J. Bradford DeLong's Blog, page 1144
September 28, 2014
Monday Smackdown: Yet More Chapter 11 of David Graeber's "Debt" in Chapter 7: (Definitely Not) the Honest Broker for the Week of October 3, 2014
During the past two weeks the drought of high-quality DeLong smackdowns on the internet has resumed. So it is time to turn back to the promise I made myself on April Fools Day 2013, and see whether the rest of the chapters of David Graeber's Debt: The First Five Thousand Mistakes are of as low quality as the utterly bolixed up chapter 12.
As you will recall, David Graeber is infamous for:
Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages...
and for having, concurrently and subsequently, offered three different explanations of how this howler came to be written and published:
He has claimed that it it all perfectly true, just not of Apple but of other companies (none of which he has ever named).
He has claimed that he had been misled by Richard Wolff, who taught him about Silicon Valley's communal garage laptop circles of the 1980s.
He has claimed that what he had written was coherent and accurate, but that (for some unexplained reason) his editor and publisher had bolixed it all up.
This passage is, in the words of the very sharp LizardBreath:[1]
The Thirteenth Chime... that make[s] me wonder whether any fact in the book I don't know for certain to be true can be trusted...
And things have gone downhill from there...
If you have not been following along, skip to here for the backstory:.
I looked, but could not find anybody masochistic enough give a close reading to David Graeber's earlier chapters before the chapter 12 that I had read and, yes concluded was in general about as weak as his knowledge of Silicon Valley. So last June--before the arrival of manna from heaven in the form of high-quality DeLong smackdowns ended the drought--we had begun in on chapter 11. Now we continue:
On to the next kindle screen here! We have:
Graeber has arithmetic problems. One of them:
Between 1500 and 1650, Graeber says, as a result of the bullion inflow from the Americas prices increased 500%.
But he earlier claimed that this period also saw a diminution in the use of virtual currencies, or credit.
With prices going up 500% and with population increasing, the total flow of nominal spending went up by more than 500%.
With less use of credit and virtual currencies, the total amount of precious metals in circulation must have gone up by more than 500%--but it didn't.
Therefore Graeber has here disproved his earlier claim that the post-1450 era saw a relative fall in credit and relative rise in bullion and precious-metal coinage.
Yet Graeber doesn't know enough about arithmetic to realize that the numbers he presents undermine the point he had claimed to be making.
Another problem:
Prices increased sixfold. Real wages declined by 60%. That means that nominal wages increased from a base of 100 in 1500 to 240 in 1650.
That is not wage stickiness. Usually, when people say "wages simply couldn't keep up" the mean that some institutional or contractual feature made wages sticky. But wages weren't sticky: they could change, and did change, and did change by a lot.
Because Graeber doesn't do the arithmetic to recognize that by his reckoning nominal wages in 1650 were nearly 2.5 times their 1500 level, he doesn't understand that to say "wages couldn't keep up" is not a sufficient explanation. Why couldn't wages keep up? Since it wasn't because they were stuck for psychological and institutional reasons, it must have been something about supply and demand? What? Graeber doesn't say, and isn't even aware that he should say.
That nominal wages rose very rapidly indeed in the years around 1500 is the reason that nearly all economic historians have concluded that we need to shift from institutional nominal-stickiness explanations of the decline in real wages in the early modern period to demographic real-Malthusian supply-and-demand explanations.
Thus the big question--which Graeber makes no attempt to answer--is what the real, not nominal, factors were that caused the large post-Black Death real wage boom to be so quickly reversed. Jean Bodin was state-of-the-art as far as economic analysis was concerned in 1568, but not today.
Maybe the next screen will clarify matters?
No. It does not clarify matters.
That being said, this is the first place I have found in chapter 11 in which Graeber says something that seems to me to be (a) non-obvious and (b) true. It is a serious "problem with the [Jean Bodin] story... that... the gold ended up in temples in India, and the overwhelming majority of the silver was ultimately shipped off to China..." I would say that it is more than a serious problem: it is a decisive flaw.
But immediately after making this true observation, Graeber loses the thread of his own argument. He forgets that he posed the problem of and thus owes us an explanation of why European real wages collapsed from 1500-1650, and leaves us hanging. Instead of presenting an alternative explanation for the fact that bricklayers in the England of James I could buy only two-thirds as much bread as bricklayers in the England of Henry IV, he wanders off 6,000 miles away, to China, and forgets that he had started and framed the first part of this chapter as about a shift in Europe from credit money to gold and silver.
We peek forward to the end of the paragraph at the top of the next page:
This raises natural questions:
If "the place to start" if you are looking for "the origins of the modern world economy" is "not in Europe at all", then why did Graeber start the chapter in Europe, which is not the place to start?
Where were the editors, the friends, the colleagues, the internal reflective selves who ought to have told him that if you find yourself writing that the place you started is not the place to start, that is a sign that you should throw away the false start as mere throat clearing?
How can the Chinese abandonment of paper money for specie be "the place to start" in understanding a modern world economy that makes and has made immense use of paper money and other financial instruments for half a millennium?
It will be interesting to see if Graeber makes any attempt to provide any answer to these questions as we read forward. So let us read on--and I definitely need to pick up the pace...
Now maybe I am misinformed, but I had always thought that the Ming Dynasty saw American silver not as something that made their task of ruling easier but as something that made it more difficult--that the Ming Dynasty had tried, after the inward turn following the voyages of Zheng He, to wall itself off from the rest of the global trading world; failing that to wall off the interior from the trading coast; and had only succumbed to the silverization of the economy in the 1570s--when it was approaching its last legs--with the "Single-Whip Tax System".[2] The regime did not first silverize and then turn to American silver to solve a problem: American silver arrived, and the regime fought silverization for more than half a century. Why Graeber thinks American silver was either seen by the dynasty as or was an aid to Ming rule I do not know.
Backing up, Graeber appears to think that the Chinese economy boomed during the Ming Dynasty because of a mid-Ming shift to pro-market pro-silver policies. And the Ming economy did indeed boom: a population rise from roughly 100 million at the middle of the fourteenth century to roughly 200 million at the beginning of the seventeenth century. The thing is that GDP in the Ming Dynasty Chinese economy--like in all agrarian economies--was 75% the harvest: living standards depended overwhelmingly on agricultural capital, agricultural technology, and whether nature cooperated. And here it was internal piece, the spread of double- and triple-cropping rice strains, extraordinary investments in wet-field and irrigation canal construction, plus the new crops of the Columbian Exchange that were decisive. I don't know why Graeber thinks that mid- and late-Ming silverization and the near-abolition of feudalism with Chinese characteristics were at all decisive here.
Nor do I understand why Graeber thinks that the early-Ming policy turn of the dynasty arose because:
During their century [1234 north/1271 south-1368] of rule, the Mongols had worked closely with foreign merchants, who became widely detested. Partly as a result, the former rebels, now the Ming dynasty, were suspicious of commerce in any form, and they promoted a romantic vision of self-sufficient agrarian communities. This had some unfortunate consequences. For one thing, it meant the maintenance of the old Mongol tax system, paid in labor and in kind; especially since that, in turn, was based on a quasi-caste system in which subjects were registered as farmers, craftsmen, or soldiers and forbidden to change their jobs.
I don't get this: as part of the reaction against the policies of the Yuan dynasty, the early Ming (a) kept the Mongol tax system and (b) continued the Mongol version of feudalism with Chinese characteristics? Graeber's footnote for this is:
Brook 1998. Needless to say, I’m simplifying enormously...
Timothy Brook's The Confusions of Pleasure: Commerce and Culture in Ming China[3] is a very interesting book. But it is important to note that it is, as Timothy Brook writes in the preface:
not an economic history of the Ming Dynasty... but a cultural history of a place that commerce was remaking...
It is a recreation of China as seen from the viewpoint of those who were powerful either because of their membership in or their usefulness as bureaucrats-landlords-literati to the ruling Ming Dynasty, and who feared commerce either because it created alternative power elites or because it gave non-elites options. Their view of what the Chinese economy had been at the start of the Ming and was becoming is not reliable.
And it is important to register where Timothy Brook was coming from when he finished the book back in 1998. He writes:
My interest in the Ming dynasty goes back to my student days at Fudan University in Shanghai, when Professor Li Qingjia first introduced me to the writings of late-Ming philosophers. That was in the heady spring of 1976, when Shanghai was caught in the final year of the Cultural Revolution, suspended between the high-court politics and anticommercialism of the “Gang of Four” (all of them natives or one-time residents of Shanghai) and the world of what then passed for fashion down on Huaihai Road, where muted commercial instincts sought to inch past the political cordon. With the death of Chairman Mao Zedong later that year, China slipped from socialism to the market with a rapidity most Chinese found shocking, provoking anxieties...
No. For most Chinese, slipping from the socialism to the market economy meant the abolition of the communes, with the accompanying great gain in individual freedom that came from no longer being a serf to the local commune boss plus roughly a doubling of rural peasant living standards. Deng Xiaoping and his successors have enormous credit with 老百姓 for this, and the rest of the transformation away from the late-Maoist era of Great Leap Forward-Great Famine-Cultural Revolution. That Brook does not see this--the single dominant fact about China that he lived through--and writes instead about how it was:
found shocking, provoking anxieties about what in the late 1970s was called a “poverty of philosophy,” then moving on to a more general sense of cultural crisis in the 1980s...
speaks volumes.
Brook back in 1998 continues:
Struggling with the conundrum of how to blend desire for profit with desire for moral good, Chinese in the post-Mao age found themselves reliving a contradiction that Chinese of the late-Ming dynasty knew well. From the perspective of the 1990s, when silver has become the undisputed lord of the land and the urban sex and luxury trades assume almost late-Ming-like proportions, even that debate now seems antique, a quick backward glance to a moral vision that disintegrates as China finds its place in the international division of labor. In presenting the Ming dynasty as a coherent arc of change from ordered rural self-sufficiency in the early Ming to the decadence of urban-based commerce in the late, I am conscious of parallels with my own time.... This is not to say that the narrative arises from other than Ming sources, only to acknowledge that every historian writes the past from the present...
Is Brook as of 1998 a more reliable guide to the political-economic processes (as opposed to the cultural processes, at which he is a master) of 1368-1644 than to the political-economic processes of his own day? Graeber appears to think so. I am not sure why.
F--- me. This is now 3843 words. And I am only 7 kindle screens into a chapter 11 that is 81 kindle screens long. And I do not even have the beginning of a sense of what Graeber has to say about his "Age of the Great Capitalist Empires" that is (a) correct and (b) interesting.
Right now my state-of-mind is more-or-less that of Daniel Davies, when he discovered exactly what his "shorter Stephen den Beste" project had gotten him into:[4]
...What people want is a Shorter Stephen den Beste; one that doesn't take about ten thousand words to get from A to halfway through the downstroke of B. So I'll be posting one-sentence summaries of posts on the USS Clueless... until I get bored. Here's today's batch:
I've never served in uniform.
My dislike of the French is independent of any facts about the world.
No thanks, please, I do it for the love.
Update: F--- me, this is gonna be more work than I thought...
I turned to reading Graeber's chapter 12, and found myself reading it with a jaundiced eye: dozens upon dozens of simple mistakes:
The Federal Reserve is not a council of eighteen private bankers plus a presidential appointee as their chair.
Korean-American shopkeepers do not long to treat everybody else in Brooklyn the way Saul and Samuel treated the people of Amalek.
That people are happier to hold the debt of the Swiss than the US government shows that it is not fear of being bombed by the US Air Force that makes people eager to hold U.S. Treasuries.
The Federal Reserve is perfectly constitutional--as is the FDA, the FCC, the EPA, the FTC, etc.
Nixon did not close the gold window because of the mounting costs of the Vietnam War.
There is nothing that makes Iraq more likely than any other corner of the world to be the source of the next forward leap in human society.
The Federal Reserve does not lend private banks money at the prime rate--you really don't know whether to laugh or cry at passages like: "For those who don't know how the Fed works: technically, there are a series of stages. Generally the Treasury puts out bonds to the public, and the Fed buys them back. The Fed then loans the money thus created to other banks at a special low rate of interest ('the prime rate')..."
And dozens upon dozens more in chapter 12 alone.
I looked, but could not find anybody masochistic enough give a similarly jaundiced reading to David Graeber's earlier chapters. So last June--before the arrival of manna from heaven in the form of high-quality DeLong smackdowns ended the drought--we had begun in on chapter 11. We had noted:
Graeber's lumping together of five eras--the Waning of the Middle Ages, the Commercial Revolution, the Industrial Revolution, the First True Era of Globalization, and the Drive to High Mass Consumption--in his one chapter on "The Age of the Great Capitalist Empires, 1450-1971", mixing not just apples and oranges but apples, yeast, giant redwoods, and tyrannosaurs. Such a macedoine is highly unlikely to produce anything coherent.
Graeber's starting his chapter in 1450 and ending it in 1971. Richard Nixon's 1971 abandonment of the Bretton Woods system is not the end of or the beginning of any important story. And what does 1450 mark? The Fall of Constantinople to Mehmet II? But that happened in 1453.
