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Opinion
No Progress on Marijuana Arrests
The de Blasio administration needs to really do something about the targeting of young black and Latino men.N.Y. / Region
New Jersey Plan for Sports Betting Halted
A federal judge granted a request by major professional leagues and the N.C.A.A. to block legalized wagering two days before its scheduled start at Monmouth Park.
"New
Jersey, which views sports betting as a lifeline for its flagging
casino and horse-racing industries, previously lost a constitutional
challenge to the federal law that bans state-sponsored sports gambling.
Automobiles
Wheelies: The Captain America Edition
The motorcycle that Peter Fonda may have ridden in the movie “Easy Rider” sells for $1.35 million; the Petersen Automotive Museum closes for renovations.Opinion
The Fed at the Crossroads
It is crucial that the Federal Reserve keep interest rates low as long as inflation is in check.Notes on Easy Money and Inequality
I’ve received some angry mail over this William Cohan piece
attacking Janet Yellen for supposedly feeding inequality through
quantitative easing; Cohan and my correspondents take this
inequality-easy money story as an established fact, and accuse anyone
who supports the Fed’s policy while also decrying inequality as a
hypocrite if not a lackey of Wall Street.
All this presumes,
however, that Cohan knows whereof he speaks. Actually, his biggest
complaint about easy money is mostly a red herring, and the overall
story about QE and inequality is not at all clear.
Let’s start with the
complaint that forms the heart of many attacks on QE: the harm done to
people trying to live off the interest income on their savings. There’s
no question that such people exist, and that in general low interest
rates on deposits hurt people who don’t own other financial assets. But
how big a story is it?
Let’s turn to the Survey of Consumer Finances (pdf), which has information on dividend and interest income by wealth class:
The bottom
three-quarters of the wealth distribution basically has no investment
income. The people in the 75-90 range do have some. But even in 2007,
when interest rates were relatively high, it was only 1.9 percent of
their total income. By 2010, with rates much lower, this was down to 1.6
percent; maybe it fell a bit more after QE, although QE didn’t have
much impact on deposit rates. The point, however, is that the overall
impact on the income of middle-income Americans was, necessarily, small;
you can’t lose a lot of interest income if there wasn’t much to begin
with. If you want to point to individual cases, fine — but the claim
that the hit to interest was a major factor depressing incomes at the
bottom is just false.
There’s a somewhat different issue involving pensions: as the Bank of England pointed out in a study
(pdf) that a lot of Fed-haters have cited but fewer, I suspect, have
actually read, easy money has offsetting effects on pension funds: it
raise the value of their assets, but reduces the rate of return looking
forward. These effects should be roughly a wash if a pension scheme is
fully funded, but do hurt if it’s currently underfunded, which many are.
So the BoE concludes that easy money has somewhat hurt pensions — but
also suggests that the effect is modest.
So where does the
impression that QE has involved a massive redistribution to the rich
come from? A lot of it, I suspect, comes from the fact that equity
prices have surged since 2010 while housing has not — and since
middle-class families have a lot of their wealth in houses, this seems
highly unequalizing.
Here, however, I think
it’s useful to go back to first principles for a second. Do we expect
easy money to have differential effects on asset prices? Yes, but mainly
having to do with longevity. Values of short-term assets like deposits
or, for that matter, software that will soon be obsolete don’t vary much
with interest rates; values of long-term assets like housing should
vary a lot. Equities are claims on the assets of corporations, which
include a mix of short-term stuff like software, long-term stuff like
structures, and invisible assets like goodwill and market position that
may span the whole range of longevity.
The point is that it’s
not at all obvious why housing should be left behind in general by easy
money. In fact, one of the dirty little secrets of monetary policy is
that it normally works through housing, with little direct impact on
business investment.
So why was this time
different? Surely the answer is that housing had an immense bubble in
the mid-2000s, so that it wasn’t going to come roaring back. Meanwhile,
stocks took a huge beating in 2008-9, but this was financial disruption
and panic, and they would probably have made a strong comeback even
without QE.
