Verizon and Google, to know where I am in between.

(Of course if I get my phone out to check something I’d like it to quickly connect to the network so it can do so, but that technology works just fine.)

I could almost do that by just turning my phone off for 59 minutes and then turning it back on, except that obviously doesn’t do the trick unless I carry around another timing device to remind me every hour that I want to turn the phone back on. Plus it’s a lot of fiddling around for the hours in which I don’t receive any notifications (not that there are very many of those).

Admittedly, all kinds of things are made easier by being always connected, such as the ability to prioritize a handful of alerts to come immediately—phone calls, text messages from intimates, tornado warnings, etc. But for me, the mental model of email was vastly preferable to the stupid array of alerts I’ve got now.

Ignorance about retiring early

It’s been eleven years since I retired, at age forty-eight.

I hesitated at first to call it “retiring early,” even though in my head that’s exactly what I was doing. Partially that was because I hadn’t decided to take the plunge. I had been intending to retire early, doing the planning, doing the saving. But part of a proper early retirement is deciding that you’re ready, based on having established an income stream that covers your expenses.

I hadn’t done that. What I did was learn that my employer was closing down the site where I worked, and then wing it. I counted my money; I did some figuring. I secretly figured that I could retire, but I didn’t tell people that. What I told people was that, “Although I couldn’t retire, I had reached the point where I didn’t need to work a regular job any more.”

I’d meant to celebrate the 10-year anniversary with a post about how things had gone, but haven’t gotten around to it. And I guess this isn’t going to be that post either, because I’ve gotten so annoyed by an ignorant article  by Jared Dillian in Bloomberg Opinion, The ‘Radical Saving’ Trend Is Based on Fantasy—which manages to both be wrong about the facts, and (more fundamentally) miss the whole point—that I’m compelled to write a response.

Dillian’s item number one manages to be both wrong on the facts and miss the point in roughly equal measure:

Most people save now because they want to consume later. But the FIRE folks don’t want people to consume. For the FIRE folks, the point of saving is simply not to have to work. To give you the freedom to do whatever you desire over the last 50 years of your life. Trouble is, the freedom to do anything you want isn’t much fun when you’re hemmed in by a microscopic budget.

First of all, the “financial independence/retire early” (FIRE) folks do want to consume. It’s just that they’ve figured out that, at some point, just consuming more doesn’t make your life better. Rather, they’ve thought deeply about what they need to consume to make themselves happy, they consume that, and then they stop consuming.

I think of it as drawing a line under the stuff that’s worth paying up to get all I want of exactly what I want, and then paying zero for the things that don’t make the cut. (Most people don’t do this. Instead of a cutoff they have a gradual trickle off, spending smaller and smaller amounts as they work their way down the list of things they want. This is no way to be happy. The money they’re spending on stuff they only kinda want eats into the money they could be spending on the stuff they really, really want.)

Second, the whole point of FIRE is not to “simply not have to work.” Rather, the point is to free yourself to do whatever work you want, instead of whatever work pays best. Everybody I know who’s retired early still works at something.

This point is made very clearly by literally everybody I know of who has written about FIRE. To miss it suggests either that Jared Dillian was very careless indeed in doing his research, or that he is willfully missing the point.

Third, it’s simply false to say that “the freedom to do anything you want isn’t much fun when you’re hemmed in by a microscopic budget.” Rather, the freedom to do anything you want enables you to do the most important thing you can think of.

Maybe the most important thing you can think of is really expensive (in which case you’d have saved a lot of money to fund your retirement). But very likely the most important thing you can think of is free, or cheap, or even modestly remunerative. (The list is endless—crafting musical instruments, researching obscure topics in your field you didn’t have time for while working full time, helping care for a family member, documenting the history of your ethnic group, researching the natural history of your region, working for a candidate or a political party or a non-profit that’s trying to stop global warming or child trafficking or hunger or poverty…)

Finally, who says your budget has to be microscopic? Rather, your budget should fund your planned expenses. If the most important thing you can think of is to take a round-the-world cruise every year, you’ll want to save more money than someone whose most important work is to study the local mosses.

