1
U.S.
After Drought, Rains Plaguing Midwest Farms
In many areas of the Midwest, one extreme has given way to another, as flooded pastures have delayed planting or washed away young shoots.
2
Opinion
The Myth of 'Just Do It'
The idea that thinking interferes with doing is often taken for granted. But the realities at the highest levels of athletic and artistic performance are more complex.
3
Opinion
Involving Doctors in Hospice Care
Medical professionals and others respond to a Sunday Review article by Dr. Anna Reisman.
4
U.S.
Supporting Oil and Gas, but Resisting Encroachment
Oil and gas drilling helped revive the economy in Greeley, Colo., but a proposal to sink 16 wells next to a neighborhood of winding cul-de-sacs met an unlikely resistance.
5
6
N.Y. / Region
Suits Say Silver Helped Lopez Conceal Sexual Misconduct
Two employees of the New York State Assembly say the Assembly speaker, Sheldon Silver, worked with former Assemblyman Vito Lopez to hide allegations of wrongdoing.
7
Business Day
The Chatter for Sunday, June 9
Notable quotes from business articles that appeared in The New York Times last week.
8
Business Day
Treasury Auctions Set for This Week
The following tax-exempt fixed-income issues are scheduled for pricing this week.Abenomics and Interest Rates: A Finger Exercise (Wonkish)
Japan has announced a long-term turn to
easier money and a higher inflation target. Stocks are up (if bouncing
around a lot), the yen is down, but long-term interest rates are
somewhat higher (although still very low). Is this a puzzle or a
problem?
Richard Koo, Nick Rowe, and Noah Smith have all weighed in. So I guess I should put in my bit. Basically, I think Rowe is mostly right; Koo isn’t making sense; and Smith is worried for no good reason.
Let me start, as I often do, with my original 1998 itsy-bitsy liquidity trap model. This was an infinite-horizon model, but one in which all the action took place in either the first or the second period, since it was assumed that nothing would change after period 2. I imagined a situation in which a temporary negative shock to demand pushed the economy in period 1 up against the zero lower bound, and showed that in that case increasing the monetary base in period 1 had no effect. To get traction, the central bank would have to convince the public that it would increase the base in period 2 — e.g., that it would not withdraw any quantitative easing it was doing now — so as to generate expected inflation.
In that model, I only talked about the one-period-ahead interest rate. But we certainly could imagine two-period, three-period etc. bonds. How would an Abenomics-style monetary policy affect these longer-term rates?
Well, the answer would depend on what monetary policy is expected to do after period 2. If we’re looking at a one-time step up in the monetary base, which was my thought experiment in 1998, the short-term rate would remain at zero, and future interest rates would also remain unchanged, so no effect. But it’s easy to imagine that the change in monetary policy involves not just a one-time jump in the monetary base but faster growth forever after, or at least for a long time. In that case, future short-term rates will be higher in nominal (though not real) terms, and so long-term rates will rise even in period 1. The long rate will, however, rise by less than expected inflation, because the one-period-ahead nominal rate will stay at zero, so even as nominal rates rise, real rates will fall.
I think this is pretty much where Rowe is. Smith, however, loses the thread a bit, if I’m reading him correctly; he worries that the rising rates will cause a problem because of Japan’s huge public debt. But remember, while nominal rates may be going up, real rates are going down; so Japan’s debt becomes more, not less, sustainable. Also, bear in mind that there’s a lot of preexisting long-term nominal debt, whose real value will be eroded by inflation. So Abenomics is all good from a fiscal point of view, even if it makes headline interest payments rise.
Finally, Koo seems to regard higher inflation expectations as a disaster, when in reality they are the whole point of the exercise. What?
I guess I’ve always found Koo fairly incomprehensible on monetary policy. He emphasizes the importance of balance-sheet constraints, and deserves a lot of credit for being ahead of the pack here. He’s also right in emphasizing the useful role budget deficits can play in a balance-sheet recession. However, he has this violent opposition to monetary expansion that, as far as I can tell, isn’t actually justified — actually, isn’t at all justified — by his underlying analysis. On the contrary, when some of us (pdf) try to model Koo-type problems, we find that monetary policy that raises expected inflation could be quite helpful.