Graeber's long introductory quotation about debt peonage. As Marx knew better than anyone else, capitalism is three things--(i) wage labor, (ii) the separation of private property in land from thick-tie social relationships, and (iii) markets--that together a world in which people are the puppets of market forces transmitted through the equilibrium prices at which they buy and sell. Debt peonage is when there is one and only one person from whom you have to buy--the patron, the latifundista--one and only one person to whom you can sell--again, the patron--and, soon and inevitably, one and only one person to whom you try to pay the interest on your debt. What does debt peonage have to do with the creation of great capitalist empires? Very little. How does debt peonage require a great capitalist empire to support it? It doesn't. How do great capitalist empires depend on debt peonage? They don't.
Graeber's writing that it is "odd to frame [1450-1971] as just another turn of an [ongoing] historical cycle". He is right. It is odd.
Graeber's claiming that the amount of bullion and precious-metal coinage in Europe underwent some sort of inflection point in 1450. It did not.
Graeber's claiming that starting in 1450 we see a "turn away from virtual currencies and credit economies" back to bullion. We do not. The funded, liquid, traded debt of the Dutch Republic in 1600 as it fought off Spanish-Habsburg conquest vastly exceeded the debt that Philippe IV Capet could issue in 1300. And the virtual credit flows later on in the 1450-1971 period absolutely dwarfed those before 1450.
Graeber's writing of "the 1400s... [as] a century of endless catastrophe: large cities were regularly decimated by the Black Death". The 1400s saw a very substantial rebound in urban life after the disasters of the 1300s: Europe's largest cities in 1500 look to have been half again as numerous as they had been in 1400.
Graeber's writing of how in the 1400s saw "knightly classes squabbl[ing] over the remnants, leaving much of the countryside devastated by endemic war..." The 1400s saw rather less endemic warfare than the centuries on either side of it had. It was the 1300s that had the bulk of the Hundred Years War. It was the 1500s that had first the French-Spanish struggles over Italy and then the Wars of Religion. Wars, yes. Chevauchee, yes--urning out of the countryside as a way to get the opposing knights to come out of their castles. But only par for the late-medieval course.
Graeber's claiming that in the 1400s "Christendom was staggering, with the Ottoman Empire... pushing steadily into central Europe..." Here Graeber has simply lost his mind. The 1400s do not see the Ottoman Empire anywhere in central Europe--in the 1400s it conquers Constantinople, acquires a very loose acknowledgement of vassalage from the Khan of the Crimea, establishes naval bases and outposts at the site of the 2014 Winter Olympic Games, wins a somewhat stronger acknowledgement of vassalage from the Princes of Wallachia and Moldavia, and conquers (a) Bosnia, (b) Albania, (c) Attica, and (d) the Peloponnese count either. If conquering Bosnia is a steady push into central Europe that causes Christendom to stagger, that is news to everyone except the Bosniaks. The first of the two unsuccessful Ottoman attempt to conquer Vienna came in 1529. The conquest of Buda and Pest did not, IIRC, occur until 1541. The attack on Malta in 1565 might count as an incursion into southern Europe--if Malta were in southern Europe, that is, and if the attempt to conquer Malta had not been a failure. The Ottomans did conquer Cyprus in 1570-1. The Ottoman high-water marks took place at the Battle of Lepanto in 1571 on sea, and in the first half of the 1600s on land. Perhaps Graeber simply doesn't look either at maps or dates?
Let's mock Graeber again on his claiming that in the 1400s "Christendom was staggering..." Western Christendom does shrink along its borders with the Ottoman Empire. But everywhere else things are different: The 1400s see the ethnic cleansing of Muslims and Jews from the Spanish peninsula by Castile. The 1400s see the advance of the Portuguese forces of Dom Henrique Aziz and his successors from Cueta south along the coast of Africa and into the Indian Ocean. The 1400s see Cristobal Colon and his Spanish company leap across the Atlantic in the last eight years of the century. The 1400s see Casimir IV Jagiellon of Poland on the offensive deep into the Ukrainian steppe. They see Ivan III Rurik of Muscovy subdue the Khanate of Kazan. My considered and sober judgment is that a California high-school student cribbing from Wikipedia would have done considerably better.
And let us mock Graeber for forgetting that just a couple of pages after he writes about how in the 1400s "the commercial economy sagged... whole cities went bankrupt, defaulting on their bonds..." with the knightly classes "squabbl[ing] over the remnants" he writes that the 1400s saw "so much wealth was flowing into the hands" of people outside the knightly feudal hierarchy that "government... forbid... the lowborn to wear silks and ermine". You see the problem? The "lowborn" wearing silks and ermine are the burghers and guild masters of the cities that Graeber claimed--only two pages before--had been depopulated by plague and were defaulting on their debt because economies had "sagged" and, in places, "collapsed". This is word salad.
Note that we are only three kindle screens into the text of chapter 11 here. We are going to have to pick up the pace.
And note that up to this point in the chapter, with its many errors and misconceptions, Graeber has managed to drop only one footnote. Does the footnote explain or justify any of his more bizarre claims? No. It simply notes Dyer (1989), Humphrey (2001), and Federici (2008) as sources for the changing level of English real wages and the changing quality of English "festive life".
(I would note that were Graeber to talk in the presence of the Londoners of the days of Charles II Stuart (1660-1685) of how "Medieval festive life, with its floats and dragons, maypoles and church ales, its Abbots of Unreason and Lords of Misrule" was in the "next centuries" after 1450 "destroyed" would have evoked their surprise and laughter. There was a reduction in "festivity" as the so-called Little Ice Age and the down-phase of the Malthusian population cycle took hold: with fewer growing days and smaller farms you did need to put in more working hours. But Graeber's religious-ideology claims are greatly overstated. In general in early-modern Europe Reformers were not Calvinists, Calvinists were not Puritans:
and even Puritans were not culturally hegemonic for much more than a decade anywhere other than Scotland and New England. You can talk about a privatization and a desacralization of celebration and spectacle. But I really do not think you can talk of any sort of destruction of feast and festivity...)
Monday Smackdown: Yet More Chapter 11 of David Graeber's "Debt" in Chapter 7: (Definitely Not) the Honest Broker for the Week of
During the past two weeks the drought of high-quality DeLong smackdowns on the internet has resumed. So it is time to turn back to the promise I made myself on April Fools Day 2013, and see whether the rest of the chapters of David Graeber's Debt: The First Five Thousand Mistakes are of as low quality as the utterly bolixed up chapter 12.
As you will recall, David Graeber is infamous for:
Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages...
and for having, concurrently and subsequently, offered three different explanations of how this howler came to be written and published:
He has claimed that it it all perfectly true, just not of Apple but of other companies (none of which he has ever named).
He has claimed that he had been misled by Richard Wolff, who taught him about Silicon Valley's communal garage laptop circles of the 1980s.
He has claimed that what he had written was coherent and accurate, but that (for some unexplained reason) his editor and publisher had bolixed it all up.
This passage is, in the words of the very sharp LizardBreath:[1]
The Thirteenth Chime... that make[s] me wonder whether any fact in the book I don't know for certain to be true can be trusted...
And things have gone downhill from there...
If you have not been following along, skip to here for the backstory:.
I looked, but could not find anybody masochistic enough give a close reading to David Graeber's earlier chapters before the chapter 12 that I had read and, yes concluded was in general about as weak as his knowledge of Silicon Valley. So last June--before the arrival of manna from heaven in the form of high-quality DeLong smackdowns ended the drought--we had begun in on chapter 11. Now we continue:
On to the next kindle screen here! We have:
Graeber has arithmetic problems. One of them:
Between 1500 and 1650, Graeber says, as a result of the bullion inflow from the Americas prices increased 500%.
But he earlier claimed that this period also saw a diminution in the use of virtual currencies, or credit.
With prices going up 500% and with population increasing, the total flow of nominal spending went up by more than 500%.
With less use of credit and virtual currencies, the total amount of precious metals in circulation must have gone up by more than 500%--but it didn't.
Therefore Graeber has here disproved his earlier claim that the post-1450 era saw a relative fall in credit and relative rise in bullion and precious-metal coinage.
Yet Graeber doesn't know enough about arithmetic to realize that the numbers he presents undermine the point he had claimed to be making.
Another problem:
Prices increased sixfold. Real wages declined by 60%. That means that nominal wages increased from a base of 100 in 1500 to 240 in 1650.
That is not wage stickiness. Usually, when people say "wages simply couldn't keep up" the mean that some institutional or contractual feature made wages sticky. But wages weren't sticky: they could change, and did change, and did change by a lot.
Because Graeber doesn't do the arithmetic to recognize that by his reckoning nominal wages in 1650 were nearly 2.5 times their 1500 level, he doesn't understand that to say "wages couldn't keep up" is not a sufficient explanation. Why couldn't wages keep up? Since it wasn't because they were stuck for psychological and institutional reasons, it must have been something about supply and demand? What? Graeber doesn't say, and isn't even aware that he should say.
That nominal wages rose very rapidly indeed in the years around 1500 is the reason that nearly all economic historians have concluded that we need to shift from institutional nominal-stickiness explanations of the decline in real wages in the early modern period to demographic real-Malthusian supply-and-demand explanations.
Thus the big question--which Graeber makes no attempt to answer--is what the real, not nominal, factors were that caused the large post-Black Death real wage boom to be so quickly reversed. Jean Bodin was state-of-the-art as far as economic analysis was concerned in 1568, but not today.
Maybe the next screen will clarify matters?
No. It does not clarify matters.
That being said, this is the first place I have found in chapter 11 in which Graeber says something that seems to me to be (a) non-obvious and (b) true. It is a serious "problem with the [Jean Bodin] story... that... the gold ended up in temples in India, and the overwhelming majority of the silver was ultimately shipped off to China..." I would say that it is more than a serious problem: it is a decisive flaw.
But immediately after making this true observation, Graeber loses the thread of his own argument. He forgets that he posed the problem of and thus owes us an explanation of why European real wages collapsed from 1500-1650, and leaves us hanging. Instead of presenting an alternative explanation for the fact that bricklayers in the England of James I could buy only two-thirds as much bread as bricklayers in the England of Henry IV, he wanders off 6,000 miles away, to China, and forgets that he had started and framed the first part of this chapter as about a shift in Europe from credit money to gold and silver.
We peek forward to the end of the paragraph at the top of the next page:
This raises natural questions:
If "the place to start" if you are looking for "the origins of the modern world economy" is "not in Europe at all", then why did Graeber start the chapter in Europe, which is not the place to start?
Where were the editors, the friends, the colleagues, the internal reflective selves who ought to have told him that if you find yourself writing that the place you started is not the place to start, that is a sign that you should throw away the false start as mere throat clearing?
How can the Chinese abandonment of paper money for specie be "the place to start" in understanding a modern world economy that makes and has made immense use of paper money and other financial instruments for half a millennium?
It will be interesting to see if Graeber makes any attempt to provide any answer to these questions as we read forward. So let us read on--and I definitely need to pick up the pace...
Now maybe I am misinformed, but I had always thought that the Ming Dynasty saw American silver not as something that made their task of ruling easier but as something that made it more difficult--that the Ming Dynasty had tried, after the inward turn following the voyages of Zheng He, to wall itself off from the rest of the global trading world; failing that to wall off the interior from the trading coast; and had only succumbed to the silverization of the economy in the 1570s--when it was approaching its last legs--with the "Single-Whip Tax System".[2] The regime did not first silverize and then turn to American silver to solve a problem: American silver arrived, and the regime fought silverization for more than half a century. Why Graeber thinks American silver was either seen by the dynasty as or was an aid to Ming rule I do not know.
Backing up, Graeber appears to think that the Chinese economy boomed during the Ming Dynasty because of a mid-Ming shift to pro-market pro-silver policies. And the Ming economy did indeed boom: a population rise from roughly 100 million at the middle of the fourteenth century to roughly 200 million at the beginning of the seventeenth century. The thing is that GDP in the Ming Dynasty Chinese economy--like in all agrarian economies--was 75% the harvest: living standards depended overwhelmingly on agricultural capital, agricultural technology, and whether nature cooperated. And here it was internal piece, the spread of double- and triple-cropping rice strains, extraordinary investments in wet-field and irrigation canal construction, plus the new crops of the Columbian Exchange that were decisive. I don't know why Graeber thinks that mid- and late-Ming silverization and the near-abolition of feudalism with Chinese characteristics were at all decisive here.
Nor do I understand why Graeber thinks that the early-Ming policy turn of the dynasty arose because:
During their century [1234 north/1271 south-1368] of rule, the Mongols had worked closely with foreign merchants, who became widely detested. Partly as a result, the former rebels, now the Ming dynasty, were suspicious of commerce in any form, and they promoted a romantic vision of self-sufficient agrarian communities. This had some unfortunate consequences. For one thing, it meant the maintenance of the old Mongol tax system, paid in labor and in kind; especially since that, in turn, was based on a quasi-caste system in which subjects were registered as farmers, craftsmen, or soldiers and forbidden to change their jobs.
I don't get this: as part of the reaction against the policies of the Yuan dynasty, the early Ming (a) kept the Mongol tax system and (b) continued the Mongol version of feudalism with Chinese characteristics? Graeber's footnote for this is:
Brook 1998. Needless to say, I’m simplifying enormously...
