Raising Interest Rates -- What's The Hurry? Idle Chatter -- September 18, 2016

I'm the last one who should comment on the Fed. I have no understanding of macroeconomics. I hardly have any understanding of microeconomics for that matter. Having said that, I enjoyed the review of Ben Bernanke's recent book, The Courage to Act: A Memoir of a Crisis and Its Aftermath, as reviewed in the current issue of the New York Review of Books. It seems to be a very fair and balanced review.

I actually read it slowly and tried to understand more about the Fed. Near the end, the last five paragraphs seem to fit my way of thinking (much has been left out; only snippets reprinted):

What’s unclear is how well these lessons have been learned. Today’s Fed, for instance, has been under a lot of pressure to end its “easy-money” policies and start raising rates at a steady clip. With unemployment below 5 percent and inflation close to the Fed target of 2 percent, conventional wisdom has been that it’s time for interest rates to go back to “normal,” lest inflation finally rear up....

Yet if you look past the headline numbers, you have to wonder what the hurry is. Inflation is stable. GDP growth in the first half of the year looks to have been around 2 percent. The economy has been creating a reasonable number of new jobs, but the percent of employed Americans between twenty-five and fifty-four is still lower than it was in 2007...

Given all this, the fact that some investors and retirees think interest-rate hikes are now necessary is a sign that the old ways of thinking about monetary policy are still powerful...

What The Courage to Act shows is that its consequences are anything but academic—in fact, nothing has a bigger impact on the lives of American workers. The American economy’s failure to grow as fast after the crisis as it did before has cost the US trillions of dollars in lost GDP. It’s kept employment down, and it’s kept workers from earning higher wages, since the only thing that leads to higher wages in today’s economy is a tight job market.

What we need, in other words, is a Fed that understands the one thing Bernanke got unquestionably right: when it comes to raising interest rates, sometimes what a central banker needs most is the courage not to act.

*****************************

California Pensions: Much Ado About Relatively Nothing

The top story in today's Los Angeles Times:

With the stroke of a pen, California Gov. Gray Davis signed legislation that gave prison guards, park rangers, Cal State professors and other state employees the kind of retirement security normally reserved for the wealthy.

More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived.
Proponents sold the measure in 1999 with the promise that it would impose no new costs on California taxpayers. The state employees’ pension fund, they said, would grow fast enough to pay the bill in full.

They were off — by billions of dollars — and taxpayers will bear the consequences for decades to come.

This year, state employee pensions will cost taxpayers $5.4 billion, according to the Department of Finance. That’s more than the state will spend on environmental protection, fighting wildfires and the emergency response to the drought combined.

And it’s more than 30 times what the state paid for retirement benefits in 2000, before the effects of the new pension law, SB 400, had kicked in, according to data from the California Public Employees’ Retirement System.

And how will Californians respond? They will re-elect the incumbents, which tells me that there is no problem. In the big scheme of things, only the Los Angeles Times seems concerned. There is a lot of money in California. Six billion dollars is not all that much. In the big scheme of things.

All California needs to do is charge Zuckerberg the back taxes he should have paid had California had different tax laws. Sort of what the EU does.

********************************

The Political Page

For various reasons, boredom being the #1 reason, I am reading "US Politics" As Low As It Get" by Jonathan Freeland, in the current issue of the New York Review of Books. I've only read the first few paragraphs and these are my immediate thoughts:

• I wonder what the author's point is, assuming he has a point?
• is this a serious essay or humor (the NYRB does not do humor)?
• I wonder if I will finish the article?
• the author appears not to be paying attention to the mood of the country
• the author appears not to be in touch with mainstream America
• the author most likely lives in NYC and does not own a car; whether he has a driver's license or not is hard to say

It should be noted that in the USC-LA Times poll today: Trump, 48%; Hillary, 41%.

**********************************

The Apple Page

I have a MacBook Pro -- a gift from the family that is now many years old. It feels like a brick. I seldom use it.

Today, because my MacBook Air is elsewhere I got out the old MacBook Pro. The battery was completely dead but once plugged in, at 1% battery level, it sprung to life, and is as good as ever. Color me impressed.

Here I am, using a computer that is probably nearly ten years old and here it is, working as well as ever. And you know why? The cloud. For basic activities -- blogging, spreadsheet, word documents -- not much is needed in a computer.

In the bedroom is an Apple iPad, second generation which is even older, and it does everything I need it to do. Apple products don't last as long as our GE microwave or our GE refrigerator, but they seem to last a lot longer than one would think.

And the MacBook Pro looks as "new" as ever.

Sophia, September 18, 2016