Maybe part of the problem is that Koo envisages an economy in which everyone is balance-sheet constrained, as opposed to one in which lots of people are balance-sheet constrained. I’d say that his vision makes no sense: where there are debtors, there must also be creditors, so there have to be at least some people who can respond to lower real interest rates even in a balance-sheet recession.
Also, if the problem is a debt overhang, isn’t debt-eroding inflation a good thing?
As I said, I just don’t understand Koo’s position here. If he wants to argue that monetary policy is unlikely to be effective, fine; but he wants to claim that it’s positively harmful, and I just don’t get the logic.
Anyway, back to Japanese interest rates: they really don’t pose a puzzle, nor, at least so far, do they pose a threat."
Richard Koo, Nick Rowe, and Noah Smith have all weighed in. So I guess I should put in my bit. Basically, I think Rowe is mostly right; Koo isn’t making sense; and Smith is worried for no good reason.
Let me start, as I often do, with my original 1998 itsy-bitsy liquidity trap model. This was an infinite-horizon model, but one in which all the action took place in either the first or the second period, since it was assumed that nothing would change after period 2. I imagined a situation in which a temporary negative shock to demand pushed the economy in period 1 up against the zero lower bound, and showed that in that case increasing the monetary base in period 1 had no effect. To get traction, the central bank would have to convince the public that it would increase the base in period 2 — e.g., that it would not withdraw any quantitative easing it was doing now — so as to generate expected inflation.
In that model, I only talked about the one-period-ahead interest rate. But we certainly could imagine two-period, three-period etc. bonds. How would an Abenomics-style monetary policy affect these longer-term rates?
Well, the answer would depend on what monetary policy is expected to do after period 2. If we’re looking at a one-time step up in the monetary base, which was my thought experiment in 1998, the short-term rate would remain at zero, and future interest rates would also remain unchanged, so no effect. But it’s easy to imagine that the change in monetary policy involves not just a one-time jump in the monetary base but faster growth forever after, or at least for a long time. In that case, future short-term rates will be higher in nominal (though not real) terms, and so long-term rates will rise even in period 1. The long rate will, however, rise by less than expected inflation, because the one-period-ahead nominal rate will stay at zero, so even as nominal rates rise, real rates will fall.
I think this is pretty much where Rowe is. Smith, however, loses the thread a bit, if I’m reading him correctly; he worries that the rising rates will cause a problem because of Japan’s huge public debt. But remember, while nominal rates may be going up, real rates are going down; so Japan’s debt becomes more, not less, sustainable. Also, bear in mind that there’s a lot of preexisting long-term nominal debt, whose real value will be eroded by inflation. So Abenomics is all good from a fiscal point of view, even if it makes headline interest payments rise.
Finally, Koo seems to regard higher inflation expectations as a disaster, when in reality they are the whole point of the exercise. What?
I guess I’ve always found Koo fairly incomprehensible on monetary policy. He emphasizes the importance of balance-sheet constraints, and deserves a lot of credit for being ahead of the pack here. He’s also right in emphasizing the useful role budget deficits can play in a balance-sheet recession. However, he has this violent opposition to monetary expansion that, as far as I can tell, isn’t actually justified — actually, isn’t at all justified — by his underlying analysis. On the contrary, when some of us (pdf) try to model Koo-type problems, we find that monetary policy that raises expected inflation could be quite helpful.
Maybe part of the problem is that Koo envisages an economy in which everyone is balance-sheet constrained, as opposed to one in which lots of people are balance-sheet constrained. I’d say that his vision makes no sense: where there are debtors, there must also be creditors, so there have to be at least some people who can respond to lower real interest rates even in a balance-sheet recession.
Also, if the problem is a debt overhang, isn’t debt-eroding inflation a good thing?
As I said, I just don’t understand Koo’s position here. If he wants to argue that monetary policy is unlikely to be effective, fine; but he wants to claim that it’s positively harmful, and I just don’t get the logic.