If we take a
longer-term perspective, you can see that the relationship between
monetary policy and stocks versus housing varies a lot. The charts show
real stock prices (from Robert Shiller) and real housing prices:
The easy-money
policies that followed the bursting of the 90s stock bubble produced a
surge in housing prices, not so much in stocks — the opposite of recent
years. The point is that a lot depends on the history, and the belief
that QE systematically favors the kinds of assets the wealthy own is
wrong or at least overstated.
Meanwhile, for most
people neither interest rates nor asset prices are key to financial
health — instead, it’s all about wages. And new research just posted on Vox, using time-series methods on micro data, finds that
the empirical evidence points toward monetary policy actions affecting inequality in the direction opposite to the one suggested by Ron Paul and the Austrian economists.
Which brings me back
to the reason most of us favor QE. No, Janet Yellen and I aren’t
secretly on the Goldman Sachs payroll. Nor do I (or, I suspect, Yellen)
believe that unconventional monetary policy can produce miracles. The
main response to a depressed economy should have been fiscal; the case
for a large infrastructure program remains overwhelming.
But given the
political realities, that’s not going to happen. The Fed is the only
game in town. And you really don’t want to trash the Fed’s efforts
without seriously doing your homework"
Magazine
Can Video Games Fend Off Mental Decline?
“Brain training” games have become big business, but the research is still unclear about whether they improve your brain over all.Your Money
Combating a Flood of Early 401(k) Withdrawals
Millions of people are clearly not using 401(k) and similar plans as retirement accounts at all, and it’s a threat to their financial health.Opinion
Why Kobani Must Be Saved
A setback in Kobani, Syria, would show the fragility of the American operation and hand the Islamic State an important victory.The Upshot
The Conflict Between Germany and the E.C.B. That Threatens Europe
Unlike Germany, Mario Draghi and the European Central Bank see a long deflationary period as the biggest danger for Europe.Opinion
Modi’s Idea of India
Hindu nationalists are vengeful nativists who recoil from the West while promoting their own religious and racial supremacy.Opinion
Another Round on Energy Rebound
Two analysts of energy trends expand on their view that efficiency’s climate and energy benefits have been overstated.Your Money
More Boot Camp Than Spa
Many established spas and retreats are retooling their offerings to attract the same target: wealthy, successful and highly stressed-out executives.The Upshot
Michelle Nunn Is Within Reach of an Outright Georgia Victory
Polls show that the Democratic Senate candidate may be able to clear the 50 percent threshold to avoid a runoff in January.World
In French Port City, ‘a Real Psychosis’
Resentment and fear have swept Calais, France, in the last year amid a new wave of migrants hoping to cross illegally to Britain, which they see as a better place than France to start a new life.World
Deal Set on China-Led Infrastructure Bank
The Asian Infrastructure Investment Bank, with much of its initial $50 billion in capital provided by Beijing, would offer financing for projects across Asia.The loan interest rates at the World Bank and the IMF can fall.
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Business Day
Three More States Ban a Type of Highway Guardrail
Ten states have now banned the ET-Plus system made by Trinity Industries, which is suspected of malfunctioning in crashes.World
Libya: Army Advances in Benghazi
The Libyan Army and its allies among local militias have taken control of one of the largest camps of Islamist forces in the eastern city of Benghazi, military officials said Friday.Business Day
Raj Rajaratnam's Younger Brother Settles Insider Trading Suit
Rengan Rajaratnam, who was acquitted in a criminal insider trading case earlier this year, agreed to pay little more than $840,000 in fines and restitution to settle a related civil lawsuit.N.Y. / Region
Friday File
“Klinghoffer” protests echo those of 50 years ago, when people opposed a play called “The Deputy” for its anti-pope sentiment.World
Stars Backing Hong Kong Protests Pay Price on Mainland
Artists backing the pro-democracy movement are being punished by fans and companies in mainland China, on whose support many of their careers depend.World
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