Monday, August 25, 2014

Janet Yellen profile by Michael Hirsh

The Mystery Woman Who Runs Our Economy

Janet Yellen is changing the Fed in profound ways. Sure wish we knew what she had in mind.
A diminutive woman with a pixie haircut is deciding the future of the world’s biggest economy, and we don’t know what she’s really thinking.

It’s not that Janet Yellen is mysterious by nature. She’s a regular person from Brooklyn. She has an open face and a warm smile and, as her predecessor Ben Bernanke told me recently, “more of the common touch than I did.” She also has a decade-long pedigree serving in various jobs at the U.S. Federal Reserve. (“If you were dreaming up a training school for Fed chairmen, it would be her life story,” her old colleague, Alan Blinder, once joked.) Yet there are so many unknowns about where Yellen is taking the newly empowered Fed that she’s making Alan Greenspan look plain-spoken by comparison. Seven months into her tenure, her favorite locution so far appears to be some form of “we don’t know.”

I’m not just talking about Yellen’s something-for-everybody speech Friday at the annual Jackson Hole meeting for central bankers – when she said that the labor market has “yet to fully recover” (pleasing inflation “doves”), but that neither do we know how imminent inflation is (assuaging hawks). She is also being cagey about how much she intends to fulfill the Fed’s broad new role as stern overseer of the U.S. economy—and master of Wall Street.

As has been written, Yellen is clearly passionate about the employment problem. It was no accident that the theme of this year’s Jackson Hole meeting was “labor market dynamics,” and the AFL-CIO’s chief economist, Bill Spriggs, was invited while Wall Street economists were not. (“The Fed organizers wanted to keep the focus on labor,” Spriggs told me. “Their fear was the Wall Street economists would just want to get into the minutiae of Fed policy.”) But she won’t say precisely how she’s measuring unemployment. Bernanke’s Fed had used a 6.5 percent unemployment rate threshold for guidance on when to begin worrying about inflation. When the rate dropped to that level, Yellen came up with an important innovation: Rather than simply setting a new metric, she announced that the Fed would now assess the labor market more qualitatively, roaming across a range of no fewer than 19 different indicators under a “Labor Market Conditions Index.”

All of which only gave her even more latitude to say, “We don’t know.”

Some accounts have painted Yellen as a full-throated progressive –a pro-labor throwback to the pull-out-all-the-stops Keynesians of the pre-Reagan era—but her main sponsor for the Fed job, Bernanke, disagrees. “I think that, philosophically, Janet is very much within contemporary mainstream economics. She is appropriately concerned about jobs, as I was, but she has also shown that she is committed to maintaining price stability,” the former Fed chief, now at Brookings, said in an interview this month.

But Yellen is overturning the traditional ways of looking at the labor markets, talking of pragmatic responses and dispensing with traditional macroeconomic formulas. Using her new index, she is disaggregating the unemployment rate in ways Fed chiefs haven’t done before, and she’s become as much a psychologist as a numbers person—wondering openly whether all those despairing dropouts and part-timers can be lured back into the workforce. Yellen is also very cagey about whether that’s happening or not: She’s playing her own private game of chicken with inflation, indicating that she wants to see more wage growth for workers (another thing that’s hard to track ahead of time) before she raises rates. Beneath the careful analysis and the caveat-freighted sentences, the bottom line seems to be: “We’re making this up as we go along.”

Another big change in the Yellen era is that for most of Bernanke's tenure, the Fed played a regulatory role in banking, but possessed no statutory responsibility to oversee the systemic stability of the entire economy. Now it does. There’s much greater sense, not just from the changes under the Dodd-Frank law but also in the Fed’s internal thinking, that the Federal Reserve’s biggest job of all in some ways is this one: to monitor overall stability. It has greatly increased resources for doing that, and Yellen has called for even more “macro-prudential”—the voguish term that means the Fed’s new task is to watch the behavior of the nation's financial sector, especially Wall Street, very closely—tools that respond to specific threats, like the way British regulators put new restrictions on mortgage lending. Earlier this month, the Fed and Federal Deposit Insurance Corp. rejected the banks’ “living wills”—in other words, their plans for an orderly bankruptcy if they get into trouble –as unrealistic. That’s basically the Fed’s way of saying the banks still have a lot of restructuring to do to make themselves more stable, or else the Fed and FDIC can decide to dismember them.

