Wonkbook: ‘The biggest bubble of them all has been the bubble in central banking’

August 26, 2013

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Mount Moran in Grand Teton National Park is seen through a window at the JacksonHole economic symposium on Aug. 23. (Photo by Price Chambers/Bloomberg)
Mount Moran in Grand Teton National Park is seen through a window at the Jackson Hole economic symposium on Aug. 23. (Photo by Price Chambers/Bloomberg)

“The biggest bubble of them all,” said Vincent Reinhart, chief economist at Morgan Stanley, “has been the bubble in central banking.”

That's from Neil Irwin's report on the big central banker confab in Jackson Hole, Wyoming. In recent years, central banks all over the world have pumped trillions of dollars into their economies. At some point in the coming years, they're going to have to drain much of that money back out.

That's a delicate operation. As Neil writes, "The mere hint that the Fed will slow the rate at which it injects new money into the system by buying bonds has driven a torrential sell-off of all sorts of assets this summer." And so it took up much of the agenda at Jackson Hole.

But the bankers also received an unpleasant reminder that the crises might not be over. Brazil's central banker had to skip Jackson Hole because of a crisis in the Brazilian currency. And in India, the rupee has fallen more than 20 percent since May. "Voters are wondering aloud how their 'breakout nation' became a 'breakdown nation', seemingly overnight," writes Ruchir Sharma in the FT.

This is part of the reason the Obama administration leans towards replacing Ben Bernanke with Larry Summers. They think Summers' expansive intellect and broad crisis-fighting experience a particularly good fit for a period in which America's top central banker needs to unwind the programs of the last few years and potentially help manage convulsions in the developing world. Others agree. A hedge funder who has favored Yellen throughout this process told me last week that the crisis in India had him leaning, unexpectedly, towards Summers.

Of course, the quiet assumption behind much of this is that the crisis in America -- the crisis where Yellen has been unusually prescient and creative -- is more or less over. And that means assuming elevated unemployment and low labor-force participation is a new normal, one that the Federal Reserve can't or shouldn't do much to fight.

Wonkbook's Number of the Day: 0.5 percent. That's how slowly Cornell's Richard Burkhauser expects the median income to grow each year through 2030 as a result of demographic trends.

Wonkbook's Graph of the Day: Check out the graphs in this awesome video documentary project that includes FRED data.

Wonkbook's Top 5 Stories: 1) monetary policy closes a door and opens a window; 2) did the NSA oversight commitees know this?; 3) Republicans won't try to defund Obamacare through budget; 4) the long shadow and the 'long arc of justice'; and 5) no, really, we have movement on education reform.

1) Top story: The view of the world from Jackson Hole

The crisis is over. The challenges for central bankers are only beginning. "Each August for the past several years, a conference room on the third floor of the Jackson Lake Lodge here has been stocked with financial data terminals, secure phone lines and all the other accessories that Ben Bernanke and his top lieutenants at the Federal Reserve might need to fight a global financial crisis. Many of the world’s leading central bankers were back at their annual economic symposium here this weekend. But the conference room is empty." Neil Irwin in The Washington Post.

@dandrezner: BRICS 3 years ago: how DARE the Fed pursue QE and start a currency war! BRICS now: how DARE the Fed taper off what it started 3 years ago!!

Bankers are bracing for the beginning of the end of accommodative monetary policy. "The meeting's official title, "Global Dimensions of Unconventional Monetary Policy," became all too real for at least one expected participant. Brazil's top central banker, Alexandre Tombini, canceled his plans to attend the conference at the last minute as the country's currency, the real, tumbled in value. The Brazilian central bank on Friday announced a $60-billion program aimed at halting the real's slide." Victoria McGrane in The Wall Street Journal.

Speech: Christine Lagarde on the coming post-QE worldNeil Irwin in The Washington Post.

Meanwhile, stagnant wages are crimping economic growth. "Four years into the economic recovery, U.S. workers' pay still isn't even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show. Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation's economic growth." Neil Shah in The Wall Street Journal.

Explainer: Economic data coming your way this weekAmrita Jayakumar in The Washington Post.

Helping the unemployed move might not help them find a job. "But besides the specifics, what does this policy say about the situation our country currently faces? One thing to note about a recession is that economic activity is decreased across all markets. It usually isn’t a matter of the normal churn of some places doing well and others poorly...Maybe something has become broken in the recovery, with some states recovering quite well and other stuck in a high-unemployment situation. Given the regional nature of the housing bubble, this could be true. If that is the case, helping people move is a priority...[But it's not.]" Mike Konczal in The Washington Post.

@Goldfarb: Ben S. Bernanke for Batman.