I’m going to skip over his second item, because he just makes the same mistake again, imagining a purpose of being able to “consume more later” is a better justification for saving than being able to live exactly the life you want to live and do your most important work.

His third item manages both to make the same mistake yet again, and to insult everybody who understands the difference between the most important work you could do and the work that pays the most:

What is wrong with working? Why do the FIRE people dislike working so much that they want to quit at age 35? Working gives people purpose… I have had unpleasant jobs, and even working an unpleasant job is preferable to not working at all. I am one of these people who thinks there is dignity in working, that every job is important no matter how small.

(I left out a random swipe against basic income.)

I don’t know any FIRE people who dislike working. I know a lot of FIRE people who dislike working at regular jobs. I know a lot of FIRE people who dislike working for psycho bosses, bosses who take inappropriate advantage of them, and stupid bosses who don’t know how to do their job well. I know a lot of FIRE people who think there is great dignity in choosing to do whatever they think their most important work is, regardless of whether it pays enough to live on.

I’ve worked at bad jobs now and then. Not unpleasant jobs, which are okay as long as the work is worth doing. But some jobs are not worth doing.

One example: a manager one place I used to work put huge pressure on employees to finish a task, despite knowing that the project the task was for had been canceled —because completing the project on-time was required for the manager to get a big bonus. That is work that was not worth doing. (Literally. It produced nothing of value to the company, while keeping the employees from doing something that would be valuable.) That sort of situation, which is more common that you might think, is what FIRE people are trying to escape.

Finally, Dillian suggests:

The biggest issue with the FIRE movement is that it’s the ultimate bull market phenomenon. FIRE seems to work because the stock market has gone straight up. A bear market will change that. Even if stocks do return 8 percent to 12 percent over time, it’s not going to be any fun living on a shoestring budget and watching your nest egg decline in value by 30 percent to 50 percent.

Here I have actual first-hand experience. My early retirement started in the summer of 2007, and pretty much right after that came the financial crisis in which my stock portfolio lost about 40% of its value.

I engaged in some pretty dark humor during those first two years, joking about how I wouldn’t want to be retiring early in that kind of market.

In fact, I was just fine. I did the obvious things: I found a way to earn a little money (in my case by writing, which was what I wanted to do anyway), and I got a little extra frugal (on a temporary basis, to preserve my capital).

So, yes, I did live on a “shoestring budget” for a few years while watching my nest egg decline—although not by as much as 30%, even though the stock portion lost 40%, because the bond portion soared and the cash portion remained stable (although the income it produced declined).

Contrary to Dillian’s concerns, it was actually great fun. I was writing full time—fiction in the mornings and articles about personal finance and frugality for Wise Bread in the afternoons—which was exactly what I wanted to do. We didn’t travel much, and we didn’t buy much in the way of new clothes, but we were very happy.

Since then my portfolio has more than recovered. Part of that was just the bull market. Part of it was basic portfolio re-balancing, which automatically had me sell bonds near the peak and buy stocks near the bottom.

After all, the 4% rule (which I assume is what Dillian is implicitly rejecting) was never a law of nature. It’s always been just an empirical guideline. The FIRE people all understand that you can’t just “set and forget” your spending. Instead you need to pay attention, and adjust as needed. Maybe you need to spend less. Maybe you need to find a way to earn a little money. I did both those things, although not very much of either one.

For eleven years now I’ve spent every day doing exactly what I chose to do.

What I chose to do has varied, of course. At first it was all writing. When I realized that I wasn’t taking full advantage of not needing to be at my desk during working hours, I rearranged my schedule so I could spend more of the daylight hours engaged in outdoor exercise. I took a taiji class, discovered that I really enjoyed the practice, and persisted with it. Now I teach taiji, and it has become one of those modestly remunerative things I was talking about.

But for eleven years, it’s always been whatever I most wanted to do.