Timothy Brook's The Confusions of Pleasure: Commerce and Culture in Ming China[3] is a very interesting book. But it is important to note that it is, as Timothy Brook writes in the preface:
not an economic history of the Ming Dynasty... but a cultural history of a place that commerce was remaking...
It is a recreation of China as seen from the viewpoint of those who were powerful either because of their membership in or their usefulness as bureaucrats-landlords-literati to the ruling Ming Dynasty, and who feared commerce either because it created alternative power elites or because it gave non-elites options. Their view of what the Chinese economy had been at the start of the Ming and was becoming is not reliable.
And it is important to register where Timothy Brook was coming from when he finished the book back in 1998. He writes:
My interest in the Ming dynasty goes back to my student days at Fudan University in Shanghai, when Professor Li Qingjia first introduced me to the writings of late-Ming philosophers. That was in the heady spring of 1976, when Shanghai was caught in the final year of the Cultural Revolution, suspended between the high-court politics and anticommercialism of the “Gang of Four” (all of them natives or one-time residents of Shanghai) and the world of what then passed for fashion down on Huaihai Road, where muted commercial instincts sought to inch past the political cordon. With the death of Chairman Mao Zedong later that year, China slipped from socialism to the market with a rapidity most Chinese found shocking, provoking anxieties...
No. For most Chinese, slipping from the socialism to the market economy meant the abolition of the communes, with the accompanying great gain in individual freedom that came from no longer being a serf to the local commune boss plus roughly a doubling of rural peasant living standards. Deng Xiaoping and his successors have enormous credit with 老百姓 for this, and the rest of the transformation away from the late-Maoist era of Great Leap Forward-Great Famine-Cultural Revolution. That Brook does not see this--the single dominant fact about China that he lived through--and writes instead about how it was:
found shocking, provoking anxieties about what in the late 1970s was called a “poverty of philosophy,” then moving on to a more general sense of cultural crisis in the 1980s...
speaks volumes.
Brook back in 1998 continues:
Struggling with the conundrum of how to blend desire for profit with desire for moral good, Chinese in the post-Mao age found themselves reliving a contradiction that Chinese of the late-Ming dynasty knew well. From the perspective of the 1990s, when silver has become the undisputed lord of the land and the urban sex and luxury trades assume almost late-Ming-like proportions, even that debate now seems antique, a quick backward glance to a moral vision that disintegrates as China finds its place in the international division of labor. In presenting the Ming dynasty as a coherent arc of change from ordered rural self-sufficiency in the early Ming to the decadence of urban-based commerce in the late, I am conscious of parallels with my own time.... This is not to say that the narrative arises from other than Ming sources, only to acknowledge that every historian writes the past from the present...
Is Brook as of 1998 a more reliable guide to the political-economic processes (as opposed to the cultural processes, at which he is a master) of 1368-1644 than to the political-economic processes of his own day? Graeber appears to think so. I am not sure why.
F--- me. This is now 3843 words. And I am only 7 kindle screens into a chapter 11 that is 81 kindle screens long. And I do not even have the beginning of a sense of what Graeber has to say about his "Age of the Great Capitalist Empires" that is (a) correct and (b) interesting.
Right now my state-of-mind is more-or-less that of Daniel Davies, when he discovered exactly what his "shorter Stephen den Beste" project had gotten him into:[4]
...What people want is a Shorter Stephen den Beste; one that doesn't take about ten thousand words to get from A to halfway through the downstroke of B. So I'll be posting one-sentence summaries of posts on the USS Clueless... until I get bored. Here's today's batch:
I've never served in uniform.
My dislike of the French is independent of any facts about the world.
No thanks, please, I do it for the love.
Update: F--- me, this is gonna be more work than I thought...
I turned to reading Graeber's chapter 12, and found myself reading it with a jaundiced eye: dozens upon dozens of simple mistakes:
The Federal Reserve is not a council of eighteen private bankers plus a presidential appointee as their chair.
Korean-American shopkeepers do not long to treat everybody else in Brooklyn the way Saul and Samuel treated the people of Amalek.
That people are happier to hold the debt of the Swiss than the US government shows that it is not fear of being bombed by the US Air Force that makes people eager to hold U.S. Treasuries.
The Federal Reserve is perfectly constitutional--as is the FDA, the FCC, the EPA, the FTC, etc.
Nixon did not close the gold window because of the mounting costs of the Vietnam War.
There is nothing that makes Iraq more likely than any other corner of the world to be the source of the next forward leap in human society.
The Federal Reserve does not lend private banks money at the prime rate--you really don't know whether to laugh or cry at passages like: "For those who don't know how the Fed works: technically, there are a series of stages. Generally the Treasury puts out bonds to the public, and the Fed buys them back. The Fed then loans the money thus created to other banks at a special low rate of interest ('the prime rate')..."
And dozens upon dozens more in chapter 12 alone.
I looked, but could not find anybody masochistic enough give a similarly jaundiced reading to David Graeber's earlier chapters. So last June--before the arrival of manna from heaven in the form of high-quality DeLong smackdowns ended the drought--we had begun in on chapter 11. We had noted:
Graeber's lumping together of five eras--the Waning of the Middle Ages, the Commercial Revolution, the Industrial Revolution, the First True Era of Globalization, and the Drive to High Mass Consumption--in his one chapter on "The Age of the Great Capitalist Empires, 1450-1971", mixing not just apples and oranges but apples, yeast, giant redwoods, and tyrannosaurs. Such a macedoine is highly unlikely to produce anything coherent.
Graeber's starting his chapter in 1450 and ending it in 1971. Richard Nixon's 1971 abandonment of the Bretton Woods system is not the end of or the beginning of any important story. And what does 1450 mark? The Fall of Constantinople to Mehmet II? But that happened in 1453.
Graeber's long introductory quotation about debt peonage. As Marx knew better than anyone else, capitalism is three things--(i) wage labor, (ii) the separation of private property in land from thick-tie social relationships, and (iii) markets--that together a world in which people are the puppets of market forces transmitted through the equilibrium prices at which they buy and sell. Debt peonage is when there is one and only one person from whom you have to buy--the patron, the latifundista--one and only one person to whom you can sell--again, the patron--and, soon and inevitably, one and only one person to whom you try to pay the interest on your debt. What does debt peonage have to do with the creation of great capitalist empires? Very little. How does debt peonage require a great capitalist empire to support it? It doesn't. How do great capitalist empires depend on debt peonage? They don't.
Graeber's writing that it is "odd to frame [1450-1971] as just another turn of an [ongoing] historical cycle". He is right. It is odd.
Graeber's claiming that the amount of bullion and precious-metal coinage in Europe underwent some sort of inflection point in 1450. It did not.
Graeber's claiming that starting in 1450 we see a "turn away from virtual currencies and credit economies" back to bullion. We do not. The funded, liquid, traded debt of the Dutch Republic in 1600 as it fought off Spanish-Habsburg conquest vastly exceeded the debt that Philippe IV Capet could issue in 1300. And the virtual credit flows later on in the 1450-1971 period absolutely dwarfed those before 1450.
Graeber's writing of "the 1400s... [as] a century of endless catastrophe: large cities were regularly decimated by the Black Death". The 1400s saw a very substantial rebound in urban life after the disasters of the 1300s: Europe's largest cities in 1500 look to have been half again as numerous as they had been in 1400.
Graeber's writing of how in the 1400s saw "knightly classes squabbl[ing] over the remnants, leaving much of the countryside devastated by endemic war..." The 1400s saw rather less endemic warfare than the centuries on either side of it had. It was the 1300s that had the bulk of the Hundred Years War. It was the 1500s that had first the French-Spanish struggles over Italy and then the Wars of Religion. Wars, yes. Chevauchee, yes--urning out of the countryside as a way to get the opposing knights to come out of their castles. But only par for the late-medieval course.
Graeber's claiming that in the 1400s "Christendom was staggering, with the Ottoman Empire... pushing steadily into central Europe..." Here Graeber has simply lost his mind. The 1400s do not see the Ottoman Empire anywhere in central Europe--in the 1400s it conquers Constantinople, acquires a very loose acknowledgement of vassalage from the Khan of the Crimea, establishes naval bases and outposts at the site of the 2014 Winter Olympic Games, wins a somewhat stronger acknowledgement of vassalage from the Princes of Wallachia and Moldavia, and conquers (a) Bosnia, (b) Albania, (c) Attica, and (d) the Peloponnese count either. If conquering Bosnia is a steady push into central Europe that causes Christendom to stagger, that is news to everyone except the Bosniaks. The first of the two unsuccessful Ottoman attempt to conquer Vienna came in 1529. The conquest of Buda and Pest did not, IIRC, occur until 1541. The attack on Malta in 1565 might count as an incursion into southern Europe--if Malta were in southern Europe, that is, and if the attempt to conquer Malta had not been a failure. The Ottomans did conquer Cyprus in 1570-1. The Ottoman high-water marks took place at the Battle of Lepanto in 1571 on sea, and in the first half of the 1600s on land. Perhaps Graeber simply doesn't look either at maps or dates?
Let's mock Graeber again on his claiming that in the 1400s "Christendom was staggering..." Western Christendom does shrink along its borders with the Ottoman Empire. But everywhere else things are different: The 1400s see the ethnic cleansing of Muslims and Jews from the Spanish peninsula by Castile. The 1400s see the advance of the Portuguese forces of Dom Henrique Aziz and his successors from Cueta south along the coast of Africa and into the Indian Ocean. The 1400s see Cristobal Colon and his Spanish company leap across the Atlantic in the last eight years of the century. The 1400s see Casimir IV Jagiellon of Poland on the offensive deep into the Ukrainian steppe. They see Ivan III Rurik of Muscovy subdue the Khanate of Kazan. My considered and sober judgment is that a California high-school student cribbing from Wikipedia would have done considerably better.
And let us mock Graeber for forgetting that just a couple of pages after he writes about how in the 1400s "the commercial economy sagged... whole cities went bankrupt, defaulting on their bonds..." with the knightly classes "squabbl[ing] over the remnants" he writes that the 1400s saw "so much wealth was flowing into the hands" of people outside the knightly feudal hierarchy that "government... forbid... the lowborn to wear silks and ermine". You see the problem? The "lowborn" wearing silks and ermine are the burghers and guild masters of the cities that Graeber claimed--only two pages before--had been depopulated by plague and were defaulting on their debt because economies had "sagged" and, in places, "collapsed". This is word salad.
Note that we are only three kindle screens into the text of chapter 11 here. We are going to have to pick up the pace.
And note that up to this point in the chapter, with its many errors and misconceptions, Graeber has managed to drop only one footnote. Does the footnote explain or justify any of his more bizarre claims? No. It simply notes Dyer (1989), Humphrey (2001), and Federici (2008) as sources for the changing level of English real wages and the changing quality of English "festive life".
(I would note that were Graeber to talk in the presence of the Londoners of the days of Charles II Stuart (1660-1685) of how "Medieval festive life, with its floats and dragons, maypoles and church ales, its Abbots of Unreason and Lords of Misrule" was in the "next centuries" after 1450 "destroyed" would have evoked their surprise and laughter. There was a reduction in "festivity" as the so-called Little Ice Age and the down-phase of the Malthusian population cycle took hold: with fewer growing days and smaller farms you did need to put in more working hours. But Graeber's religious-ideology claims are greatly overstated. In general in early-modern Europe Reformers were not Calvinists, Calvinists were not Puritans:
and even Puritans were not culturally hegemonic for much more than a decade anywhere other than Scotland and New England. You can talk about a privatization and a desacralization of celebration and spectacle. But I really do not think you can talk of any sort of destruction of feast and festivity...)
Liveblogging World War i: September 28, 1914: Pierre Minault
In the Trenches: Pierre Minault's First World War Diary:
Hardly was I in bed and beginning to feel its warmth and go to sleep, than I believe I hear a voice, a peremptory order coming from outside in the street, and as if getting an electric shock, I jump out of bed: “Everybody outside, in battle dress,” says the voice. In two minutes I am outside, equipped with my knapsack on. My squad bumps into each other in the narrow stable where we were encamped; the men feel for their packs and their guns. The shadows are counted, the captain swears and grumbles. Finally we are ready. In silence the column starts out. We renew our advance toward the cannon thunder.
En route, I distinguish shadows in the grass in the ditch. I see an artillery man stretched out on his back, his comrades unbuttoning his jacket. I hear the raucous squeal of his rapid breathing. We pass on. A hundred meters further on, heart rending shrieks pierce the air; it is the man over there in the wet grass who cries out in his pain. This time I am choked with emotion. The sight of the wounds of those young men lying on stretchers, that’s nothing. But those horrible shrieks!
We arrive at a charming hamlet, huddled in the poplars along the Somme. It is Suzanne, our stationing for the battle, the trenches are nearby.
At midnight we lie down on the floor of the stable allotted to us. A bad night, cold and short besides, as we must get up at 3:00 am. We leave; we take 1000 paces; we stop; we wait. At 9:00 am, we are still waiting; we are the reserves. I write these notes, but the shells are coming nearer. They tear through the air. Will it be a short retreat on our part? We wait.
“Vroom, vroom,” repeat our 75s on the nearest slope. German prisoners are over there by the fire station. I go over to glance at them to take my mind off the battle; they are all deeply asleep.