AUTOR AND DORN: Should the middle class fear technology? "[W]e predict that the middle-skill jobs that survive will combine routine technical tasks with abstract and manual tasks in which workers have a comparative advantage — interpersonal interaction, adaptability and problem-solving. Along with medical paraprofessionals, this category includes numerous jobs for people in the skilled trades and repair: plumbers; builders; electricians; heating, ventilation and air-conditioning installers; automotive technicians; customer-service representatives; and even clerical workers who are required to do more than type and file. Indeed, even as formerly middle-skill occupations are being “deskilled,” or stripped of their routine technical tasks (brokering stocks, for example), other formerly high-end occupations are becoming accessible to workers with less esoteric technical mastery." David H. Autor and David Dorn in The New York Times.

THALER: Public policies, made to fit people. "All of these examples show that the role of behavioral science in policy isn’t for the government to tell people how to think or act. It is to help them achieve their own goals. Parents want their children to excel, callers to a victims’ hot line want help, and sick people want to get well. Offering aids is like providing an alarm clock: it may help people get to an appointment on time, but no one is forcing them to use it." Richard H. Thaler in The New York Times.

Music recommendations interlude: Money Mark, "Tomorrow Will Be Like Today."

Top opinion

DUNCAN: Building a better education law. "These states have established high standards, robust teacher and principal evaluations and support systems, smart use of data, and ambitious learning goals. They have made bold efforts to improve our lowest-performing schools. They are also adopting assessments that move beyond today’s fill-in-the-bubble tests...It must set states free to use their best ideas to support students and teachers. It also must align student learning and growth with career- and college-readiness." Arne Duncan in The Washington Post.

KRUGMAN: From Steve Ballmer to Ibn Khaldun. "How could Microsoft have been so blind? Here’s where Ibn Khaldun comes in. He was a 14th-century Islamic philosopher who basically invented what we would now call the social sciences. And one insight he had, based on the history of his native North Africa, was that there was a rhythm to the rise and fall of dynasties. Desert tribesmen, he argued, always have more courage and social cohesion than settled, civilized folk, so every once in a while they will sweep in and conquer lands whose rulers have become corrupt and complacent. They create a new dynasty — and, over time, become corrupt and complacent themselves, ready to be overrun by a new set of barbarians." Paul Krugman in The New York Times.

KAISER: An overlooked dream, now remembered. "The Post, however, got embarrassed. The main event that day was what we now call the “I Have a Dream” speech of Martin Luther King Jr., one of the most important speeches in U.S. history. But on the day it was given, The Post didn’t think so. We nearly failed to mention it at all. We were poised and ready for a riot, for trouble, for unexpected events — but not for history to be made...I’ve never seen anyone call us on this bit of journalistic malpractice. Perhaps this anniversary provides a good moment to cop a plea. We blew it." Robert G. Kaiser in The Washington Post.

JINDAL: The end of race. "[H]ere we are, in the most advanced, successful, and powerful nation in the history of the world, and yet we continue to struggle to get past the color of each other’s skin. There is no more shallow, hollow, or soulless way to think about human beings than in terms of their skin color. It is completely inane...Yet we still place far too much emphasis on our “separateness,” our heritage, ethnic background, skin color, etc." Bobby Jindal in Politico.

CROVITZ: More surveillance, please. "In the fantasy world of the Mannings and Snowdens, the U.S. is waging unnecessary surveillance of terrorists while willy-nilly eavesdropping on Americans. In the real world, the biggest risk is that rules to protect privacy could discourage the intelligence agencies from being aggressive enough to stop the next 9/11." L. Gordon Crovitz in The Wall Street Journal.

Literary interlude: JD Salinger may be publishing 5 books from beyond the grave, after nothing since 1965. (Here's the trailer, which you have to watch.)

2) Certainly the oversight committees knew the NSA paid millions in court fees

NSA paid email providers millions to cover court costs. "The National Security Agency paid millions of dollars to cover the costs of major internet companies involved in the Prism surveillance program after a court ruled that some of the agency's activities were unconstitutional, according to top-secret material passed to the Guardian. The technology companies, which the NSA says includes Google, Yahoo, Microsoft and Facebook, incurred the costs to meet new certification demands in the wake of the ruling." Ewen McAskill in The Guardian.

Sen. Corker: We're still in the dark on NSA surveillance. "“I would imagine there are even members of the [congressional] intelligence committee themselves that don't fully understand the gamut of things that are taking place,” he added. Corker this week fired off a scathing letter to the White House, arguing lawmakers learned more about National Security Agency surveillance programs on the front page of the newspaper than at closed-door security briefings with administration officials." Carlo Munoz in The Hill.

Surveillance shakes US-German ties. "In a country scarred by Nazi and Communist pasts, the issue is prompting not just a debate about privacy and data protection, but also demands from German officials that the Berlin-Washington security partnership be put on a new footing. The latest of the Snowden revelations came on Sunday, when the German newsmagazine Der Spiegel published a report, citing documents Mr. Snowden obtained while he worked as a contractor for the National Security Agency, that said the agency had succeeded in tapping into videoconferences at the United Nations in New York, into the European Union’s mission to the United Nations, and into other diplomatic missions around the world" Alison Smale in The New York Times.

This is so deeply troubling interlude: I am left with basically nothing...Too trapped in a war to be at peace, too damaged to be at war.”

