FOOD BIZ | Le Canard Enchaîné (Shrine to Edith Piaf)

A Vegetarian Napoleon—Eggplant sandwiching red peppers, in
sweet sauces. Photos by JT Marlin.

KINGSTON, N.Y., June 18, 2017—We had a fine dinner at Le Canard Enchaîné here in the Hudson Valley, in the early capital of what became New York State.

We were sent to the Canard by the manager of the Hurley Stone House, a B&B a few miles south of Kingston.

Originally known as Esopus, after the tribe of Indians that lived in the area, Kingston was a significant early settlement of the Dutch in New Amsterdam. It was there in September 1777 that John Jay and other rebels declared the independence of the New York colony from the British Crown. When, the following month, Kingston was burned to the ground, the colony's capital was moved for a while to Hurley.

A 600-page history available online, dating back to 1888, records the distinguished role of Kingston back to 1609 when Henry Hudson sailed up, on behalf of the Dutch, the river now called after him the Hudson River, in his ship the Haef Maen (Half Moon). In 1620 the Dutch formally claimed the area within the 40th and 45th parallels, between what was then the Commonwealth of Virginia and New France.

But... back to the dinner at Le Canard Enchaîné. Karen had as a starter the Vegetarian Napoleon, which was red pepper sandwiched between layers of eggplant, with an endive leaf on top to give the dish some panache, and sweet sauce all round.

Warren had the pea soup, guaranteed no cream in it. Alice had the duck and I had the shrimp Indochine.

The Canard (Long Island Duck).

We were all impressed with the quality of our food and—doubtless encouraged by our enthusiasm—the chef-propriétaire came out to recommend the desserts. He told us that under the restaurant is hidden a 4,000-square-foot wholesale bakery, in which pastries are made daily for the huge New York City market, going to fancy places like the Carlyle Hotel.

It reminded me of my 1963 and 1969 visits to French West Africa, where Air France delivered fresh croissants every morning to Abidjan in the Côte d'Ivoire and Dakar in Senegal. It's hard to get croissants right and sometimes you just have to go a long way to find the pastry chef that really knows from flakiness.

We tried four pastries — the tarte tatin, crème brûlée, a chocolate mousse cake, and a tarte au citron. Five-out-of-five stars all round.

My FOOD BIZ posts focus on the inexorable economics of the culinary industry. If they were chapters of a book, its title could be Your Food is a Harsh Mistress.

I had a conversation about restaurant economics with the restaurant's chef-propriétaire, Jean-Jacques.

He calls his restaurant a bistro to give himself a little freedom from nonfood distractions. He does not want to be trapped by the fussy elegance that makes the restaurant business so exhausting for its workers. Jean-Jacques says:

"The people who decide on the stars for Michelin can keep you from getting a star for many reasons that have nothing at all to do with the food. Par exemple, the flowers on the table may not be fresh enough. A detail of service may not be comme il faut. Many young chefs now want to keep their attention on the food. Other things are distractions that push up the cost of the meal, that keep restaurant staff from having enough time with their families. Today, chefs want to take off two days a week, like everyone else."

Indo-Chinese Shrimp. Shrimp served on barbecue sticks with a noodle
planted on top like a flag, with a generous portion of ginger below.

I know what he is talking about. I think back especially to Jacques Dejoux's introducing us to the Maison Pic in Valence. That's a restaurant where the chef-propriétaire Anne-Sophie Pic is the third generation of outstanding chefs. She maintains all the traditions of service, and Michelin shows its respect with continuing the family's three-out-of-three stars. Service in her restaurant is conducted like a Cathedral High Mass. Hard to do.

By contrast, the closest thing to an altar in Le Canard Enchaîné is a corner where Jean-Jacques showed us several deeply venerated Edith Piaf posters and a sketch of the great chanteuse.

What Piaf sang so well and defiantly about the vicissitudes of her life could sum up what the four of us thought about our food here, more than 100 miles up the Hudson River from New York City, a place we knew had a great history but place that we did not, in our blithe ignorance, fully appreciate was a site of haute cuisine:

"Non, je ne regrette rien." (With lyrics here.)

