A Federal Reserve That’s Out of Control

At MarketWatch Sven Henrich castigates the Federal Reserve Board of Governors and those who rely on them:

Stock markets can’t sustain gains or record prices without intervention, without a helping hand, without dovish and intervening central banks. This has been true for 10 years, and it continues to be true in 2019 because that’s where all the big gains are…

This is not capitalism, nor does this ongoing farce constitute free-market price discovery. It’s politburo-based central planning, desperately trying to keep the balls in the air.

“To extend the business cycle,” Powell said this week. Since when is this the primary purpose of the Fed? What happened to inflation and price stability? Already they are tossing their stated inflation goals and are talking about letting inflation run hotter if they can juice it up. There’s no integrity, only moving targets and carrots driven by equity prices.

The pretense is gone; it’s all about keeping the illusion alive that the Fed knows what it’s doing, that it’s always there to save markets from any trouble.

But its track record is obvious: It has failed to meet its inflation targets (ill-guided as they may be) for 10 years. It has failed to normalize policy despite years of promises to do so, and will never be able to normalize. Between 2008-2019, the Fed was non-accommodative for three months. It blew up in their faces in December. They’ll never be non-accommodative again. They can’t.

That means two things. First, it means that not just the U. S. Federal Reserve but all of the central banks will not have the ability to act when the next contraction occurs. They know that they should have raised rates long ago but they didn’t have the courage to do it. Now rates have been kept low during an expansion for far too long. That by the law is the pragmatic reason that MMT can’t work. Policy-makers will never take the necessary actions on a timely basis and things will inevitably get out of hand.

But second it means that income and wealth inequality, driven by the central banks’ urge to create asset inflation by any means necessary, will grow beyond anything we’ve ever seen.

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They Spoke With Their Silence

I want to encourage you to read John Kass’s reflection on D-Day, World War II, and the men who fought in it in his Chicago Tribune column. It certainly tallies with my experience. I grew up surrounded by men who’d fought in the war. They didn’t want to talk about it. They wanted to get on with their lives.

All the more reason for us to talk about it. Now that 75 years have passed we should be able to do so without either the wartime propaganda or the Cold War propaganda. Our fathers or, for many of you, grandfathers acquitted themselves well. We have not done as well. We have made a lot of bad decisions. It’s not too late to start making good decisions.

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Why the Others Don’t Have Any Chance At All

The Des Moines Register reports:

The field of Democratic presidential candidates is starting to settle into tiers: Joe Biden leads the pack, and Bernie Sanders, Elizabeth Warren and Pete Buttigieg are in close competition for second place, a new Des Moines Register/Mediacom/CNN Iowa Poll shows.

Twenty-four percent of Iowa’s likely Democratic caucusgoers say former vice president Biden is their first choice for president. Sanders, a Vermont senator, is the first choice for 16% of poll respondents, while Warren, a Massachusetts senator, and Buttigieg, mayor of South Bend, Indiana, are at 15% and 14% respectively.

No other candidate cracks double digits. California Sen. Kamala Harris comes closest at 7%, and other numbers within the poll indicate some underlying strengths for her.

Minnesota Sen. Amy Klobuchar and former Texas Congressman Beto O’Rourke are at 2%.

With full recognition that, since Iowa is a caucus state and polls have no meaning whatever there, it should be clearly understood what that means. In the primary states with proportional allocation of delegates under the byzantine rules that have been set up, only Biden, Sanders, and Warren would get any delegates at all. Buttigieg falls below the 15% cut-off so, although he’s just one point below Warren, it’s bupkis for Buttigieg.

I think that the overwhelming likelihood is that Biden will get an outright majority of delegates in some states, the plurality in most of the others, that Elizabeth Warren could get a majority of the delegates in Massachusetts with a plurality in some, and Sanders could get a plurality of votes in some states. That’s basically what the field will look like coming into the convention. And we haven’t even mentioned the superdelegates.

The media are trying desperately to turn the primaries into a horserace but, unless something dramatic intervenes, it isn’t and won’t be.

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What Sort of Digital Privacy?

I agree with this editorial in the New York Times:

American lawmakers are late to the party. Europe has already set what amounts to a global privacy standard with its General Data Protection Regulation, which went into effect in 2018. G.D.P.R. establishes several privacy rights that do not exist in the United States — including a requirement for companies to inform users about their data practices and receive explicit permission before collecting any personal information. Although Americans cannot legally avail themselves of specific rights under G.D.P.R., the fact that the biggest global tech companies are complying everywhere with the new European rules means that the technocrats in Brussels are doing more for Americans’ digital privacy rights than their own Congress.