3) Republicans give up on defunding Obamacare through budget

Sen. Cruz admits GOP does not have the votes to defund Obamacare. "“We do not have the votes right now,” the Texas Republican said on CNN’s “State of the Union,” adding it will take “a grass-roots tsunami” to back his plan to pass a budget continuing resolution in September that strips all funding for President Barack Obama’s health care law. “The House of Representatives should pass a continuing resolution that funds the federal government in its entirety, every aspect of the federal government, except Obamacare,” Cruz said. “And it should explicitly prohibit any funding for Obamacare, mandatory or discretionary.”" Reid J. Epstein in Politico.

States scramble to get health-care law’s insurance marketplaces up and running. "The task is unprecedented in its complexity, requiring state and federal data systems to transmit reams of information between one another. Some officials in charge of setting up the systems say that the tight deadlines have forced them to take shortcuts when it comes to testing and that some of the bells and whistles will not be ready...The hiccups are troubling to advocates, who worry that there will be mistakes that result in people being erroneously rejected by Medicaid or denied subsidies to which they are entitled. They are concerned that impediments will discourage the uninsured from signing up for coverage." Sarah Kliff and Sandhya Somashekhar in The Washington Post.

Bare-bones health plans expected to survive health law. "Consumer Reports calls it “junk health insurance.” A California regulator described them as “skeleton policies.” To an expert from the American Cancer Society, they “are a perfect example of why health care reform is so crucial.”  They are bare-bones health plans, and critics say they could leave consumers who become seriously ill on the hook for tens of thousands of dollars in medical costs. The Affordable Care Act was supposed to do away with them...Offering bare-bones policies may result in some fines, but that expense could be less than the cost of offering traditional medical coverage." Jay Hancock and Julie Appleby in Kaiser Health News.

RIP interlude: Muriel Siebert, who broke Wall Street's glass ceiling.

4) In the long shadow across the Lincoln Memorial's reflecting pool

Barack Obama and Martin Luther King Jr. "On this, black civil rights leaders agree: President Barack Obama isn’t the second coming of Martin Luther King Jr. It’s tempting to compare the two men – “inevitable,” the New York Times said this week – but allies and some critics in the black community say Obama is not the leader of a movement. Instead, Obama is playing a different role in a different time." Jonathan Allen in Politico.

Trying to inspire a generation. "The anniversary of the 1963 March on Washington was less a commemoration, speakers proclaimed, than an effort to inject fresh energy into issues of economics and justice that, despite undeniable progress in overcoming racial bias, still leave stubborn gaps between white and black Americans...Speakers included Attorney General Eric H. Holder Jr., who on Thursday sued Texas over a strict voter ID law; Representative John Lewis of Georgia, an organizer of the original 1963 march; and Sybrina Fulton, the mother of Trayvon Martin, the Florida teenager who was shot and killed last year." Trip Gabriel in The New York Times.

Why the march anniversary matters, especially for whites. "When thousands massed on the Mall Saturday to celebrate the 1963 March on Washington, they weren’t simply marking the rally’s 50th anniversary. They were also helping sustain the significance of the civil rights movement in the public consciousness...Large-scale anniversary celebrations can affect how the public thinks about historical events in large part because they draw so much media attention." Danny Hayes in The Washington Post.

Woah interlude: Bionic eyes for the blind.

5) Movement on education reform

Colleges set to offer exit tests. "Next spring, seniors at about 200 U.S. colleges will take a new test that could prove more important to their future than final exams: an SAT-like assessment that aims to cut through grade-point averages and judge students' real value to employers...he CLA + will be open to anyone—whether they are graduating from a four-year university or have taken just a series of MOOCs—and students will be allowed to show their scores to prospective employees. The test costs $35, but most schools are picking up the fee." Douglas Belkin in The Wall Street Journal.

Disrupt college? "Video lectures only need to be recorded once and there only needs to be a handful of the world’s best instructors to teach any particular field. Much of the slack from face-to-face professor time is taken up by advanced students who volunteer to tutor their peers, in exchange for prestige and warm fuzzy feelings. In other cases, paid online tutors will help students." Gregory Ferenstein in TechCrunch.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

The crisis is over. The challenges for central bankers are only beginningNeil Irwin.

‘Dear Dylan’: I’m getting ripped off in my group houseDylan Matthews.

Helping the unemployed move might not help them find a jobMike Konczal.

Christine Lagarde on the coming post-QE worldNeil Irwin.

Why the march anniversary matters—especially for whitesDanny Hayes.

Et Cetera

Longread: After six budget showdowns, big government is mostly unchangedDavid A. Fahrenthold in The Washington Post.

Meet the Republicans who are trying to impeach ObamaJennifer Steinhauer in The New York Times.

Public defenders strained from federal budget cutsRon Nixon in The New York Times.

Why some get a green card but don't become US citizensKirk Semple in The New York Times.

Got tips, additions, or comments? E-mail me.

Wonkbook is produced with help from Michelle Williams.

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Lydia DePillis · August 25, 2013