Yellen Is Making Sense; Financial Journalists Aren’t

Janet YellenI follow Tim Duy’s Fed Watch, but not carefully. When I say that economics makes my brain hurt, it is this kind of stuff that I’m talking about. I don’t think that most people give much thought to things like “money.” If you do, you will find yourself getting confused and anxious. Money really is just a shared delusion. So when you start talking about money supply and inflation, well, your brain starts boiling and you fear you may explode.

Most people I talk to think inflation works in a simple way. There is a certain amount of cash in the economy. If the government prints more of the money, it will be worth less. This is not how money works at all. But sadly, I cannot tell you how money does work. And sadder still is the fact that no one I’ve ever read has been able to make me understand how money works. It’s like black magic. And the witches and warlocks stirring their cauldron of bubbling brew are the members of the Federal Reserve.

But just because I don’t know what money is, doesn’t mean that I don’t know what those witches and warlocks are doing. But I often wonder what they think they are doing. On 16 December 2015, the Fed raised its target funds rate. But why? We know that raising interest rates will cause the economy to cool down. If inflation is rising, raising interest rates will stop it. This is one thing we know without peering into the bubbling cauldron.

Lael BrainardBut was there any sign of inflation? No. In fact, inflation has stayed stubbornly below the Fed’s target rate (which is itself far too low) of 2%. But the argument was that inflation could take off. Just yesterday, Heather Long at CNN reported, Has the Federal Reserve Messed Up? But if inflation takes off, the Fed can just raise interest rates — and fast. So what’s the big deal?

On the other of hand, there is the chance that raising interest rates too soon could throw the economy back into recession. And then what would the Fed do? Are there any raven’s feet to drop in the cauldron that would fix the problem? No! The Fed would have no tools whatsoever to fight the recession. We would have to depend upon fiscal policy, which means Congress, which means that nothing would be done.

But Long’s point is that if the Fed can just get interest rates high enough, then they will be able to lower them in case a recession comes along. This is the kind of logic that only idiots in the finance world could think makes sense. It’s like eating poison everyday so you have the option of not eating it when you get sick. But then, as a Rhodes Scholar with a master’s degree from Oxford, I have a feeling that she doesn’t spend much time with people who aren’t in the top 10% of income earners — other than the barista who makes her $5 Salted Caramel Mocha Frappuccino.

So with Heather Long and the rest of the class that never has to worry about losing their jobs talking such nonsense, I was happy to see that Tim Duy was making a more reasonable argument, Yellen Pivots Toward Saving Her Legacy. In particular, he focused on Fed Chair Janet Yellen’s recognition of the extremely asymmetric risks that the economy faces.

It’s really simple. On the one side, you have a small risk of rising inflation that the Fed has more than enough tools to deal with. On the other side, you have what I think is a rather greater risk of recession that the Fed has absolutely no tools to deal with. But I know: Heather Long and the rest of the business “journalists” want to raise rates so the Fed can have tools to deal with a recession. But there is no sense of the risk of gaining those tools. Duy was right when he wrote, “The incoming data suggests that means the economy needs to run hotter for longer if the Fed wants to leave the zero bound behind. Yellen is getting that message.”

So I’m glad that Yellen and (a personal hero) Lael Brainard and others on the Federal Reserve Board are casting their spells for the good of the economy and not the bankers and their mindless “journalist” apologists.

Morning Music: If You Ain’t Got Love

Boneclouds - If You Ain't Got LoveMason Jennings’ next album was Boneclouds. It is more “pop” than his earlier albums. But that isn’t to take anything away from it. I want to focus on one song, “If You Ain’t Got Love.” The title makes it sound like just another love song. But it is actually written to the singer’s child who is born with a heart problem and may die.

In the song, the child survives. But maybe that is just an imagining. The point of the song is that love is something that transcends life and death. But also in the song is a theme that runs through all of Jennings’ work: that all we have is the present and we must grab onto it. That’s probably why I think later when the child jumps in the lake, it isn’t real. I imagine the singer in the hospital, loving that baby for what may be only minutes. But since love is eternal, it doesn’t end with the death.

I suspect most people will hear the song rather differently — and more positively — than I do. Regardless of how you see it, “If You Ain’t Got Love” is heartbreakingly beautiful.

Anniversary Post: Slavery in Florida

Welcome to Florida: the SLAVERY StateWhen I started the second year of my anniversary posts, I had promised myself that I was going to make some of them really short. I don’t need to write 500 or 600 words about everything. But it goes totally against my whole conception of having a blog. I hate it when people produce blog posts that are 90% quotes. I understand: readers seem to like this. But to me, it’s just a new form of plagiarism. Just the same, one sentence posts that link somewhere else strike me as lazy. So I find myself forever at least writing a couple hundred words.

When I noticed that on this day back in 1513, Juan Ponce de León first made sight of Florida, I wanted to make a complete post out of one sentence, “On this day in 1513, the slave trade started in Florida.” But I went back and checked what I wrote last year. It was, Anniversary Post: Western Discovery of Florida. But it went along with that great image on the left that I did in Photoshop.

Anyway, here’s some of what I wrote last year, which I think is pretty good:

On this day in 1513, Juan Ponce de León first made sight of what would become the political laughing stock of the United States: Florida!

Ponce was of noble birth. So after there were no more wars to fight at home, he signed up on Columbus’ second voyage to the New World. After about a decade of roaming around spreading disease and probably just outright murdering local peoples, he found himself in Hispaniola where he was put in charge of killing the local people who, for some reason, had a problem with being enslaved. As a result, Ponce got into the slave owner aristocrat business himself.

Anyway, enslaving populations to mine for gold can only keep a man’s attention for so long. So at the urging of the King of Spain, he went off looking for other lands and more people to “exploit.” And that’s how he discovered Florida. The native people they met there seemed to have quickly figured out that Ponce and company were not to be trusted. Hostilities erupted. After eight months of exploring, they returned Puerto Rico. Then Ponce went back to Spain and then back to Puerto Rico. But don’t worry, this story has a happy ending.

In 1521, Ponce put together an expedition of a couple hundred men to go back to Florida to colonize the place. The Calusa people attacked them, leading to Ponce being mortally wounded. The expedition retreated to Cuba, where Ponce died. Of course, it isn’t that happy a story, because eventually the Calusa were wiped out. I’m not saying that they were wonderful people or anything. But at least they didn’t travel all over the world enslaving people.

Today we morn this important moment in the European slave trade.

There really is something wrong with human beings.