JOBS | Suffolk County, NY

How is Trump doing?

In 2010, Randy Altschuler attacked the incumbent congressman from Suffolk County, NY, Rep. Tim Bishop, for not doing enough for the Long Island economy.

He said that 30,000 jobs had left Long Island during Bishop's incumbency. I pointed out in an article on Huffington Post that the number was a lie. The correct figure was a gain of 36,000 jobs. Altschuler stopped using the number, but not until after he sent a glossy card to every voter with the lie plastered all over it.

Lee Zeldin was next to campaign against Bishop, in 2008. He lost badly in a Republican-leaning district. But in 2014 he adopted a straight Tea Party program, one of the first campaigners to do this. Here were his four main programs:

1. Oppose raising the Federal minimum wage.
2. Curtail Medicaid benefits. 
3. Simplify the Federal tax code and cut taxes on the rich. 
4. Cut Federal spending.

Zeldin was one of the first of the Tea Party electeds, in 2014. The GOP gained a majority in both the House and Senate in the 114th Congress, 2015-16. So how have Zeldin and the GOP Congress been helping Suffolk County? Let's ignore the first year, during which Zeldin was finding out where the bathrooms are in the maze of Capitol offices. Few Members of Congress make a dent in Washington in their first year (one reason for respecting seniority). Let's look at the second year of his term of office. How has the Suffolk County economy performed in 2016?

County-level numbers for jobs and wages are released quarterly and the numbers for the fourth quarter of 2016 were just released by the BLS on Wednesday. Here is the story for Suffolk:

Jobs. Suffolk's nonfarm payroll jobs rose to 661,400 in the fourth quarter of 2016, an increase of 900 jobs.

That's fewer than 1,000 jobs, compared with Bishop's presiding over growth of   36,000 jobs when he was attacked by the GOP for not doing enough for the economy.

The tiny growth rate during 2016 ranks 205th of 345 large counties for which the BLS computes this information, about 60 percent down the list. Within New York State, the growth rate is in the bottom half of the 18 large counties on the BLS list.

Wages. But maybe, has the quality of the jobs improved under Zeldin? What has happened to weekly wages? The news is much worse. Wages in Suffolk County declined by 3.5 percent, placing the county 289th out of 345 large U.S. counties, i.e., in the bottom fifth. Only two counties out of the 18 in New York State did worse.

This is not a good record. Since November 2016 the GOP has not only Congress but the White House, and a president who promised more jobs. We are waiting and watching.

FDR | June 5, 1933 — FDR & Woodin Nullify Gold Contracts

Instant Relic, Gold-Backed Currency.

June 5, 2017 — On this day in 1933, the United States took the third of several steps in going off the gold standard.

Under the gold standard, contracts guaranteed payment in a certain quality of gold.  Certain greenbacks were designated as "gold certificates" that could be exchanged for gold (others were call "silver certificates," allowing an expansion of the reserves backing currency to include silver).

Going off the gold standard allowed for the expansion of the money supply, which had been previously restricted by the requirement that currency be backed by gold reserves.  Christina Romer at the NBER concluded in 1991 that the main reason that the United States eventually recovered from the Depression is that the money supply was expanded by gold inflows in the 1930s and this stimulated investment.

Origin of the Problems.  In some ways policies of both the Federal Reserve and the Treasury were at the heart of the cause of the Great Depression. For one thing, the Treasury Secretary was also the ex officio Chairman of the Federal Reserve Board in Washington. The person who best understood how the Fed's actions were affecting the financial markets was Benjamin Strong, President of the Federal Reserve Bank of New York. The Fed began raising its the target short-term interest rate, the Federal Funds rate, in the spring of 1928 because it felt the stock market had become frothy and inflation was taking its toll. It kept increasing interest rates, even though the economy turned down in August 1929. The Fed’s action helped generate the stock market crash in October 1929.