Anyway, back to Japanese interest rates: they really don’t pose a puzzle, nor, at least so far, do they pose a threat."
9
Real Estate
A Ghost With an Impressive Résumé
A Bauhaus-style loft building once stood at 57th and Lexington.
10
Opinion
A Conservative Case for Prison Reform
Conservatives known for being tough on crime should now be equally tough on failed, too-expensive criminal programs.
11
U.S.
Senate Digs in for Long Battle on Immigrants
The Obama administration is hoping establish a legacy with the passage of an immigration overhaul, while Republicans are hoping to improve their relations with Latino voters.
12
Your Money
An Oasis in a Desert of Customer Service
What causes companies to provide poor customer service? The Haggler finds an answer by visiting a business that gets it right.
13
Health
Designated Drivers Often Drink
A new study suggests that many designated drivers do not themselves refrain from drinking, creating an obvious barrier to the campaign’s effectiveness.
14
N.Y. / Region
Council Bill Would Crack Down on Proliferation of Adult Day Care Centers
Officials said they would introduce legislation this week to increase oversight of programs that have taken advantage of Medicaid payments by luring relatively healthy clients.
15
Opinion
A Pitch to Add Ivory to the Agenda as Obama Meets His Chinese Counterpart
A pitch to President Obama to put ivory on his China summit agenda.
16
U.S.
New Hampshire: Freedom Given Posthumously
Fourteen slaves who petitioned the Legislature for their freedom during the Revolutionary War were granted posthumous emancipation on Friday when Gov. Maggie Hassan signed a largely symbolic bill.
17
Opinion
Racial Injustice in North Carolina
Repealing the state’s Racial Justice Act does not erase the irrefutable proof of bias in death penalty prosecutions.
18
19
Technology
Disruptions: Celebrities' Product Plugs on Social Media Draw Scrutiny
The Federal Trade Commission wants to better distinguish the blurred line between celebrity endorsements and mere appreciation on social media.
20
Business Day
Groups Propose to Simplify Accounting for Small Firms
A trade group will announce a framework that would simplify accounting for small companies, and a standards board plans to propose its first ever exceptions for private companies.
2
Opinion
The Myth of 'Just Do It'
3
5
6
N.Y. / Region
Suits Say Silver Helped Lopez Conceal Sexual Misconduct
7
Business Day
The Chatter for Sunday, June 9
8
Business Day
Treasury Auctions Set for This Week
9
10
12
13
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18
Opinion
What’s Next for Social Security?
20
2
3
N.Y. / Region
Suits Say Silver Helped Lopez Conceal Sexual Misconduct
4
Business Day
The Chatter for Sunday, June 9
6
7
9
Business Day
Treasury Auctions Set for This Week
10
Business Day
Portent of Peril for Muni Bondholders
The basic financial decisions about the structure of Jefferson County’s debt were different only in scale from what many other municipalities did.
12
13
Opinion
What’s Next for Social Security?
15
Business Day
This Week in Small Business: Cronuts!
A “solid” job report. Dollar Shave Club is back with a new video. Suggestions for stowing excess cash. And where do you get your leads?
18
U.S.
Obama Urged to Back Plan to List Owners of Shell Firms
Anticorruption activists want the president to back public registration of shell-company owners, which they hope can deter tax evasion and money laundering.
19
U.S.
Near the Border, a Few Deputies Are Outnumbered by Drugs and Bodies
In a remote Arizona town about 40 miles from the Mexican border, the local sheriff’s deputies act as the tip of the sword as national drug and immigration policies meet desperation in a brutal desert.
20
1
2
N.Y. / Region
Suits Say Silver Helped Lopez Conceal Sexual Misconduct
3
Business Day
The Chatter for Sunday, June 9
5
6
7
Technology
One Third of Americans Now Own Tablet Computers
In a new study, affluent, middle-aged, college-educated users are driving the growth of tablets. Some say that the sales of tablet computers will soon surpass laptops.
8
Business Day
Treasury Auctions Set for This Week
9
12
13
Opinion
What’s Next for Social Security?
15
Business Day
This Week in Small Business: Cronuts!
20
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