11 o’clock, the shell bursts come nearer, without our paying much attention, when all of a sudden, as I was looking at the evacuation of a German wounded man, I am struck as by the hiss of a viper. Instantly and as by a reflex, I flatten myself on the ground and at the same moment a formidable noise, as if lightning struck the nearby house, shatters the air. I feel myself, but all is well, and get up, and notice a piece of tile roofing fall just next to me. I hasten to rejoin my squad amidst a certain confusion, it is our first baptism of fire. We are ordered to evacuate the village and to regroup some 200 meters further back. A horse of the unit that has followed us passes by, leaving a trail of blood. A piece of shrapnel must have hit him. Finally, we install ourselves in a former chalk quarry and there we eat with a good appetite and get ready to make coffee.
We notice that the shelling is getting closer...
Over at Equitable Growth: Joe Stiglitz vs. the Austerity Zombies: (Late) Friday Focus for September 26, 2014
Over at Equitable Growth: That U.S. policy since 2008 has been so much more successful than Eurozone policy even though the center of the financial crash was in the U.S., in the desert between Los Angeles and Albuquerque, should have caused the Eurozone to revise its economic policies and move them closer to the more-stimulative policies of the U.S. And it should have caused the U.S. to revise its policies and moved them further away from the hyper-austere policies of the Eurozone. But no.
Joe Stiglitz is, unsurprisingly, in despair:
Joe Stiglitz: [Europe’s Austerity Zombies:a “Austerity has failed. But its defenders are willing to claim victory on the basis of the weakest possible evidence: [that] the economy is no longer collapsing.... To say that the medicine is working because the unemployment rate has decreased by a couple of percentage points, or because one can see a glimmer of meager growth, is akin to a medieval barber saying that a bloodletting is working, because the patient has not died yet.... The long recession is lowering Europe’s potential growth. Young people who should be accumulating skills are not.... Meanwhile, Germany is forcing other countries to follow policies that are weakening their economies--and their democracies.... Privatization of pensions, for example, has proved costly in those countries that have tried the experiment. America’s mostly private health-care system is the least efficient in the world.... Selling state-owned assets at low prices is not a good way to improve long-run financial strength. All of the suffering in Europe... is even more tragic for being unnecessary. Though the evidence that austerity is not working continues to mount, Germany and the other hawks have doubled down on it, betting Europe’s future on a long-discredited theory. Why provide economists with more facts to prove the point? READ MOAR
Yet it has not happened. Policymakers in both Europe and in the United States today appear more in thrall than not to the economists who claimed:
That the rapid monetary base creation and extended-period zero nominal bound interest rate policies of the Federal Reserve would rapidly produce runaway inflation.
That continued high spending to fight the recession even by reserve currency-issuing sovereigns with exorbitant privilege would produce debt accumulations that would rapidly generate high interest rates and either runaway inflation or renewed and deepened depression.
That the Federal Reserve's reducing via quantitative easing the quantity of duration and other risk in the financial instruments available to be held by the private sector would somehow make the risks of future financial crisis greater and private-sector portfolios more and too risky.
Argument (1)--the Asness-Boskin-Bove-Calomiris argument--seemed at the time to the Keynesian faction to be incoherent because it failed to recognize the special circumstances that prevailed at the zero nominal lower bound. Argument (2)--the Reinhart-Rogoff argument--seemed at the time to the Keynesian faction to be wrong because it failed to recognize the special circumstances that prevail when reserve currency-issuing sovereigns seek to borrow while safe short-term nominal interest rates are at the zero lower bound. Argument (3)--the Jeremy Stein argument--I could never make sense of, for it seemed to require that the adoption of quantitative easing policies to trigger an enormous wave of private-sector risky-security creation that simply never happened.
And the most disappointing thing is that none of Asness et al., or Reinhart and Rogoff, or Stein have come forward with attempts to mark their beliefs to market--with explanations of how they have changed their views as the situation has not involved according to their expectations, or how special factors mean that they do not need to change their views even though the situation has not involved according to their expectations, or even how in spite of appearances the situation really has evolved according to their expectations. We really need to see these arguments put forward if there is going to be a dialogue, rather than simply a zombie plague.
September 27, 2014
Weekend Must-Read: Bryan Burrough: On Writing Narrative
Nieman Storyboard: "In what might be the only performance of Texas stand-up comedy about narrative writing...
...Vanity Fair writer Bryan Burrough recently offered practical tips for long-form storytelling to a Mayborn Conference audience. Prior to his magazine career, Burrough spent several years reporting for The Wall Street Journal; he has also written five books, including Public Enemies and Barbarians at the Gate. In these excerpts from his talk, Burrough addresses the best transition word ever, presents his strategy for avoiding writer’s block, and reminds you that “your words are not nearly as great as you think they are.”
I want to talk about craft. I want to talk a little bit about how I do what I do, and maybe give you some pointers, stuff I wish people had told me when I was just starting out.
There are essentially three venues we can work in: newspapers, magazines and books. I’ve done all three. I’ve done all three very well, and I’ve done all three very poorly. I can supply examples of each. I’ve written five books, one of which was number one on the New York Times bestseller list and two of which were read by about 17 people, most of whom were my relatives. I have been interviewed on Larry King, I have been interviewed on The Today Show, and I have sat in bookstores in Denver and had the guy say, “You need to quit signing now. I don’t think we can sell any more of those.” So, I have had the best and the worst.
Narrative journalism is the best way to get noticed in journalism; it’s the best way to get ahead. They’re the most memorable stories, bar none. I’m talking about a story, as we used to say at the Journal, that’s beginning-middle-end. It’s not an analysis of the Federal Reserve or anything else. It typically starts with a real-time lede, an anecdotal lede. It breaks out into a part that at the Journal we used to call the “nut graf”; at Time magazine I think they always called it the “billboard,” which is essentially a quick one or two paragraphs saying “this is what the story is,” a section where you say “this is why the story matters.” And then you get out of the way and get into the story and tell it as fast as possible.
I’ve been writing the same story for 25 years. They pay me to write the same story. Well, I don’t do the same story; I do the same structure. That’s the structure I’ve always gone with, and it works beautifully for me. I am stunned that more people in our profession don’t write narrative stuff. If you’re a daily reporter at your local newspaper, this is the way you get noticed. If you want to get something in a magazine, this is the way to get noticed: telling stories, whatever story matters to you.
Be picky
One of the real problems, of course, with writing narrative is that it takes a long time. I’m contracted to write for Vanity Fair, three pieces a year. That typically takes a total of six or seven months; each story will take six to eight weeks… the rest of the time is stuff that I will spend three weeks on then say, “This is not up to par.”
I think – in fact, I know – that I’m a lot pickier than some of my peers. I find a problem that too many people who attempt narrative journalism do is to think that applying the narrative form to material that’s subpar, that somehow elevates it. Well, it doesn’t. You’ve got to have the goods. I’m renowned, in fact, notorious probably, at Vanity Fair for throwing stories out after a month: “Sorry, not going to do that one.” “Why? Why? Why? It was a perfectly good story.” “No, it wasn’t good enough.”
Because here’s what a lot of us know but never talk about. The only advertisement for your services, the only thing anybody really knows about you, is what you publish. If it’s not as good as you can possibly do, don’t publish it, because you can do more damage to your career with a shitty story than you’ll do good with a good one.
I just went nine months without an article. It used to really bug me. It bugs me less now, when I know that after nine months, I hit the fence, I hit a solid triple. I don’t think twice about the stories I pass up. It frustrates my editor, but I guess my lesson there is be pickier, if you can afford to be.
Cold notes = old fish
When I start, I do my articles a little bit differently than George [Getschow, my former boss] did. In fact, one of the lessons that I took early on was something I thought he was doing wrong, and I came up with a way I wanted to do it. You’re doing a narrative story. Let’s say you spend six weeks gathering your material. It’s good enough; you’re going to publish it, right? George would always sit down at the end of the reporting and start to write. And I saw him; he’d freeze for at least the first few days. He would sit back in a writing room and freeze. I started doing that, and I would freeze. Why? Because you’re dealing with cold notes, and you’re dealing with, “Oh, shit. I gotta write this.”
I came up with a way that gets around this. It doesn’t seem to work for everybody, but it works really well for me. I find that the best writing is if you write when the material is fresh. It’s like fish; it’s like food: fresh ingredients. I try to write my stuff as fast after gathering it as possible. I get off the phone; I’ve just interviewed George for 30 minutes. I’m writing that up when I get off – no later than the next morning, because I want the sense and nuance and inflection. If I wait six months – I don’t know about y’all’s notes; mine tend to suck. I remember really well for two hours, maybe even two days. Two months later, I’m looking at my notes – and I know people who type up their notes, but I still don’t remember it as well.
So at the beginning of the first day, when I get the assignment, I start two files on my desktop. Let’s say the story is slugged Mayborn. I start Mayborn.reporting and Mayborn.writing. Everything I gather, obviously, goes in Mayborn.reporting, but unlike a lot of people I don’t wait to the end to start filling up Mayborn.writing. I start immediately. I write up every single thing I get in Mayborn.writing because I’ve found that I block, badly, badly, badly. And so, what I do is, let’s say I get a nice interview with George. I’ve got eight grafs, I write it up. It makes me feel good to be able to look and see that I’ve already got stuff written. Everybody knows that the worst part of any narrative project is the early stuff, when you don’t really have the confidence that you’re going to get enough to do it, and you panic, “I’ll never be able to do it.” We all have this. And I feel so [much] better about myself, when I can say, “Look. I have eight paragraphs.”
Every morning, the first thing I do when I go up to my office – I am so not a morning person – I go out, I light up the day’s first cigar, and I go up into my dot-writing file, whatever it is, and I just play with words, play with words with the goal of chopping as much as I can every morning, just cut, cut, cut-cut-cut, until I get down to the best stuff. Obviously, what makes some of us really good and some of us okay is knowing what to put or to keep in that writing file. Too many of us don’t know maybe what the best quote is, what your best anecdote is. There’s no tinkering for that; that’s something you learn from experience.
Cut and steal
Here’s my advice—steal, steal, steal. I’m telling you, George and I worked in a four-person bureau, and after nearly firing me about three times, he brought in a guy named Tom Petzinger. Tom was really, really good as a wordsmith. Tom was the master of The Wall Street Journal paragraph: topic sentence, example, example, quote. Not necessarily always applicable for a narrative story, but it worked very well for the Journal. And I just copied Tom. I copied everything he did. There’s nothing illegal or wrong with it; that’s what you should do. I copied Tom until I was relatively sure that George wouldn’t fire me – I’m not joking – and then I stole as much as I could from Hemingway, because I didn’t know any of these great writer guys. But Hemingway had these beautiful short sentences, so I copied Hemingway. That’s how I kept my job at the Journal.
Back to how I do it: the beauty of doing it with two files as you go along, for me, is that the moment I finish the reporting, I’m done with the story. Because I write every morning, just writing and playing with the stuff I’ve put in there, cutting as much as I can. And I’m absolutely ruthless. You can’t fall in love with anything you write, because shorter is always better. I know this is Journalism School 101, but some of us forget it. Your words are not nearly as great as you think they are. Fewer is always better. Every time I give Vanity Fair a story, and I write an average of eight to ten thousand words, and they say, “You’re going to have to lose a thousand words,” I say, “Fine. Go for it. It will be better.” And it always is.
This is just the way that I came up with to unblock myself. I never write a story from top to bottom. I find the easiest way to block is to say, “Gosh. What’s the first word of this story? What’s the second word? What’s the third word?”
The way I do it is I assemble the story like they’re blocks. Typically, I’ll have a little narrative section; somebody told me a story, maybe that’s six grafs. And eventually I figure out that goes with those four grafs. At some point, I’ll think, “Oh, that’s the best thing I’ve got; let’s make that the lede. That’s a really good quote.” I put it together like DNA, like papier-mâché. It just grows and grows and grows, and at some point, it fills the file, it gets up to about where I think it ought to be. Then I read it aloud, and then I let my wife read it, and if she thinks it’s as good as the last thing I did, then I know I’m done.
Every-other-paragraph but people
We’re writing long-form, right? I’m talking about anything over 2,000 from Bloomberg, anything over 5,000 words from a magazine, or any book. The biggest challenge – and I think sometimes we fall so in love with our words and we forget this – is that people are busy, and they are dying to put down your article. They are dying to put it down. If you’re introducing a new character, they don’t really want a new character; they want to find out what happened to the other character. They don’t want to turn the page; they’re dying to go do something else. So I put enormous energy into devising ways to trick them into staying with me.
There’s two ways I swear by, and I’ve done them in every single thing I’ve ever written. One way is a little cosmic, the other is very real.
I’m nuts for transitions. The transition is, essentially, that you’re going to lose them at the end of a graf, right? You don’t know where the end of a page is, so there’s not much you can do there. But the end of a paragraph is where you’re going to lose people. So I’m nuts for good active words at the beginning of a paragraph.
What’s the greatest single transition word? And is weak, because it’s just like, “I’ve got something else to say.” Nobody cares. But! But is the best one. Do you know why but is the best word? But says, “You don’t know everything yet. I’m going to correct something you think. You can’t walk away.”