In this way too there is a quiet and little-understood revolution going on beneath our noses—Yellen called it a “work in progress” at Jackson Hole—and the only question is how aggressively she’ll wield her new power. Again, we just can’t say. Remember back in the Greenspan era, when all the talk was of asset bubbles and whether or not the Fed should burst them by jacking up rates? No one then saw the financial system itself as a source of risk. Now, post-crisis, Yellen is turning all that around, saying that getting macro-prudential policy right should by itself take care of fretting about most asset bubbles: If finance is tightly leashed, then asset bubbles can’t do that much damage to the economy. Yellen is saying, in other words, that she intends to resurrect the lost art of regulation with a vengeance—and during the Greenspan era of bank self-determination, regulation truly did become a relic—and that in turn should change the way we think about monetary policy, too.

Michael Hirsh is national editor for Politico Magazine.

Thursday, August 14, 2014

Anger in Ferguson

New Yorker:

The Anger in Ferguson

The hazard of engaging with the history of race in the United States is the difficulty of distinguishing the past from the news of the day. On Saturday afternoon, under hazy circumstances, an eighteen-year-old named Michael Brown was shot and killed by a police officer in Ferguson, Missouri, a suburb of St. Louis. Brown was unarmed. Police have confirmed that he was shot “more than just a couple of times.” The story that witnesses tell is disturbing not only in its details but in the ways in which those details blur into a longer narrative. It’s one we’re all familiar with if we have paid even passive attention, and yet, despite its redundancy, we have yet to grasp its moral. A trivial incident sparks a confrontation, followed by a disproportionate response, then the tableau of grieving parents struggling to maintain composure and the social-media verdicts rendered in absentia, many asking about the culpability of the deceased. Invariably, some self-ordained truth teller will stand up to quote non sequiturs about black-on-black violence.

The details are still emerging, but there seem to be two irreconcilable versions of events. Brown’s friend Dorian Johnson tells of a police officer, who has yet to be named, confronting the two of them for the offense of walking in the street rather than on the sidewalk, and then starting a fight with Brown, who held his hands up in compliance, before shooting him dead in the street. The police have said that Brown was shot in response to a struggle for the officer’s gun. The police department, citing threats made through social media, has steadfastly refused to release the name of the officer involved in the shooting.  The F.B.I. has announced a federal investigation. On Tuesday, the White House released a statement of condolence to Brown’s family.

Brown’s death has served, at least for the crowds in Ferguson, as evidence that the deaths of innocents are not simply something glimpsed in other countries. People in Ferguson drifted out of their homes to witness the macabre spectacle of Brown’s body on the street, a dismal stream of blood winding its way across the asphalt. The ensuing vigil tipped over into bedlam as some in those crowds, joined by others, broke into sporadic vandalism and looting on Sunday night. Then, after dark on Monday, police responded with tear gas and rubber bullets. The ironies of race and policing were readily apparent: law enforcement using force to suppress outrage at law enforcement’s indiscriminate use of force.

Ferguson, with twenty-two per cent of its population below the poverty line, is likely a community well versed in these ironies. On Monday night, I spoke to a number of acquaintances in the surrounding area by phone. Most spoke skeptically about the police statement that Brown had attempted to seize the officer’s weapon. “Nobody believes that young man tried to get the officer’s gun,” M. K. Stallings, a longtime St. Louis resident who coordinates community programming for the Missouri Historical Museum, told me. “There’s an idea that the police in this area are not from that community and don’t have any real connections to that community. That’s not necessarily uncommon, but it’s part of the equation here.”

Brown’s death carried a particular resonance in a community that is sixty-seven per cent African-American, with nearly thirty per cent of the population under the age of eighteen. A local bar owner explained to me that older patrons weren’t aware of the groundswell of activity that the case inspired, but it was at the front of the minds of younger people. “A teen-age cashier in my supermarket asked me before I checked out whether I’d be at the vigil Sunday night,” she said. “Until that point, I hadn’t even heard about it, but she explained everything that was happening in response to Brown’s death.”

Three weeks ago, Eric Garner died as the result of N.Y.P.D. officers placing him in a choke hold, a banned tactic, following a confrontation over selling loose cigarettes. His death echoed that of Renisha McBride, the nineteen-year-old who was killed when she knocked on a stranger’s door following a car accident, which in turn conjured memories of Jonathan Ferrell, who was shot ten times and killed by officers in North Carolina soon after the death, in Florida, of Jordan Davis, shot by a man who wanted him to turn down his music, which in turn paralleled the circumstances of Trayvon Martin’s demise. For those who have no choice but to remember these matters, those names have been inducted into a grim roll call that includes Sean Bell, Oscar Grant, Amadou Diallo, and Eleanor Bumpurs. These are all distinct incidents that took place under particular circumstances in differing locales. Yet what happened on Staten Island and in Dearborn Heights, Charlotte, Jacksonville, and Sanford have culminated, again, in the specific timbre of familial grief, a familiar strain of outrage, and an accompanying body of commentary straining to find a novel angle to the recurring tragedy.