The toughest privacy law in the United States today, is the California Consumer Privacy Act, which is set to go into effect on Jan. 1, 2020. Just like G.D.P.R., it requires companies to take adequate security measures to protect data and also offers consumers the right to request access to the data that has been collected about them. Under the California law, consumers not only have a right to know whether their data is being sold or handed off to third parties, they also have a right to block that sale. And the opt-out can’t be a false choice — Facebook and Google would not be able to refuse service just because a user didn’t want their data sold.

to the extent that I think we need much more serious federally-secured privacy online. And, while I think that the bill proposed by Josh Hawley in the Senate:

Where the Warner/Fischer bill looks to alleviate the harmful effects of data collection on consumers, Senator Josh Hawley’s Do Not Track Act seeks to stop the problem much closer to the source, by creating a Do Not Track system administered by the Federal Trade Commission
. Commercial websites would be required by law not to harvest unnecessary data from consumers who have Do Not Track turned on.

is a step in the right direction, I would go a step farther. I would require companies to obtain express consent from any user whose personally identifiable data were to be sold each time it is sold with very stiff penalties for violation. No blanket consent. No general waiver. No requirement to opt out.

It’s an idea whose time has come. About ten years ago.

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What Needs Attention?

And did the welfare reform of the 1990s really exacerbate extreme poverty in the United States? Despite devoting nearly as much attention to soul-searching as to analysis I found this article at Vox by Dylan Matthews devoted to those subjects helpful. Here’s its kernel:

The most comprehensive response to date — by University of Chicago professor Bruce Meyer, his colleagues Derek Wu and Victoria Mooers, and the Census Bureau’s Carla Medalia — has just been publicly released, and concludes that true $2-a-day poverty, after adjusting the data properly, is extremely rare.

“Our best estimate of the extreme poverty rate,” they write, is 0.11 percent for individuals as of 2011. That implies that about 336,160 people are in extremely poor households, far lower than the couple million children estimated by Edin and Shaefer. The vast majority of those people, they argue, are childless adults, and the extreme poverty rate for parents is close to zero.

Rather than devoting resources to new anti-poverty programs or expanding those already in place, we would be better off devoting attention to reforming our approaches to dealing with substance abuse and with mental illness.

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Changing Times

Here’s the opening of David Brooks’s column in the New York Times:

When I was a boy I was taught a certain story about America. This was the land of opportunity. Immigrants came to this land and found an open field and a fair chance to pursue their dreams. In this story Benjamin Franklin could be held up as the quintessential American — the young hustler, who through his ingenuity and dogged self-improvement created new businesses and communities, a new sort of person and a new sort of country.

Let’s stop right there. When David Brooks was a boy (up until about 1975) it was true. A lot has happened since then. Women have entered the workplace in tens of millions. More tens of millions of immigrants have come to the United States, some legally and others illegally, most without skills that would lead to a job that paid more than minimum wage. The number of immigrants as a percentage of the population has risen from 4% to 17%. Health care is an order of magnitude more expensive in real dollars. A college degree has become a basic qualification for all but the most menial of jobs (and even some of them). Higher education is an order of magnitude more expensive in real dollars. And the marginal product of labor which had been increasing for two hundred years has stopped rising.

Things have changed. We either need to change our aspirations and sources of national unity to conform to the times or we need to figure out a way to restore the world of 45 years ago. Either is a very tall order.

Mr. Brooks chose to frame the events of the last 45 years as racism, something manifestly untrue:

As many writers have noted, in the progressive account, racism has the exact same structure as John Calvin’s conception of original sin. It is a corrupting group inheritance, a shared guilt that pervades everything — it is in the structures of our society and the invisible crannies of our minds.

I don’t know about you, but I walk into this next chapter of American life with a sense of hopefulness and yet great fear. America needs to have a moment of racial reconciliation. History has thrown this task upon us.

But we Americans are not at our best when we launch off on holy wars. Once you start assigning guilt to groups, rather than to individuals, bad, illiberal things are likely to happen. There’s a lot of over-generalized group accusation in both these narratives.

History had nothing to do with it. Policy had everything to do with it. What is true is that times have changed.

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Know Your Audience

At Bloomberg Adm. James Stavridis meditates on the lessons of D-Day:

On the 50th anniversary of D-Day in 1994, I was a young Navy commander serving as captain of my first ship, the Arleigh Burke-class guided-missile destroyer Barry. She’s still in commission — a grizzled veteran of America’s wars over the past three decades. But in those days, she was state-of-the-art, and we were afforded a remarkable honor: to pass in review before Queen Elizabeth II at Spithead, U.K., then to sail across the English channel to the shores of France.