The problem with but is, obviously, that it’s overused. So you don’t want to be one of those every-other-paragraph but people, because you’re crippled. I read those people. I’m like, “He’s overdoing the but.” And I read and, and I just think, “Weak, weak, weak. You can come up with something better than that.” And with? With is for real losers; don’t even go near with. If you’re really not into but, and you need something at the beginning, however is acceptable. I like however.
[The] absolute best transition word ever, and you can only use it about once every two or three stories, because people will ping you on it. I stole this from the other person in our bureau in 1983. He started an article with the single best transition word I’ve ever seen – a word you cannot walk away from: suddenly. Who’s ever going to walk away from a graf that starts “suddenly”? Suddenly something happened – I’ve got to know that.
I’m very big on transitions, but if your story blows, it doesn’t matter how many but‘s and however‘s you’ve got. It still gonna blow.
Mystery kills
My stories average 8,000 words. I’m a failure if I don’t get them to read the last sentence; that’s how I feel. I’ve failed. There’s only one way I know to get people to the end of the story – and this is a little cosmic, but I’ll try to make it concrete for you. You have to have some mystery. There has to be a holdback, something you’ve hinted at within at least the first 10 grafs, if not the first five. If you’re writing about a murder, it’s a murder mystery, well, that’s fine, it’s easy.
You can’t get all pretentious about this. I read stuff in all the great magazines, and I’ll see a writer try to do this, and they overdo it. It as to be hinted at, alluded to — you can’t just be saying, “There’s a great mystery; if you read to the end, you’ll find out.” The biggest thing is there has to be a story with an ending people want to get to. It’s that simple. If you don’t have that, you’re going to lose them somehow.
Morning Must-Read: Paul Krugman: The New Classical Clique and the Insulation of International Macro
Paul Krugman: The New Classical Clique: "As I said, international macro went in a different direction...
...The overwhelming international evidence against a new classical view, although that view persisted on the domestic side despite compelling evidence after 1980.... For domestic macro types, the big event of the 70s was stagflation; in international macro it was the collapse of Bretton Woods and the shocking volatility... that followed. The very tight correlation between nominal and real rates meant that international macroeconomists kept sticky prices in their models. The famous Dornbusch 'overshooting' analysis paired sticky goods prices with volatile, forward-looking asset prices, and seemed to have very interesting things to say--so international macro had a program other than the demolition of all things Keynes.... International macro has all along had stronger ties to real-world policymakers, especially at central banks, maybe because there are a lot of currencies and US-based economists therefore have a lot more opportunities to weigh in on actual policy decisions.
Morning Must-Read: Felix Salmon on Martin Wolf's "The Shifts and the Shocks"
Felix Salmon: A Radical Response: "Martin Wolf paints a picture of a global economy being wrecked both by freedom of capital...
...and by the imprisonment of 18 European countries in a fixed currency system.... It’s a worldview in which central bankers, rather than their commercial brethren, are the people who really determine whether the world crashes and burns: The Jamie Dimons simply end up acting in accordance with the incentives that the Alan Greenspans put in place.... Wolf... has withering scorn for what central bankers have wrought... persuasively argues that central banks should target a much higher rate of inflation, noting that, in the eurozone, “inflation of 3 to 4 percent a year would not be a disaster” and would actually be very helpful.... Wolf... says the French economist Thomas Piketty’s recommendation of a global wealth tax “is unquestionably too ambitious.” Yet Wolf’s own recommendations are more ambitious... attempts to prevent corporations from accumulating cash; an end to the tax-deductibility of interest payments; a scaling back of international banks... a mass refinancing of European sovereign debt into eurobonds... a radical change in debt contracts to make them much more equitylike; and, of course, that idea about abolishing fractional-reserve banking.... Despite Wolf’s attempts to don the garb of a revolutionary, this book is actually something more familiar, and more depressing: a wonkish eschatology of how the global economy, and Europe’s in particular, is doomed.... THE SHIFTS AND THE SHOCKS: What We’ve Learned — and Have Still to Learn — From the Financial Crisis. By Martin Wolf.
Noted for Your Morning Procrastination for September 27, 2014
Over at Equitable Growth--The Equitablog
Afternoon Must-Read: Justin Fox: The Federal Reserve: Regulatory Capture Observed in the Wild - Washington Center for Equitable Growth
Afternoon Must-Read: Paul Krugman: GOP: Those Lazy Jobless; with Bonus Heather Cox Richardson - Washington Center for Equitable Growth
Afternoon Must-Read: Nick Bunker: Labor Market Slack - Washington Center for Equitable Growth
Afternoon Must-Read: Sahil Kapur: The Halbig Truthers - Washington Center for Equitable Growth
Plus:
Things to Read on the Morning of September 27, 2014 - Washington Center for Equitable Growth
Must- and Shall-Reads:
Claudia Sahm: Mortgage Finance: Inertia and Inattention
Howard Pollack: Scholar Zeke Emanuel says he wants to die at 75. Here’s why this author hopes to live
Steve Randy Waldmann: iLinks: UBI and Hard Money
Macro Advisors: The Emperor has no Clothes: MA on the State of "modern" Macro
Gretchen Gavett: CEOs Get Paid Too Much, According to Pretty Much Everyone in the World
Simon Wren-Lewis: Where Macroeconomics Went wrong
Josh Bivens: Now It’s Explicit: Fighting Inflation Is a War to Ensure That Real Wages for the Vast Majority Never Grow
Dietrich Vollrath: Productivity Pessimism from Productivity Optimists
Cassandra Does Tokyo: The Rule of Law is Vastly Under-Priced
On Twitter:
.@scalzi new Richard K. Morgan? A book or an ARC?
.@joshtpm I still don’t know who Ed Champion is. Should I take a sledgehammer to the Google Fiber box to keep from finding out?
Being advisd (1) I will B happier if I don’t find out who Ed Champion is, & (2) should buy books by @PKhakpour @ayeletw @EmilyGould @Mrs.D’s
@A_L: For the first time in modern history, the eastern basin of the South Aral Sea has completely dried. http://earthobservatory.nasa.gov/IOTD/view.php?id=84437
@froomkin: Anatomy of a Non-Denial Denial http://interc.pt/1uNcfNU my latest, about John Brennan and the Senate
@zeynep: Hah. Slate's higher-ed columnist says of course she exaggrates, skips on research, simplifies to bring on vitriol. https://www.insidehighered.com/views/2014/09/25/essay-which-rebecca-schuman-responds-recent-column-criticizing-her-take-higher-ed
@zeynep: .@delong @sivavaid Okay--but is the corollary that the content must be so shoddy? Can't there be solid, complex contrarianism? #slatepitch
.@zeynep @sivavaid if 3/4 of conventional wisdom is right, solid complex contrarianism 4x harder to do than just solid & complex vox/538
.@zeynep @sivavaid #slatepitch is what Kinsley, Weisberg, Plotz decided they wanted to be. The vox/538 pitch was made. The niche was open.
.@zeynep @whtshellreads (1/2) #slatepitch is a unique brand. Individuals who write for Slate have + reputations; organization not so much
.@zeynep @whtshellreads (2/2) #slatepitch is a unique brand. “it’s in Slate so it’s probably pretty good” said nobody ever…
Dear @economist: when Ur paywall keeps me out & after 10 min still won’t let me in, that is a major lose for U
@daveweigel: Rand threading needle on abortion bans: "Don't tell me that five and six pound babies have no rights simply because they're not born."
.@daveweigel Rand Paul wants to move abortion regulation to the third-trimester only?
@stevebenen: Era of post-truth politics: Tom Cotton, caught in a brazen lie, says he doesn't care & will keep repeating it http://on.msnbc.com/1wNk0Fl #arsen
@gary4205: @delong Orman's a hard core left wing democrat party radical pretending to be "independent" to fool lowinfo voters @PhilipRucker @daveweigel
.@gary4205: “@delong Orman's a hard core left wing democrat party radical” who contributed to and voted for Mitt Romney in 2012 @daveweigel
.@gary4205 Is Mitt Romney, in Ur view, also a “hard-core left-wing democratic-party radical” and just pretending? @PhilipRucker @daveweigel
.@DougWilliams85 @sarahkendzior has done something stupid?
@RexNutting: Bill Black for attorney general. http://law.umkc.edu/faculty-staff/people/black-william.asp
.@RexNutting No fair! I wanted Bill Black for a Governor of the Federal Reserve!
And Over Here:
Liveblogging World War II: September 27, 1944: Yom Kippur (Brad DeLong's Grasping Reality...)
Weekend Reading: Charles Evans: Patience Is a Virtue When Normalizing Monetary Policy (Brad DeLong's Grasping Reality...)
Weekend Reading: Paul Krugman: Review of Jeff Madrick, 'Seven Bad Ideas' (Brad DeLong's Grasping Reality...)
For the Weekend: In the Mourning/Landslide (Brad DeLong's Grasping Reality...)
Justin Fox: Why the Fed Is So Wimpy: "Regulatory capture... is a phenomenon that economists, political scientists, and legal scholars have been writing about for decades.... Actually witnessing capture in the wild is different, though, and the new This American Life episode with secret recordings of bank examiners at the Federal Reserve Bank of New York going about their jobs is going to focus a lot more attention on the phenomenon. It’s really well done, and you should listen to it, read the transcript, and/or read the story by ProPublica reporter Jake Bernstein.... Segarra pushed for a tough Fed line on Goldman’s lack of a substantive conflict of interest policy, and was rebuffed by her boss. This is a big deal, and for much more than the legal/compliance reasons discussed in the piece. That’s because, for the past two decades or so, not having a substantive conflict of interest policy has been Goldman’s business model.... All this is meant not to excuse the extreme timidity apparent in the Fed tapes, but to explain why it’s been so hard for the New York Fed to adopt the more aggressive, questioning approach... Maybe if banking laws and regulations were simpler and more straightforward, the bank examiners at the Fed and elsewhere wouldn’t so often be in the position of making judgment calls that favor the banks they oversee. Then again, the people who write banking laws and regulations are not exactly immune from capture themselves. This won’t be an easy thing to fix."
Dietrich Vollrath: Productivity Pessimism from Productivity Optimists: "Byrne, Oliner, and Sichel... [ask] 'Is the IT Revolution Over?', and their answer is 'No'... continued innovation in semi-conductors could make possible another IT boom, and boost labor productivity growth in the near future above the pessimistic Gordon/Fernald rate of 1.5-1.8%. I don’t think their results, though, are as optimistic as they want them to be... you have to work really hard... To get themselves to their optimistic prediction of 2.47% growth in labor productivity, they have to... assum[e].... Total factor productivity (TFP) growth in non-IT producing non-farm businesses is 0.62% per year... roughly twice their baseline.... TFP growth in IT-producing industries is 0.46% per year... not quite double the observed rate from 2004-2012 of 0.28%. Capital deepening... adds 1.34% per year to labor productivity growth... double the observed rate from 2004-2012 of 0.74%.... Ultimately, there is nothing about recent trends in labor productivity growth that can make you seriously optimistic about future labor productivity growth. But that doesn’t mean optimism is completely wrong. That’s simply the cost of trying to do forecasting using existing data..."
Josh Bivens: Now It’s Explicit: Fighting Inflation Is a War to Ensure That Real Wages for the Vast Majority Never Grow: "Fisher... characterized this as a Phillips curve that is flat at unemployment rates higher than 6.1 percent, but which starts to have a negative slope below this rate.... Currently, nominal wage-growth is running around 2-2.5 percent. But as we’ve shown before, even the Fed’s too-conservative 2 percent inflation target is consistent with nominal wage growth of closer to 4 percent. So we have plenty of room to move 'up' Fisher’s Phillips Curve before hitting even conservative inflation targets.... Larry Katz and Alan Krueger wrote a long paper... between 1974 and 1988, the 10th percentile had to see unemployment below 6.2 percent to not have their real wages fall.... Fisher’s recommendations are pretty extraordinary—we have somebody who votes on monetary policy arguing that we should pull back on support for lowering unemployment even before we’ve reached levels that will keep real wages for the majority of the wage distribution from outright falling. He actually identifies improved wages as the problem we must confront. And he wasn’t alone in his last dissent..."
Nick Bunker: Labor Market Slack: "There are two major reasons behind the decline in participation... the Great Recession... the aging of the Baby Boomer generation.... Obama’s Council of Economic Advisers... found that aging accounts for about half of the decrease since the last quarter of 2007... one-sixth of the decline... from [normal] cyclical factors... one-third of the decline comes from 'other factors'.... Janet Yellen is keening aware of the lack of stark divide between cyclical and structural labor market factors.... Policymakers, while not sailing blind, are still in a considerable amount of fog."
Sahil Kapur: Why This Conservative Lawyer Thinks He Can Still Cripple Obamacare: "The top lawyer arguing a case to overturn Obamacare subsidies believes he can succeed at crippling the law even if it's upheld in every district and appellate court.... Michael Carvin... expects the justices to view an expected D.C. Circuit ruling in favor of the law as corrupted by politics and agree to review it. 'I don't know that four justices, who are needed to [take the case] here, are going to give much of a damn about what a bunch of Obama appointees on the D.C. Circuit think.... This is a hugely important case.... I'm not going to lose any Republican-appointed judges' votes on the en banc — then I think the calculus would be, well let's take it now and get it resolved.' And if the case reaches the Supreme Court, Carvin expects all five Republican-appointed justices to rule that the federal exchange subsidies are invalid. Asked if he believes he'd lose the votes of any of the five conservative justices, he smiled and said, 'Oh, I don't think so'."