Despite all the variables, there’s a numbing constant. The conventions are so familiar that, on Sunday, the hashtag #iftheygunnedmedown began circulating on Twitter, with thousands of tweets pointing to the ways in which incidents such as these play out. Many tweets were accompanied by the sort of pictures that could be used to tar even staid black professionals as intimidating. Brown was a large eighteen-year-old—six feet four inches, according to his mother—and, in the image that circulated in the media immediately following the shooting, his size is highlighted. He flashes a peace symbol that, in conjunction with his imposing stature, could predictably be assailed as a gang sign. The hashtag was an overt riff on the way a jury, for example, might decide that a slight teen-ager like Trayvon Martin could be justifiably seen as a threat to George Zimmerman, a man with a gun. Imagery counts as a kind of unspoken forensics, with the power to render someone an innocent victim or a terrifying menace. Implicit is a question: Would you be afraid of this person, too?

The truth is that you’ve read this story so often that the race-tinged death story has become a genre itself, the details plugged into a grim template of social conflict. The genre is defined by its tendency toward an unsatisfactory resolution of the central problems. Two years ago, I visited St. Louis to give a talk at a museum. My visit fell in the wake of a rally in which hundreds of local residents turned out to demand an arrest in Martin’s death. (Brown’s family has now retained Benjamin Crump, the attorney who represented Martin’s family.) Martin was killed nearly a thousand miles away, but when I spoke to people about the rally they conveyed the sense that what had happened to him could happen anywhere in the country, even in their own back yards. For those people in Ferguson pressed against the yellow police tape separating them from Brown’s remains, the overwhelming sentiment is that it already has.

Saturday, August 9, 2014

Paul Krugman on Libertarians

Libertarian Fantasies

Robert Draper’s long magazine piece about the possibility of a “libertarian moment” has drawn a fair bit of commentary; much of it involves questioning the supposed polling evidence. As Jonathan Chait points out, independent polling — as opposed to surveys conducted by libertarians seeking to boost their own profile — suggests that young Americans are actually much more pro-government than their elders. They may look relatively kindly on anti-war libertarians, but they really don’t support the policy agenda.
But there’s what I would consider an even bigger problem: when it comes to substance, libertarians are living in a fantasy world. Often that’s quite literally true: Paul Ryan thinks that we’re living in an Ayn Rand novel. More to the point, however, the libertarian vision of the society we actually have bears little resemblance to reality.
Mike Konczal takes on a specific example: the currently trendy idea among libertarians that we can make things much better by replacing the welfare state with a basic guaranteed income. As Mike says, this notion rests on the belief that the welfare state is a crazily complicated mess of inefficient programs, and that simplification would save enough money to pay for universal grants that are neither means-tested nor conditional on misfortune. But the reality is nothing like that. The great bulk of welfare-state spending comes from a handful of major programs, and these programs are fairly efficient, with low administrative costs.
Actually, the cost of bureaucracy is in general vastly overestimated. Compensation of workers accounts for only around 6 percent of non defense federal spending, and only a fraction of that compensation goes to people you could reasonably call bureaucrats.
And what Konczal says about welfare is also true, although harder to quantify, for regulation. For sure there are wasteful and unnecessary government regulations — but not nearly as many as libertarians want to believe. When, for example, meddling bureaucrats tell you what you can and can’t have in your dishwashing detergent, it turns out that there’s a very good reason. America in 2014 is not India under the License Raj.
In other words, libertarianism is a crusade against problems we don’t have, or at least not to the extent the libertarians want to imagine. Nowhere is this better illustrated than in the case of monetary policy, where many libertarians are determined to stop the Fed from irresponsible money-printing — which is not, in fact, something it’s doing.
And what all this means in turn is that libertarianism does not offer a workable policy agenda. I don’t mean that I dislike the agenda, which is a separate issue; I mean that if we should somehow end up with libertarian government, it would quickly find itself unable to fulfill any of its promises.
So no, we aren’t about to have a libertarian moment. And that’s a good thing.

Monday, August 4, 2014

Tea Party Grifting

The Grifting Wing v. The Governing Wing

While the Tea Party is busy lining their pockets, the rest of the Republicans are actually trying to get things done. defines a grifter as: 
A grifter is a con artist—someone who swindles people out of money through fraud. If there’s one type of person you don’t want to trust, it’s a grifter: Someone who cheats someone out of money.