Our short voyage mirrored the launch of the D-Day operation the night of June 5, 1944, and we ended up anchoring off the beaches of Normandy in position to be part of the backdrop for the speeches by the allied heads of state, including President Bill Clinton. It was a meaningful moment for my young crew – average age around 22 – to sail through the waters our predecessors had in Operation Neptune, the naval portion of the larger Operation Overlord.

The lessons he highlights are:

  • The Navy matters
  • Surprise, deception, and operational security matter
  • We can’t control the weather, more broadly, there are always circumstances we cannot control
  • Courage, honor, and commitment matter

mentioning Reagan’s “Boys of Pointe du Hoc” speech given 35 years ago and which has received much favorable comment lately. What has not been observed in connection with the speech is that the U. S. military is and always has been heavily populated with Jacksonians for whom ideas like courage and honor have particular resonance. If he had been speaking to a group dominated by Wilsonians and Hamiltonians, it would have fallen flat.

Could we manage such a feat today? I have my doubts. When everyone has a video camera in his or her pocket and a burning need to share everything they see, I suspect it would founder on the second lesson above.

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The Washington Post’s Position

I have one more point to add to last post. The Washington Post remains the voice of the prevailing Washington wisdom. Its preferred president will be one who supports that wisdom, the status quo. At this point that’s Joe Biden so the WaPo will engage in unspoken battlespace preparation against any other candidate.

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Sanders’s M4A

The Fact Checker at the Washington Post examines Sen. Bernie Sanders’s proposal for Medicare for All to determine whether it would actually save most people money:

So to an average family of four, the cost of health care appears to be $12,000. (Basic economics says the employer contribution is part of the overall paycheck, but most people don’t “feel” that money.)

So if Sanders wants most families to feel as if they’re saving money, any tax increase from Medicare-for-all would have to be less than the visible cost of health care — that is, that $12,000. But that’s going to be difficult, no matter how you run the numbers.

As a reader service, we will identify four aspects of Sanders’s Medicare-for-all proposal — or any health-care proposal, for that matter — that dramatically affect its cost and could make it difficult to deliver the promised savings: provider payments, health-care benefits, cost-sharing and administrative savings from a consolidated system.

ultimately drawing the conclusion that whether the plan will actually save Americans any money depends on the assumptions you’re willing to make and only the most optimistic assumptions result in any cost savings. Those assumptions include that reimbursement will be at the Medicare rates and that will have no effect on availability or quality of services.

Or, said another way, Uwe Reinhardt was right and what actually matters is not how who pays but the prices that we pay. The Congress has demonstrated time and time again that it’s not willing to control health care spending. Assuming that it will suddenly change has a name in public policy circles: “time inconsistency”.

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“Shoot All the Film You Have”

My vet’s dad was a famous photographer. During World War II he served in an Army photographic unit. They were one of the first into one of the German prison camps. Their commanding officer, a famous movie director, told them “Shoot all the film you have. If you don’t no one will ever believe us.”

My dad’s officemate, another attorney, was a tank commander during World War II and his unit, too, was one of the first into the prison camps. Twenty years later he still turned pale and went silent when asked what he had seen. He couldn’t bring himself to speak of it.

Those and many other similar reasons are why I think that the present tendency simply to hide the unpleasant for fear it will offend somebody is so ill-conceived. IndieWire reports:

Youtube hovers in paradox: It’s a platform for expression that vacillates on the kinds of expression it wants to support. Even when the site makes constructive changes in the content it promotes or prohibits, the outcomes raise questions about censorship and curation. On Wednesday YouTube revealed extensive new policies around hate speech in a move to “reduce more hateful and supremacist content from YouTube,” as the company announced in a blog post.

The policy also meant the removal of Leni Riefenstahl’s 1935 Nazi propaganda epic “Triumph of the Will,” which left the site hours after YouTube announced its new standards. After all, “Triumph of the Will” falls under the rubric of “videos that promote or glorify Nazi ideology, which is inherently discriminatory,” as YouTube explains one prohibited category. The movie is also regarded as one with major historical value, raising essential questions about the nature of the film medium. Does it belong in the same category as Lunikoff, a German Neo-Nazi band whose channel also got the boot?

People today, particularly young people, need to be offended. They need to be upset. They need to be outraged. They haven’t seen the horrors, they probably haven’t seen the crude number tattoos on people’s arms, and they probably haven’t seen the expressions on the faces of those who had seen.

And people are forgetting. Quite a bit of the forgetfulness is self-serving. The Germans have forgotten. The Arabs have forgotten. The Iranians have forgotten.

It will become easier to forget with every passing year.

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