Paul Krugman: Those Lazy Jobless - NYTimes.com "Last week John Boehner, the speaker of the House, explained.... People, he said, have “this idea” that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.” Holy 47 percent, Batman! It’s hardly the first time a prominent conservative has said something along these lines.... But it’s still amazing — and revealing — to hear this line being repeated now. For the blame-the-victim crowd has gotten everything it wanted: Benefits, especially for the long-term unemployed, have been slashed or eliminated. So now we have rants against the bums on welfare when they aren’t bums — they never were — and there’s no welfare. Why? First things first: I don’t know how many people realize just how successful the campaign against any kind of relief for those who can’t find jobs has been. But it’s a striking picture.... The total value of unemployment benefits is less than 0.25 percent of G.D.P., half what it was in 2003, when the unemployment rate was roughly the same as it is now.... Strange to say, this outbreak of anti-compassionate conservatism hasn’t produced a job surge.... Why is there so much animus against the unemployed, such a strong conviction that they’re getting away with something, at a time when they’re actually being treated with unprecedented harshness?... Self-righteous cruelty toward the victims of disaster, especially when the disaster goes on for an extended period, is common in history. Still, Republicans haven’t always been like this.... Is it race? That’s always a hypothesis worth considering.... It’s true that most of the unemployed are white.... But conservatives may not know this, treating the unemployed as part of a vaguely defined, dark-skinned crowd of “takers.” My guess, however, is that it’s mainly about the closed information loop of the modern right.... Boehner was clearly saying what he and everyone around him really thinks, what they say to each other when they don’t expect others to hear..."
Cassandra Does Tokyo: The Rule of Law is Vastly Under-Priced: "Those benefitting most from the secure property rights might be forgiven for conceptual ignorance – introspection being a scarce commodity amongst the wealthy – but the vociferous and cynical denial of the asymmetric benefits of securing property rights, both intra- or inter-generationally, whether due to some combination of attribution bias, feigned religious belief, or simple greed is less excusable. In a new gilded age, the idea that the rule of law is vastly underpriced by those who benefit most should be anything but contentious.... So why is it so seemingly difficult for the uber-beneficiaries of the rule of law to reconcile their (mostly fiscal) responsibilities to the entente with The People which is the very fount that allows them, and increasingly one might argue, their less-deserving progeny, to maintain a position in the stratosphere of power and control, with a recognition that the very legitimacy of their reign is conferred by The People through the rule of law?... In the absence of the entente, with its benign rule of rule, entropy typically yields either unpleasant and economically sub-optimal forms of authoritarianism or the so-called law of the jungle. We have seen many faces of authoritarianism, and rarely is anyone content outside the authoritarian himself and immediate cadre."
Should Be Aware of:
Zach Beauchamp: Khorasan, explained: why the US is bombing an al-Qaeda group you’ve never heard of
Marc Andreesen: High burn rates risk more than just running out of cash
Dan Froomkin: Anatomy of a Non-Denial Denial
Steve Benen: Tom Cotton and the era of post-truth politics
Susan Holmberg and Mark Schmitt: The Overpaid CEO
David Roberts: How should funders and foundations deal with polarization? "Climate is, for now and for the foreseeable future, the left’s issue. If you want something done about it, build up a passionate constituency for it on the left. The logic is difficult to escape."
Jennifer Rubin: "Rand Paul... is trying to convince groups with very different perspectives on key issues that he is with them — all of them. The result is intellectual muddle, factual errors and real doubts about his character.... Does he agree with them and Tom Steyer about the evils of fossil fuels or does he favor domestic energy development, the Keystone XL pipeline and cutting the Environmental Protection Agency back down to size? The Silicon Valley tycoons live in a state that recognizes gay marriage, and they run companies that have long-extended benefits to same sex couples. Does he agree with that perspective and would he urge the federal government to do the same, or does he intend to favor policies that follow his stated view that marriage should only be between a man and a woman?... Does he want to restrict abortion rights? Many of these execs are big donors to abortion-rights groups. Paul joined in the government shutdown, which is recognized as creating chaos and damaging the GOP. Would he tell his Silicon Valley audiences that he acted responsibly?... Maybe a skilled pol like Bill Clinton can pull off pandering to groups with conflicting agendas but so far Paul seems to have annoyed a whole lot of people with no evidence that he’s broadened the party’s appeal or his own."
David Sanger and Brian Chensept: Signaling Post-Snowden Era, New iPhone Locks Out N.S.A.: "The phone encrypts emails, photos and contacts based on a complex mathematical algorithm that uses a code created by, and unique to, the phone’s user — and that Apple says it will not possess. The result, the company is essentially saying, is that if Apple is sent a court order demanding that the contents of an iPhone 6 be provided to intelligence agencies or law enforcement, it will turn over gibberish, along with a note saying that to decode the phone’s emails, contacts and photos, investigators will have to break the code or get the code from the phone’s owner.... Already the new phone has led to an eruption from the director of the F.B.I., James B. Comey. At a news conference on Thursday devoted largely to combating terror threats from the Islamic State, Mr. Comey said, 'What concerns me about this is companies marketing something expressly to allow people to hold themselves beyond the law'. He cited kidnapping cases, in which exploiting the contents of a seized phone could lead to finding a victim, and predicted there would be moments when parents would come to him 'with tears in their eyes, look at me and say, "What do you mean you can’t"' decode the contents of a phone. 'The notion that someone would market a closet that could never be opened — even if it involves a case involving a child kidnapper and a court order — to me does not make any sense.'... At Apple and Google, company executives say the United States government brought these changes on itself. The revelations by the former N.S.A. contractor Edward J. Snowden not only killed recent efforts to expand the law, but also made nations around the world suspicious that every piece of American hardware and software — from phones to servers made by Cisco Systems — have 'back doors' for American intelligence and law enforcement."
Liveblogging World War II: September 27, 1944: Yom Kippur
World War II Today: Yom Kipper, 1944:
On September 26 1944, Yom Kippur began at sunset--and this was the excuse for another ‘selection’. Joseph Zalman Kleinman described the process that followed during the trial of Adolf Eichman. He was fourteen years old in 1944, he and his brother had been separated from their father, mother and younger sister when they arrived at Auschwitz – they never saw them again:
What happened on Yom Kippur?
A. There were about two thousand youths left. We thought that perhaps that would be the end of the matter. Then, the day before Yom Kippur – I remember – in the morning the news spread around that they were going to distribute an additional ration of bread. Usually they would hand out a quarter or a fifth of a loaf of bread; that day they brought to our hut a ration of a quarter, a third of a loaf of bread, together with additions of cheese and other items. There had never been anything like that in Auschwitz. We were very glad that we would be able to fast the next day.
Q. That means, you thought that you would be able to eat more on the eve of Yom Kippur in order to fast the following day?
A. Yes. All day the boys spoke about this sudden generosity. And we were happy that we would be able to fast the following day. But we still did not know what was in store for us that day. During the afternoon, roughly at three o’clock, suddenly there was an order for a curfew. There was shouting in the street. We had hardly managed to get inside the barracks when a new order was given – all the boys were to go to the football field. There was a football field in the camp which evidently was intended for the Gypsies who had previously been in this camp and who were put to death a few weeks before. Each hut commander brought his boys to the football field.
A lot was happening there. The chief official, all the camp officials, every Kapo and the hut commanders were assembled on the field and arranged us in groups of hundreds. Someone started the rumour that they were going to take us to gather the potato harvest from the environs of Auschwitz. They formed us into groups – we were two thousand youths. Suddenly a shudder passed over the entire ground as if we had been struck by a electric shock. The “Angel of Death” appeared.
Q. Who was that?
A. Dr. Mengele appeared, riding his bicycle; someone approached him, took the bicycle from him and placed it near the hut. I was standing near the road with my group. Dr. Mengele folded his hands behind his back, he was tight- lipped as usual, he went onto the field, lifted his hand so that his gaze could take in the entire field. Then his glance fell on a small boy, about fifteen years old, possibly fourteen, something like that, who was standing not far from me in the front row; he was a boy from the Lodz Ghetto, I remember his face very well, he was blond, thin and very sunburnt. His face was covered in freckles. He stood in the front row, Mengele came up to him and asked him: “How old are you?” The boy was shaking and said: “I am eighteen years old.” I saw immediately that Dr. Mengele was very angry and he began shouting: “I’ll show you!” Then he started shouting: Bring me a hammer, nails and a “Leiste” – a sort of narrow plank.
Somebody ran off right away and we stood there, looking at him in absolute silence. The silence of death prevailed on the field; he was standing in the middle and all of us were looking at him. Meanwhile this man came back with the tools, and as soon as he approached, Dr. Mengele went up to one of the boys, standing in the front row; he had a round face and looked fine. Dr. Mengele went up to him, grabbed him by the shoulder and took him to the goal-post on the football field. There were two goal-posts for a game of football. He led him by the shoulder, and the man with the tools walked with him. He stood him against one of the goal- posts and gave orders to knock this plank in at a height above the boy’s head so that he formed a kind of inverted “L.” And then Dr. Mengele gave orders for the first group to pass underneath this plank. The first group began walking in single file.
Q. Did he say what was going to happen to you?
A. He did not have to tell us any longer – we understood.
Q. What did you understand?
A. We already understood that the smaller ones, whose height did not reach the plank, were destined to die.
Q. Did you think there could also be another explanation?
A. No, no, there was no other explanation; it was one hundred per cent clear to everyone why this was being done. All of us began stretching ourselves, each one wanted to be another centimetre higher, another half-centimetre. I also tried to stretch myself a little but I soon gave up in despair, for I saw that even boys taller than I was, failed to reach the required height – their heads did not touch the plank.
Presiding Judge: That means that all of them passed under the plank?
Witness Kleinman: Yes. All of them passed through in single file. And each one whose head did not touch this plank went to the other side of the field, together with the little ones who were doomed to die.
Attorney General: Did your brother succeed in touching the plank?
Witness Kleinman: Yes. My brother was standing next to me. In general I was so preoccupied with myself that I scarcely worried about him, for he was one of the taller boys – he was sixteen years old; by chance, that was his sixteenth birthday.
Q. Did he manage to touch the plank?
A. Yes. I stood there in total despair. I thought to myself “My life is ending here.” Suddenly my brother whispered to me, saying: “Don’t you want to live? Do something!” I woke up, as from a dream, and began searching for a way of saving myself. My mind worked rapidly. Suddenly I caught sight of pebbles scattered around me. I thought that perhaps I could be saved in this way. We were all standing in line, at attention. I bent down without being noticed and seized some handfuls of pebbles. I untied the laces of my shoes and began stuffing pebbles into my shoes. I was wearing shoes which were larger than my size. I filled my shoes with pebbles under my heels and I gained two centimetres. I thought that, perhaps, this would be sufficient.
Meanwhile I felt that I was unable to remain standing at attention with the pebbles in my shoes. It wasn’t easy. I told my brother I was going to throw the stones away. My brother said to me: “Don’t throw them away, I’ll give you something.” He gave me a hat. I tore the hat into two pieces and I began inserting the rags made from the hat into my shoes, so that it would be softer for me.
Q. Perhaps we could make it briefer, Mr. Kleinman. Did you pass the test?
Presiding Judge: But, nevertheless, let us hear how he got through.
Witness Kleinman: I stood for ten minutes with the stones and the rags inside my shoes. I thought that perhaps I might reach the required height. Meanwhile all the boys went on passing that spot. Two would reach the necessary height and two would not. I stood where I was. Ultimately my brother looked at me and said: “That is not high enough.” Then I began to fear, perhaps I would fail because of nervousness lest, when I began walking, they would realize that I had something in my shoes. I asked my brother and someone else, who could look around better, that they should estimate what my height was. Both of them said that I had no chance of reaching the desired height.
So I then began looking around for a way to escape and get to the taller ones who had already passed the plank, the selection. They were drawn up in ranks of hundreds, on the opposite side, and the shorter ones who had not reached the plank and the required height were lined up on the other side of the field. The shorter ones were trying to force their way into the second group. I also stole my way into the taller ones. For a short while I thought that I had already saved myself. Then one other boy tried to steal into the group of the taller ones.
Dr. Mengele noticed what was happening. He began shouting at the guards and at the Kapos: “What are do doing here – sabotage?” And he gave orders for the whole group to pass once again under the plank. On the way to the plank I again got away to the place where I had formerly been standing. There was a narrow passage, guards walked in front of each one and another behind; nevertheless I stole into my former group.
Attorney General: Those who passed under the plank?
Witness Kleinman: No, the ones who had not yet passed through. I thought it was worthwhile to live even for half- an-hour under an illusion. From there, a quarter of an hour later, I again stole my way into the taller ones – nobody noticed me. Thus the selection ended. About one thousand out of the two thousand did not reach the required height.
Q. What happened to them?
A. When this selection of the thousand ended, the thousand who reached the required height, that was not enough for Dr. Mengele. He examined our bodies. We had to undress to the waist.