After the Crash of 1929, speculators began trading their dollars for gold, creating a serious drain on reserves in late 1931. Dollar-holders lost confidence in the dollar, which had two consequences

• Banks ran out of gold to exchange for gold certificates and their cash reserves dwindled. Then they ran out of cash completely as depositors lined up to withdraw all their deposits.
• The Treasury worried about their loss of gold reserves as overseas claims for gold to settle accounts.

To preserve the value of the dollar and stop the outflow of gold, the Fed raised interest rates again. But that further restricted the availability of money for businesses. More bank closures followed and the Fed still did not try to calm the markets by increasing liquidity.

Investors withdrew their deposits from banks and banks failed, creating panic. (The scene is well recreated at the small town level in It's a Wonderful Life (Frank Capra, 1946). The Fed did not respond to the panic by lending money to the banks. More people withdrew their deposits and took their cash home. The money supply fell 30 percent. When FDR was inaugurated many states had declared a bank holiday and their banks were closed until further notice.

1.  No Bank Payouts of Gold. Part of the problem was that the United States had been on a gold standard since 1879, except for an embargo on gold exports during World War I. When FDR was inaugurated on March 4, 1933, he and his Treasury Secretary, Will Woodin declared a national bank holiday. Woodin personally supervised round-the-clock printing of $2 billion in greenbacks by the Bureau of Engraving and Printing, filming of the presses at work late at night and the dispatch of vans filled with currency for banks, and distribution of the film clips to cinemas around the country to be screened along with the latest movie offerings. Advisers had previously suggested issuing "government scrip" and Woodin scratched his head, noting the ban on banks' redeeming gold certificates in gold coin, and advised FDR: "What are greenbacks if not government scrip?"

From the first day of his presidency, FDR embargoed payment in gold.

At the same time as the bank panic spread within the United States, reaching its apex just as FDR was sworn in, foreign creditors were cashing in their claims on the U.S. Treasury and demanding gold, as was their right under the gold standard regime. Gold was flowing out of the United States at an alarming rate. So along with the bank holiday, FDR and Woodin prohibited banks from paying out gold or exporting it. This was a suspension of gold payments similar to what occurred in the Great War (World War I).

2.  Ban on Private Holding of Gold. On April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 turned in for other money. Everyone had to turn in all gold coin, gold bullion and gold certificates they owned to the Federal Reserve by May 1 for the set price of $20.67 per ounce. By May 10, the government had taken in $300 million of gold coin and $470 million of gold certificates.

Will Woodin, a world-class coin collector, co-author of the definitive book on American pattern coins (i.e., unique American coins that were samples of a new design), obtained a valuable specific exemption from the new law for coin collectors. They were allowed to keep their collectible coins.

3. Nullification of Contracts Defined in Gold. Different from WWI, on June 5, 1933, Congress made the exit from the gold standard permanent, and in the absence of a war. It enacted a joint Senate-House resolution nullifying the right of creditors to demand payment in gold. This applied to both public and private contracts.

The impact of this was possibly clear to Wall Street experts right away, and would become clear the following year, when the government price of gold was increased to $35 per ounce. This effectively increasing the gold on the Federal Reserve’s balance sheets by 69 percent, and reduced the value of all contracts defined in gold. This increase in assets allowed the Federal Reserve to further expand the money supply, but it reduced the wealth of contract-holders by 69 percent.

The theory behind this action was not yet developed, as it would be three years before John Maynard Keynes would publish his General Theory. But FDR either learned from the Bank of England, which has already gone off the gold standard in 1931 in response to the Crash of 1929, or he understood instinctively that greenbacks had more credibility if the issuer had a lot of gold reserves, and this allowed the Treasury to print more greenbacks and the Federal Reserve to put them into circulation, expanding the most basic definition of the money supply.

Treasury Secretary Will Woodin, being a life-long Presbyterian and Republican, disagreed with FDR on this move. He felt bound to honor contractual commitments to pay back in gold. He had campaigned on the hard-money platform in 1998 when he ran for Congress in his home district around Berwick, Pennsylvania. However, his loyalty to FDR made him swallow his doubts and support FDR in his action.