Historically, grifters have taken many shapes. They were the snake-oil salesmen who rolled into town promising a magical, cure-all elixir at a price. The grifter was long gone by the time people discovered the magical elixir was no more magical than water. They were the sideshow con men offering fantastic prizes in games that were rigged so that no one could actually win them. They were the Ponzi scheme operators who got rich promising fantastically high investment returns but returning nothing for those sorry investors at the bottom of the pyramid.

Over the last few years we have seen the rise of a new grifter—the political grifter. And the most important battle being waged today isn’t the one about which party controls the House or the Senate, it’s about who controls the Republican Party: the grifting wing or the governing wing.

Today’s political grifters are a lot like the grifters of old—lining their pockets with the hard-earned money of working men and women be promising things in return that they know they can’t deliver.

Political grifting is a lucrative business. Groups like the Club for Growth, FreedomWorks and the Tea Party Patriots are run by men and women who have made millions by playing on the fears and anger about the dysfunction in Washington. My former House colleague Chris Chocola is pocketing a half-million dollars a year heading the Club for Growth; same for Matt Kibbe heading up FreedomWorks (and I don’t think Kibbe’s salary includes the infamous craft beer bar that FreedomWorks donors ended up paying for). The Tea Party Patriots pay their head, Jenny Beth Martin, almost as much. These people have lined their pockets by promising that if you send them money, they will send men and women to Washington who can “fix it.” Of course, in the ultimate con, the always extreme and often amateurish candidates these groups back either end up losing to Democrats or they come to Washington and actually make the process even more dysfunctional.

Just look at what happened this past week, when hard-right House members with extensive ties to these outside groups, egged on by Texas Sen. Ted Cruz, snarled up a sensible effort to pass a bill that would at least begin to address the crisis of undocumented children at the U.S.-Mexico border. It was an embarrassing display of congressional dysfunction, and it showed that the grifting wing has learned nothing from last fall’s shutdown fiasco.

The grifting wing of the party promises that you can have ideological purity—that you don’t have to compromise—and, of course, all you have to do is send them money to make it happen. The governing wing of the Republican Party knows that’s a damn lie. Our Founding Fathers set up a system of government that by its very nature excludes the possibility of one party or one ideological wing of one party getting everything it wants. Ted Cruz, who quotes the founders almost every chance he gets, ought to know this.

Even Ronald Reagan—who won in two of the biggest landslides in American history—was forced to compromise. It was President Reagan who cut deals with Democrats to extend the solvency of Social Security and put the federal budget on a sounder footing. It was Reagan who famously said that someone who votes with him 80 percent of the time is a friend and an ally. Reagan’s record and rhetoric stands in marked contrast to the grifting win of the party today, even as the grifters invoke his memory in their disingenuous appeals.

The governing wing of the Republican Party understands that compromise is not the root of all evil in Washington—indeed, it is the essential ingredient in moving forward any set of conservative policies like those that Reagan fought for.

While the grifters hold a great deal of sway over the Republican Party for now, they are not the majority—not by a long shot. As with any good Ponzi scheme, there are relatively few grifters; the challenge is exposing their scam.

Exposing the grifters is exactly what is happening in the Republican Party today. Groups like the organization that I head, groups like the Chamber of Commerce, business groups and traditional Republican organizations are working to run the political snake-oil salesman out of town—or at least out of our party.

This isn’t about ideology. The Republican Party is a conservative party. This fight is about whether we will govern or continue to let the grifters profit off of the dysfunction in Washington.
Our beef isn’t with the rank and file Tea Party members, either. We understand their justifiable frustration with Washington. Our beef is with the grifters who run the organizations in Washington that are fleecing these hardworking men and women.

We face serious challenges in this country today. America is piling up mountains of debt that threaten the long-term solvency of our country. Our economy continues to struggle to create enough jobs to keep pace with population growth. We have a broken, overly complicated tax code. We face serious, dangerous threats abroad from old enemies and new ones. If the Republican Party is going to be a part of finding solutions to these challenges—and I know it can be—then it is time for grassroots Republicans to say no to the grifters and yes to governing again.

The good news is that it appears that the grifters are running short on time. Unlike in previous election cycles, in primary after primary— from Ohio to Idaho to Kentucky to Mississippi—rank-and-file Republicans haven’t bought what the grifters are selling.

If we are to have a shot at winning the White House in 2016 and actually implementing conservative policies – rather than just fundraising off of talking about them—then this is a trend that must continue. It’s time to run the grifters out of our town.

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