Q. My question is: What happened to those who did not reach the required height?
A. Those who did not reach the required height were locked into Huts 25 and 26. Darkness was falling.
Q. What happened to them eventually?
A. They kept them locked up in the two huts until two days after Yom Kippur.
Q. And after that, what happened?
A. They were transferred to the gas chambers – they were exterminated in the gas chambers. There were a thousand of us who remained. Then we knew that this was the system.
Q. Did you see any connection between Yom Kippur and this method of selection?
A. We gained the impression that Mengele wanted to show us – there it was written in the prayer “He causes his flock to pass beneath his rod” – and he wanted to show the Jews of Auschwitz that he was the one who was causing us to pass, and no-one else.
Presiding Judge: Was Dr. Mengele so well-informed in such matters?
Witness Kleinman: Apparently he was well-informed in such matters, for there had never been such a selection in Auschwitz.
Attorney General: Did he want to prove that he was causing his flock to pass under his rod?
A. Yes. In this way one thousand boys remained. We realized that this was a method of exterminating on Festival days.
Read the whole of the evidence of Joseph Zalman Kleinman at the Trial of Adolf Eichmann
Weekend Reading: Charles Evans: Patience Is a Virtue When Normalizing Monetary Policy
Charles Evans: Patience Is a Virtue When Normalizing Monetary Policy: "I would like to thank the Peterson Institute and Adam Posen...
...for organizing this conference focusing on labor market issues. The functioning of the labor market is always of great interest to both academics and policymakers. But today, with the collapse of labor demand during the Great Recession and ongoing structural changes, judging the health and future of labor markets is both especially challenging and important. The work presented at this conference and others like it offers an opportunity to integrate the most recent research with the thinking of policymakers. In keeping with this theme, I will first offer my views on the labor market and how the issues raised here influence my thinking on monetary policy, and I will then discuss my more general strategy for considering when and how we should begin to normalize monetary policy.
Before I begin, let me note that the views I express are my own and do not necessarily represent those of my colleagues on the Federal Open Market Committee (FOMC) or within the Federal Reserve System.
Introduction and Summary
Five long years have passed since the trough of the Great Recession, in mid-2009. Late that year the unemployment rate stood at an astonishing 10.0 percent. Since then, we have made significant progress in moving the unemployment rate back to a more normal number. Yet, at 6.1 percent, it remains too high. And, as we have heard all morning, other measures of labor market activity remain suppressed.
We have underperformed on the inflation front as well. Since 2008, year-over-year total inflation as measured by the Personal Consumption Expenditures Price Index (PCE) has averaged just 1.4 percent, well below its 2 percent target. Today, PCE inflation stands at 1-1/2 percent and is expected to move up only slowly toward the FOMC’s target.
Nonetheless, we have come a long way in healing the injuries the financial crisis inflicted. Certainly monetary policy has been doing some heavy lifting. The Federal Reserve responded quickly to the unfolding recession by cutting the fed funds rate to near zero by December 2008. At the zero lower bound (ZLB), we then turned to unconventional measures, such as large-scale asset purchases and forward guidance about the federal funds rate to provide further accommodation. In the fall of 2012, with the unemployment rate hovering stubbornly at around 8 percent and core inflation steadily drifting lower than our 2 percent target, the Fed introduced open-ended asset purchases and, later, forward guidance that related federal funds rate actions to thresholds explicitly expressed in terms of our policy goals. Together, these efforts have helped the economy make impressive progress toward our employment mandate and appear to be moving us closer to our 2 percent inflation target as well.
With the economy undershooting both our employment and inflation goals, monetary policy does not presently face a conflict in goals; actions that support employment growth also help move inflation up toward our target. Yet, as I look to the future and assess risks, I foresee a time when a policy dilemma might emerge: Namely, we could find ourselves in a situation in which the progress or risks to one of our goals dictate a tightening of policy while the achievement of the other goal calls for maintaining strong accommodation.
So what happens when a conflict emerges? In such cases, the FOMC has said that it will follow a “balanced approach” to achieving its policy goals. I will elaborate at length on this later, but let me summarize how I think we should operationalize this approach today. We should keep our focus on our policy goals and should be highly attuned to both the likelihood and the costs of missing those goals. To me, the risks imposed on an economy forced to operate at the zero lower bound on policy rates are paramount. Accordingly, before the Fed raises rates we should have a great deal of confidence that we won’t be forced to backtrack on our moves and face another painful period at the ZLB. We should be exceptionally patient in adjusting the stance of U.S. monetary policy — even to the point of allowing a modest overshooting of our inflation target to appropriately balance the risks to our policy objectives.
Conflicting Signs in the Labor Market
Of course, to judge the success of policy, you have to know when you’ve actually reached your targets. Knowing when we hit our inflation target is straightforward. After all, a 2 percent increase in PCE prices is an easily identifiable number. But full employment is a far more nuanced concept. As the FOMC’s annual January "Statement on Longer-Run Goals and Monetary Policy Strategy" recognizes, maximum employment can be influenced by a large number of structural factors that can change over time and may not be directly measureable. In light of this uncertainty, the Committee considers many factors in gauging maximum employment. As the extremely relevant research presented at this conference makes clear, judging the degree of slack along these many dimensions is a difficult and complex task. But it is one that is critical for the conduct of monetary policy — we must have a good idea of what constitutes achievement of our full employment target.
Our Chicago Fed research staff has been working long and hard, and in my remarks today, I will briefly talk about some of our results that touch on several of the most contested labor market issues on the table today. These involve labor force participation, job openings and wages. To give you the punch line, this research and work done by others in the field lead me to conclude that, although we have made great strides, a good deal of slack remains in the labor market.
Labor Force Participation and Employment
As everyone in this room is aware, the labor force participation rate has fallen throughout the recession and recovery and is now at a 35-year low.[1] As Julie Hotchkiss described earlier this morning, it is well understood that much of the decline is due to trends that far predate the Great Recession. The movement of baby boomers into retirement age and the long-running declines in teenager and prime-age male participation would have significantly reduced labor force participation rates independently of the economic downturn.
Chicago Fed economists first did work on the prospects for a declining labor force participation trend back in 2001 — near the time the rate peaked at just over 67 percent.[2] Even after revisiting this topic numerous times and with multiple generations of research assistants running the programs, their views about the trends that are consistent with the composition of the population and a labor market near equilibrium have not changed much since then.[3] Among the many robustness analyses they performed, their models produce nearly the same trend for labor force participation as they have since 2001.[4]
Depending on the details of the specification, Chicago Fed economists estimate that at the end of the second quarter of 2014, the labor force participation rate was between 1/2 and 1-1/4 percentage points below trend. Furthermore, the participation rate was as much as 3/4 of a percentage point below predictions based on its historical relationship with the unemployment rate. This disparity suggests that there likely is an extra margin of slack in labor markets beyond that indicated by the unemployment rate alone.
It is interesting to dig further into these "labor force participation gaps." Virtually all the gap during this cycle has been due to withdrawal from the labor market of workers without a college degree. By contrast, a participation gap never materialized for college graduates, even during the depths of the recession. There is no simple explanation for this striking contrast. It could be yet another symptom of long-running but difficult-to-model trends in the economy, such as job polarization and changes in social programs, which particularly impact the lower-skill work force.[5] Regardless, the divergent work behavior across education groups strikes me as an important fact and deserving of much further research attention.
The declining trend in labor force participation also influences how fast the economy can produce new jobs in the long run. Our estimate of the trend in payroll employment growth over the past 15 years averages roughly 100,000 jobs per month. Looking ahead, we think that declines in the labor force participation rate and population growth will bring the trend in payroll employment growth down to fewer than 50,000 jobs per month by 2016. This new benchmark probably will only become apparent in the monthly data once the economy closes the current 3.8 million employment gap. But barring sizable changes in immigration policy, policymakers and the public will need to get accustomed to a slower base of employment growth by the latter part of the decade.
Job Openings and Hiring
This brings me to the issue of hiring and job openings. The job openings rate, as measured by the U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) data, started climbing immediately after the recession and made it back to its pre-recession high this summer.[6] Yet, despite some improvement, the JOLTS hiring rate remains disappointingly below where it stood before the recession began.[7]
Why might firms advertise openings aggressively but be slower to fill them? Posting a vacancy is only part of the hiring process. Jason Faberman of the Chicago Fed, in collaboration with Steve Davis of the University of Chicago and John Haltiwanger of the University of Maryland, estimate that the overall effort that firms actually are putting into filling a job vacancy fell by over 20 percent during the recession. It has been slow to recover since and today still stands 8 percent below its 2006 peak and, for that matter, below where it was anytime during the last expansion.[8]
Davis, Faberman and Haltiwanger argue that low recruiting intensity may reflect employers’ increased hiring standards. It could be that hiring standards become more stringent during an economic downturn. For example, if there is an unusually high degree of downward nominal wage rigidity, as Mary Daly and Bart Hobijn of the San Francisco Fed document has been the case over this cycle,[9] then employers may respond by filling fewer openings. If this story is true, then the high ratio of vacancies to hires is a further indication of slack in the labor market.
Alternatively, more stringent hiring standards might signal a persistent structural problem. For years, I’ve been hearing business people complain of difficulty in finding sufficiently qualified candidates. Furthermore, we hear anecdotes about firms being extremely picky and waiting for the perfect applicant. These behaviors may be indicative of a skills mismatch between jobs and workers. If this is the case, then it is possible that the steady-state level of the vacancy rate has increased, which would help explain why the improvement in vacancies we’ve seen over the past few years has been slow to translate into similar progress on hiring.
Wages
If skills mismatch were an ongoing problem, we’d expect to see wages rising for those with the skills in demand. There is evidence of increasing wages in some occupations, but wage growth in general continues to be very modest at about 2-1/4 percent per year. That is a long way from the 3 to 4 percent benchmark implied by productivity growth and our inflation objective. Indeed, over the past three years, the unemployment rate has fallen by a percentage point per year; yet real wage growth has barely budged. It’s hard for me to imagine a full labor market recovery without genuine improvement in compensation growth. But am I wrong? Has the wage Phillips curve completely broken down?
Some claim the answer is no — you just have to look at the right measure of unemployment. Alan Krueger, Judd Cramer and David Cho, among others, have shown that the relationship between real wages and the short-term unemployment rate during this cycle has been in line with historical norms, whereas the historical spike in long-term unemployment exerted minimal pressure on real wage growth.[10] Of course, the short-term unemployment rate is now close to its pre-recession level. So their model implies nominal wage growth should be returning to something close to the fundamentals implied by productivity growth and inflation.
My staff’s research comes to a somewhat different conclusion. Using models similar to those Michael Kiley presented here this morning,[11] they find that pools of potential workers other than the short-term unemployed, notably the medium-term unemployed and the involuntary part-time work force, substantially influence wage growth at the state or metropolitan statistical area level.[12] Today, medium-term unemployment is down a good deal, but the involuntary part-time work force is still very high. According to their model estimates, if labor market conditions were at their 2005–07 levels, average real wage growth would be roughly 1/2 to 1 percentage point higher over the past year — another sign of the cyclical shortfall in labor market health.
To sum up, with many important measures of labor market activity still well short of our estimates of cyclical norms, I believe it is a bit premature to say that we are close to our full employment target. That said, while it has taken longer than anyone would like, our progress has been good. And there is good reason to anticipate that we will achieve full employment and price stability within the FOMC’s current forecast horizon. Indeed, in the Committee’s Summary of Economic Projections released about a week ago, most participants anticipated that the unemployment rate would return to its long-run neutral level by the end of 2016 and that inflation then would be in the range of 1-3/4 to 2 percent.
A Balanced Approach to Monetary Policy
Now let me turn to my views on monetary policy.
I can’t speak to my FOMC colleagues’ forecasts and how they interact with their views regarding appropriate policy. But, for my part, I think it is more likely that we will achieve our employment mandate before inflation is clearly headed back to 2 percent. Conceptually, this could raise a policy dilemma — achieving our inflation objective would call for strong accommodation, while achieving our employment target usually would call for earlier policy normalization. However, the story is even more complicated than that because important risk factors also come into play. In some ways the insight from Nobel laureates Lars Hansen and Tom Sargent regarding robust control evaluations help form my assessment.[13] I see two important and divergent ways my forecast could go wrong. One is that I may be overestimating the underlying strength in the real economy and its ability to exit from the ZLB. Guarding against this risk calls for a more patient removal of accommodation. The second is that I may be wrong about the inflation outlook, and we could be poised for a much stronger rise in inflation than I am forecasting. This risk calls for more aggressive rate hikes.
How do I think policy should balance these divergent risks? How should these risks affect my views about how to follow the FOMC strategy of pursuing a balanced approach to achieving our policy goals?
In my mind, current circumstances and a weighing of alternative risks mean that a balanced policy approach calls for being patient in reducing accommodation — that is, being patient about when we first increase the federal funds rate and being patient about setting the pace of rate increases once we have begun to move. Let me explain how I get there.