But it was FDR-Keynes theory, already implemented by the Bank of England, that expanding the money supply and making credit easier would spur investment and economic growth. The Great Depression created an unemployment rate of 25 percent, and Britain's going off the gold standard two years before justified an equivalent action in the United States, an action that Herbert Hoover could not take because of his own commitment to hard money.

Aftermath. The American economy turned around as soon as FDR came into power. The Depression formally ended in the quarter he was inaugurated, although it would be years before the economy recovered to the pace it was running at in the steaming 1920s.

The U.S. Treasury held the $35 per ounce price until August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus completely abandoning the gold standard. Since there was no longer any need to back the dollar currency with gold, President Gerald Ford in 1974 signed legislation that permitted Americans again to own gold bullion as an investment independent of jewelry, dental or industrial uses.

Related Posts: Are Fed Models Out of Sync? . Mnuchin Testimony, May 18, 2017 . Glass-Steagall . FDR's First Fireside Chat

FOMC | Questions About Fed Models

Gov. Lael Brainard (top center) addressing the NYABE,
Cornell Club, NYC, May 30, 2017.

On Tuesday, Federal Reserve Board Governor Lael Brainard spoke to the New York Association for Business Economics. 

At the heart of the Federal Reserve System is the Federal Open Market Committee (FOMC), which since the days of Ralph Young in the 1950s and 1960s has, as its primary task, engaged in carrying out open market operations in Treasury bills to influence interest rates.

The idea behind FOMC intervention in the marketplace is that the Fed can fine-tune the economy, by buying Treasury bills to inject cash and lower short-term interest rates, or by selling Treasurys to remove cash and raise interest rates. 

Lower interest rates create "easy money" and that is supposed to encourage investment. However, the Fed has been at the "zero bound" in its interest-rate targeting since its statement of December 16, 2008. I wrote a piece for Huffington Post  on January 17, 2009, that quoted former Fed Vice-Chair Laurence Meyer. Speaking to the New York Association for Business Economics, Meyer said that the FOMC could go on vacation "for the next two years" until it lifted off from its zero-bound policy.

It's been more than eight years now and the Fed's interest-rate target is still below 1 percent. A quarter-point increase is expected at the next FOMC meeting in mid-June.

The worry about raising interest rates is that it will discourage investment, and also that in the absence of inflation it is not necessary. 

A full table of reporters in the back.
Bloomberg, Dow-Jones...

It is a time when basic questions are being asked about the implicit model on which FOMC model is based. Is it possible that the model-builders have lost touch with the data on which the models are based? Is inflation understated, for example?

After the lunch I asked Gov. Brainard what she thought about this. Her answers were helpful:

Marlin: "When I was working at the Federal Reserve Board more than fifty years ago..."
Brainard: "Fifty!?"
Marlin: "Fifty, under Chairman William McChesney Martin. The prevailing faith then was that higher [but moderate] inflation would encourage demand, and lower interest rates would stimulate investment. Is this still the faith?"
Brainard: "I think we are less confident now than we were then."
Marlin: "Is that because of a new theory, or less faith in the data?"
Brainard: "It's not because of change in the theory. It's more a question of alternative views about the econometrics, rather than the data."

The data and econometric issues are related, because models use high-level aggregate averages. For example, "inflation targeting" at 2 percent per annum is based on a few overall-average price levels. The expansion of the money supply during and after 1933 is given full credit by Christina Romer for the stimulus to the economy that ended the Great Depression.

But what if average-price components move in different directions and then one of them changes direction? As the economy changes, the time horizons over which averages are computed may also need to change. Here are some charts from the "Fed Dashboard" of how prices have been diverging.

Similarly, both the slow response of the economy to massive new debt creation since 2008 and the zero-bound interest target from January 2009 raise questions about the Keynesian narrative in changed financial markets. The markets responded as predicted when short-term interest rates were hiked, but lowering rates to the zero bound did not spur investment as expected.

If the theory on which FOMC policies are based hasn't changed, and interest-rate and inflation-targeting policies based on the theory have not achieved their goals, doesn't that imply problems with the models or the data?

Related Posts: FDR Nullifies Gold Contracts . Glass-Steagall . FDR's First Fireside Chat