Why has the Fed been able to produce asset inflation but no price inflation for past 10 years? My guess: lack of union power and globalization are blunting transmission into wages and prices. But I don’t see an easy way to test that hypothesis.
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.
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:
- As a lender of last resort it can’t be counted on to provide reserves to a solvent but illiquid bank.
- 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.
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.
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:
- The required behavior in school normalizes the behavior of extended sitting.
- Even a few weeks of enforced extended sitting will result in the kids becoming deconditioned aerobically, making physical activity more difficult and less appealing.
- 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.
- 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.)
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.”
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.
This is making the rounds. I shared it on Facebook as instructed, but I thought I should share it here too.
I have already voted. But I probably don’t count as a young person any more. (Photo is of me and Jackie outside the county clerk’s office, after having exercised the franchise last week.)
The reason that a well-regulated militia appealed to the founding fathers was that they hoped it would eliminate the need for a standing army.
If you had the whole body of young adult men armed and trained, it was hoped you could raise an army very quickly in case of need. If that were true, Congress could insist that the standing army be run down to just a cadre of specialists and officers. Then, in the event that you needed an army—because you were invaded, or needed to invade someone else—you could mobilize (i.e. draft) the militia to fill the ranks with soldiers.
The founders knew perfectly well that a government with a standing army could not be resisted by the people, even if the people were armed. A standing army was always going to be more disciplined, more highly trained, and better equipped than a militia could possibly be.
So, the purpose of the militia was to eliminate the need for a standing army. If you could make a militia work that way—quickly go from a bare cadre to a fully mobilized army simply by calling up the militia—then you’d be in a position where Congress could insist that the the army in fact be a bare cadre, meaning that neither presidents nor generals could use the army until Congress actually raised one.
It’s an appealing idea, particularly to someone like me who is very doubtful about trusting presidents or generals. Sadly, the evidence is pretty good that it doesn’t work.
This was clear even before the sorts of modern, high-tech weapons and other equipment that take extensive training to learn how to use, and then nearly constant on-going training to preserve the capability. It took five years to go from a 16,000-man army to a 1,000,000-man army during the civil war. The ramp up for WW I was quicker but also smaller—manpower grew by 16 times in two years rather than 62 times in five years, but that was from a much larger base—basically, a smallish standing army, not merely a cadre waiting to be filled out.
The experience of the U.S., at least as far back as the civil war, is that fielding an army by mobilizing a militia simply can’t happen fast enough to respond to an enemy with a standing army. (The experiences of Switzerland mobilizing to resist a possible Nazi invasion and Finland mobilizing against the Soviet Union at around the same time are interesting, but do not I think make the contrary case.)
Given all that, I’d have to say that a militia is pretty much obsolete, and has been for a couple of centuries at least.
The right to vote is a constitutional right. It should not be abridged. In this way it is like all constitutional rights.
There is one important difference between the right to vote and most other constitutional rights. Most constitutional rights apply to “the people,” while the right to vote is a right of citizens. Because of that difference, it makes sense to verify that people registering to vote are citizens. But waiting until someone is at the poll and then demanding that they prove they’re a citizen is backwards.
It is, to use another constitutional right as an example, backwards exactly the same way it would be backwards to take your property for public use, and then make you run all over town for documentation to prove that you own it before you can get it back. Instead, we have a property registry to keep track of who has ownership rights, and then a process called eminent domain whereby the government has the opportunity to present to a court evidence that there is a public need for your property according to well-established rules, and to establish fair compensation. You have the opportunity to dispute that evidence, and to argue for a different interpretation of the rules or for higher compensation.
I would suggest that as being the right model for voting rights as well: We should have a voter registry to keep track of who has the right to vote, and then a court process whereby the government has the opportunity to prove that someone on that list does not have the right to vote according to well-established rules (not a citizen, not over 18, not residing in the precinct, dead). You should have the right to appear at the hearing and dispute both the evidence and the interpretation of the rules.
Nobody should ever be struck off the voter rolls without such a hearing—to my mind it would be just as unconstitutional as taking your property without a hearing.
If that is the standard—as it should be—then there is no need to present an identity document at the polling place. All you need to do is prove that you are the person who registered, which is easily done by comparing your signature when you request a ballot to your signature when you registered to vote.
In any case: The right to vote is a fundamental right of the citizen. Denying it without due process is wrong, and there should be substantial sanctions on anyone who does so (or attempts to do so).
The Republican Party has not “made a pact with the devil.” They have become devil understudies, dressed up in devil drag, and are standing in the wings hoping to be picked as next devil.