Proceed Cautiously in Normalizing Policy
To say the least, conducting monetary policy at the ZLB has been a difficult experience that we all want to avoid repeating unnecessarily. In the winter of 2009, with the unemployment rate soaring to double digits, the Fed would have very much liked to lower the nominal federal funds rate an additional 300 basis points; but we couldn’t because the rate was already at zero. Faced with a pressing need to provide additional accommodation, we were forced to turn to innovative, but controversial, unconventional monetary policies. These policies have been extremely helpful. But there is no denying that they were second-best options; the ZLB had made lowering the fed funds rate, which is our first-best interest rate tool, infeasible.
Everyone will welcome a return to more normal times and a reliance on the traditional policy framework of adjustments to the federal funds rate. But the decision about when to begin to raise rates shouldn’t be made prematurely. Rather, the decision for policy liftoff has to be made for the right reasons — that is, it should be dictated by economic conditions.
I have said many times that I agree with Minneapolis Fed President Narayana Kocherlakota: Policy at all times must be goal-oriented.[14] Our experiences since the crisis began and current economic conditions are highly unusual. The FOMC should not simply set its policy instruments by mechanically aligning them with historical norms if those norms are not relevant harbingers for the attainment of both of our dual mandate goals. Rather, our policy instruments should be set to achieve our ultimate goals as efficaciously as possible given current and prospective economic conditions, all the while with an eye on managing against important risks to the outlook.
What does that mean now? I believe that the biggest risk we face today is prematurely engineering restrictive monetary conditions. In this scenario, the FOMC could misjudge the presence and magnitude of economic impediments and misread the recent progress we have made as evidence of sounder economic trends. If we were to presume prematurely that the U.S. economy has returned to a more "business as usual" position and reduce monetary accommodation too soon, we could find ourselves in the very uncomfortable position of falling back into the ZLB environment. Such an outcome could be a serious setback to the timely attainment of our dual mandate policy objectives. This risk consideration means that the decision to lift the funds rate from zero should be made only when we have a great deal of confidence that growth has enough momentum to reach full employment and that inflation will return sustainably to 2 percent. We should also proceed cautiously and keep the path of rate increases relatively shallow for some time after we begin to raise rates. This approach will allow us time to assess how the economy is performing under less accommodative financial conditions and reduce the odds of overaggressive rate hikes choking off progress toward our policy goals.
History Shows That Premature Exit Is a Risk
Great Depression
Past experience with the zero lower bound also counsels patience. History has not looked kindly on attempts to prematurely remove monetary accommodation from economies that are in or near a liquidity trap. The U.S. experience during the Great Depression — in particular, in 1937 — is a classic example for monetary historians: In response to the positive growth and reinflation that occurred after devaluation and suspension of gold convertibility, the Fed raised reserve requirements, the Treasury sterilized gold inflows, and there was a fiscal contraction. Subsequently, the economy dropped back into recession and deflation. During this time, interest rates remained very low. The discount rate was lower after 1937 than before, and Treasury bill rates were less than 1 percent. By many economic accounts, it took the big fiscal expansion associated with World War II to exit the Great Depression.
Japan over the Past 20 Years
We can also learn from the Japanese experience over the past 20 years. After attempting to expand production and avoid deflationary prospects in the late 1990s, monetary policy reversed course prematurely in the early 2000s as the inflation rate inched above zero; deflationary pressures soon reemerged and policy rates returned to zero by 2001.This experience was repeated again later in the decade. Indeed, it has only been over the past year — following nearly 20 years of stagnation — that we see the recent goal-oriented monetary expansion making significant headway in extracting Japan from below-target inflation.
Recent European Experience
The recent European experience in 2011 is yet another example of premature tightening. Despite the headwinds from continuing debt-overhang and recent financial distress, European authorities in 2011 judged that the eurozone economy was emerging from recession and headline inflation was at risk to rise persistently above target. The European Central Bank (ECB) responded by raising policy rates in 2011. They soon had to backtrack as output in the eurozone fell again and inflation began to march down below target. Today, the eurozone faces continued economic weakness and an inflation rate that is just about 1/2 percent. As a result, the ECB recently lowered policy rates to the ZLB, has started undertaking additional unconventional monetary policies, and is now encouraging fiscal expansion among eurozone countries that are able to do so.
These lessons from monetary history strongly suggest that there are great risks to premature liftoff from the zero lower bound or near-ZLB conditions. Unless economic conditions are fundamentally strong and the previous impediments to growth have receded sufficiently, the odds remain high that monetary authorities will need to retreat right back into the ZLB.
And the costs of being mired in the zero lower bound are simply very large. I have already talked about how the ZLB prevents using our very best policy tools to address negative shocks. The constraint also means that interest rates cannot fall low enough to equate the supply of saving with the demand for investment. This, of course, significantly impedes capital formation, future economic growth, and further employment expansion. Furthermore, the ZLB often comes hand in hand with undesirably low inflation or even a falling price level, carrying with it the associated costs of debt deflation on the real economy.
The Risk of Too-High Inflation
What about the other risk to our policy goals that I mentioned — the risk that the U.S. economy could face pricing pressures that accelerate rapidly and ultimately leave inflation far above our 2 percent target for an unacceptably long period?
At some point when the economy has clearly overcome the remaining impediments from the largest economic and financial downturn since the Great Depression, the odds of inflation rising noticeably above target could become palpable. But such a breakout is just not at all very likely today. Indeed, many Fed critics have been voicing this concern since 2009, and it hasn’t even come close to happening.
What if inflation just ran moderately above target for some time? Well, I see the costs of this outcome as clearly being much smaller than the costs of falling back into the ZLB. First, I believe the U.S. economy could weather the modest increases in interest rates that would be needed to keep inflation in check. Such rate increases would be manageable for the real economy; this is particularly true if industry and labor markets have already made the most difficult reallocations of jobs and overcome other factors so that productive resources are more efficiently and fully employed. Second, as I’ve noted many times in the past, a symmetric inflation target means we should be averaging 2 percent inflation over time. We’ve averaged well under that 2 percent mark for the past six and a half years. With a symmetric inflation target, one could imagine moderately-above-target inflation for a limited period of time as simply the flip side of our recent inflation experience — and hardly an event that would impose great costs on the economy.
The murky state of inflation expectations is another factor that enters my risk management considerations. For inflation to take off rapidly, we would have to see a jump in inflationary expectations. But inflationary expectations have been quite stable. Indeed, we may be facing a quite different problem. Many forecasters — myself included — assume that stable 2 percent inflation expectations will be an important factor helping to pull actual inflation up. Over the past five years, professional forecasters’ projections for long-run inflation have been at the 2 percent target and Treasury Inflation-Protected Securities (TIPS) break-evens have been flat. Yet actual inflation has only just recently made it back up to 1-1/2 percent. Moreover, we still have not seen much at all in the way of higher inflation compensation being built into interest rates or wages. So there is cause for concern that expectations might not produce as strong a pull on inflation as we hope.
We can turn to the Japanese experience again to highlight this risk. Long-run inflation expectations in Japan have averaged a little over 1 percent. Yet during that period, the only time inflation was palpably above zero — let alone not in outright deflation — was when consumption taxes increased or oil prices spiked. So inflation expectations may remain stable while inflation itself lags for a prolonged period.
Conclusion
As I think about the process of normalizing policy, I conclude that today’s risk-management calculus says we should err on the side of patience in removing highly accommodative policy. We need to solidify our confidence that our ultimate exit from the zero lower bound will occur smoothly — and in a way that sustains our escape from it. A corollary to this is we should not shy away from policy prescriptions that generate forecasts of inflation that moderately overshoot our 2 percent target for a limited time.
Such a policy strategy more properly balances expected costs and benefits. And it would leave me with much more confidence that inflation will not stall out below target once we start raising rates.
I agree with Atlanta Fed President Lockhart in thinking that we ought to be “whites of their eyes” inflation fighters.[15] The last thing we want to do is regress back into the ZLB. Indeed, such a relapse would be a sign there was something else going on that was preventing the economy from being as vibrant as we thought possible.
To summarize, I am very uncomfortable with calls to raise our policy rate sooner than later. I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals. And I think we should plan for our path of policy rate increases to be shallow in order to be sure that the economy’s momentum is sustainable in the presence of less accommodative financial conditions.
Notes
[1] The labor force participation rate is defined as the share of the population aged 16 and older who are either employed or unemployed. To be unemployed, a person has to not have a job but be actively looking for work in the prior four weeks and to be currently available to work. These data are collected by the U.S. Bureau of Labor Statistics as part of its monthly Current Population Survey.
[2] Aaronson and Sullivan (2001).
[3] Aaronson et al. (2014).
[4] Specifically, the trends generated by Chicago Fed economists’ preferred models are very close whether they are estimated using data through 2002, 2007 or 2014.
[5] See, for example, Acemoglu and Autor (2011) and Charles, Hurst and Notowidigdo (2013). See Shierholz, Mishel and Schmitt (2013) for a skeptical view. An alternative explanation is based on changes in the use of social safety net programs, especially disability insurance (DI), that are partly cyclical in nature. The DI rolls have been increasing throughout this business cycle, although they have been on the rise, more or less uninterrupted, since the 1990s (Autor, 2011; and Burkhauser and Daly, 2011). The DI program tends to be cyclical partly because eligibility standards ease amid deteriorating labor market conditions (Mueller, Rothstein and von Wachter, 2013). That is, people with moderate disabilities are more likely to qualify for the DI program when there are fewer suitable jobs available.
[6] The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
[7] The hiring rate stood at 4.0 percent at its 2006 peak and fell to as low as 2.8 percent in 2009. Today, it is 3.5 percent.
[8] See Dice Hiring Indicators (2014).
[9] Daly and Hobijn (2014).
[10] Krueger, Cramer and Cho (2014). This same result appears for the price Phillips curve, as shown, for example, by Gordon (2013).
[11] Kiley (2014).
[12] Aaronson and Jordan (2014). The medium-term unemployed are those unemployed five to 26 weeks. Persons employed part time involuntarily for economic reasons (such as slack work or unfavorable business conditions) are those who want and are available for full-time work but have had to settle for a part-time job.
[13] See, for example, Hansen and Sargent (2008).
[14] See, for example, Kocherlakota (2013).
[15] Lockhart (2014).
References
Aaronson, Daniel, Luojia Hu, Arian Seifoddini and Daniel G. Sullivan, 2014, “Estimating and forecasting trend labor force participation,” Economic Perspectives, Federal Reserve Bank of Chicago, Vol. 38, forthcoming.
Aaronson, Daniel, and Andrew Jordan, 2014, “Understanding the relationship between real wage growth and labor market conditions,” Chicago Fed Letter, Federal Reserve Bank of Chicago, No. 327, October.
Aaronson, Daniel, and Daniel G. Sullivan, 2001, “Growth in worker quality,” Economic Perspectives, Federal Reserve Bank of Chicago, Vol. 25, Fourth Quarter, pp. 53-74.
Acemoglu, Daron, and David H. Autor, 2011, “Skills, tasks and technologies: Implications for employment and earnings,” in Handbook of Labor Economics, Orley Ashenfelter and David Card (eds.), Vol. 4B, Amsterdam: Elsevier / North-Holland, pp. 1043–1171.
Autor, David H., 2011, “The unsustainable rise of the disability rolls in the United States: Causes, consequences, and policy options,” National Bureau of Economic Research, working paper, No. 17697, December.
Burkhauser, Richard V., and Mary C. Daly, 2011, The Declining Work and Welfare of People with Disabilities: What Went Wrong and a Strategy for Change, Washington, DC: AEI Press.
Charles, Kerwin Kofi, Erik Hurst and Matthew J. Notowidigdo, 2013, “Manufacturing decline, housing booms, and non-employment,” National Bureau of Economic Research, working paper, No. 18949, April.
Daly, Mary C., and Bart Hobijn, 2014, “Downward nominal wage rigidities bend the Phillips curve(external-pdf),” Federal Reserve Bank of San Francisco, working paper, No. 2013-08, January.
Dice Hiring Indicators, 2014, “Average job vacancy duration is 25 working days(external-pdf),” release, Chicago, August.
Gordon, Robert J., 2013, “The Phillips curve is alive and well: Inflation and the NAIRU during the slow recovery,” National Bureau of Economic Research, working paper, No. 19390, August.
Hansen, Lars Peter, and, Thomas J. Sargent, 2008, Robustness, Princeton, NJ: Princeton University Press.
Kiley, Michael T., 2014, “An evaluation of the inflationary pressure associated with short- and long-term unemployment,” Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System, No. 2014-28.
Kocherlakota, Narayana, 2013, “A time of testing,” speech, St. Paul Chamber of Commerce, St. Paul, MN, November 12.
Krueger, Alan B., Judd Cramer and David Cho, 2014, “Are the long-term unemployed on the margins of the labor market?,” Brookings Papers on Economic Activity, Spring.
Lockhart, Dennis, 2014, “Thoughts on liftoff,” speech, Global Interdependence Center, Sixth Annual Rocky Mountain Economic Summit, Jackson Hole, WY, July 11.
Mueller, Andreas I., Jesse Rothstein and Till M. von Wachter, 2013, “Unemployment insurance and disability insurance in the Great Recession,” National Bureau of Economic Research, working paper, No. 19672, November.
Shierholz, Heidi, Lawrence Mishel and John Schmitt, 2013, “Don’t blame the robots: Assessing the job polarization explanation of growing wage inequality,” Economic Policy Institute, working paper, November 19.
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