FOMC | St. Louis Fed Chief Asks Hawks to Think Harder

James Bullard, President of the St.
Louis Fed, predisposed to raise rates
but wondering if this will actually
increase, not lower, inflation.

The President of the St. Louis Fed, James Bullard, is in line to join Jeffrey Lacker of the Richmond Fed in calling for an increase in the fed funds rate.

The St. Louis Fed has historically been the champion of the monetarist school, which keeps reminding Keynesians and New Keynesians who want to keep stimulating the economy that increasing the money supply will cause inflation.

At one time, zero-lower-bound interest rates were viewed as dangerously inflationary. The fact that inflation has remained low hasn't changed the tune of a hawk like Jeffrey Lacker of the Federal Reserve Bank of Richmond. Six years ago he predicted that the zero-lower-bound approach taken in 2008 would make inflation soar. Now he's been voting for a rate increase at the most recent meetings of the FOMC, warning that inflation will get out of control if the FOMC doesn't raise rates.

However, yesterday Bullard gave some support to the idea that the long period of low interest rates – the "Permazero" – might require a rethinking of monetary policy.  At a Cato conference he said that after seven years, expectations for permanently low interest rates might be baked into the cake.

Bullard says we should pay attention to the ideas of John Cochrane of Chicago's Booth School of Business, who suggests that raising the interest rate target off the zero-lower-bound floor may raise, not lower, inflation. The 94-page paper in which Cochrane lays out his theory and data poses the theory as a question – Do Higher Interest Rates Raise or Lower Inflation? 

Cochrane provides charts showing what happens to inflation under different assumptions. If you disagree with his story, I can hear him say, show me your model.

I note that Cochrane relies on the simple version of the Irving Fisher's equation, using an expected inflation rate added to "real" rate.

Most theories contain the Fisher relation that the nominal interest rate equals the real rate plus expected inflation, it = rt +Etπt+1, so they contain a steady state in which higher interest rates correspond to higher inflation. 

This is a simplification of the actual equation, which is multiplicative (rt * Etπt+1). The distinction doesn't doesn't matter for low levels of expected inflation (the "Fisher premium"), but it certainly does for higher ones – far as that may be from our recent inflation numbers.

Bullard does not take the step of opposing a rate increase based on Cochrane's theories. That would put him in the same boat as Paul Krugman, who opposes a rate increase on Keynesian grounds that we still need more demand and higher rates could choke off demand.

After seven years of Zero Interest Rate Policy, the FOMC is getting cabin fever. They are generals who look like they are avoiding a battle. Bullard made clear that his predisposition in December is to vote to raise rates. The FOMC may in December want to give the benefit of any doubt to a rise in rates.

Cochrane has therefore done everyone a favor by providing a reason for inflation hawks to think a little harder... because raising rates just might be inflationary.

OBAMA | Visit to Chelsea Area, One-Time Alinsky Battleground

The Presidential Car carrying President Obama is first in line here, with a flag flying on each side of the front hood.
All photos by John Tepper Marlin (for permission to use, email teppermarlin at aol.com).

President Obama has arrived, a few minutes late, to visit the 400 block of West 22nd Street.

I have a bird's-eye view. He is expected to be here for an hour. It's a $25,000-per-guest fundraiser.

The neighborhood is of some importance in the history of community organizing. Saul Alinsky was here to organize the neighborhood, but it did not go so well (see below).

Not a good day to be illegally parked when "No Parking
Tuesday" signs abounded.

During the past few days, there seem to have been 1,000 federal, state and local police and sanitation workers in the area, checking and cleaning and barricading.

For local residents, it has been hard to miss that a VIP is visiting:

• Deliveries to this block were cancelled for today.
• All the Citibikes were removed from the racks in the block (see photo). 
• Two days ago barriers were brought in barricading the entire block and Ninth Avenue to the north and south (see photo).
• All public trash baskets and other "street furniture" (newspaper delivery boxes) have been removed.
• "No Parking Tuesday" signs went up over the weekend.
• This morning the NYPD tow trucks were out to enforce the parking ban. Three of them were just now getting ready to tow cars away across the road (see photo).



Oct. 7 morning - Cleaning the 400 block of West 22nd St.
 Obama is hours away from visiting the white house
the street-cleaning truck is in front of. Note Citibikes
 are removed, and the barriers extend all down the block.

• Sanitation trucks - cleaning trucks and two big trucks full of sand to barricade the block - arrived this morning (see photo).
• Police officers are heavily concentrated in the area, including on top of a couple of buildings (see photo).

The intrusion on the neighborhood of security measures did not go unnoticed and was slated for discussion at the next block association meeting.

So where did the President go? To 460 West 22 Street, a renovated 16-foot-wide brownstone. Neighborhood gossip is the owners spent $10 million on the renovation. But the fact is the owners themselves say it was purchased for $4 million and the renovation cost $4 million.

It is advertised by Douglas Elliman (Eklund Gomes team) for sale with a lofty asking price of $16.25 million. The publicity from the fundraiser will clearly help see the building at some price. (See end of post for more on the house.)

The Alinsky Connection

The neighborhood has a community organizing history, which Barack Obama is surely - as a former community organizer in Chicago - aware of. Obama studied at the Industrial Areas Foundation (IAF),  created by Saul Alinsky with the help of supporters like Marshall Field III, Sears heiress Adele Rosenwald Levy, Gardiner Howland Shaw (an FDR assistant secretary of state) and Eugene Meyer, an investment banker who chaired the Fed under Hoover in 1930-33.

With the help of graduates of the IAF training, Alinsky had an early success organizing the Back of the Yards area, the meat-packing district made infamous in Upton Sinclair's 1906 novel The Jungle. During the late 1930s and 1940s, Alinsky formed the Back of the Yards [Neighborhood] Council (BOYC), which brought together (1) Catholic priests looking to retain and expand their congregations with (2) organizers for the far-left Packinghouse Workers Organizing Committee, which was looking for troops to mobilize. The alliance worked well for long enough to establish Alinsky, in the words of William F. Buckley, Jr., as  "very close to being an organizational genius".

Eugene Meyer and his wife Agnes co-owned The Washington Post and in 1945 he wrote a six-part series praising Alinsky's Chicago work.  Assembled as a book called The Orderly Revolution, it put Alinsky on the map.

Awaiting the President - a view up 9th Avenue from 22nd St.
At left, London Terrace, first U.S. urban renewal project, built
in 1931. At right, Penn South, the ILGWU-sponsored co-op
 dedicated in 1962 by JFK and Eleanor Roosevelt.

Around that time, Alinsky wrote Reveille for Radicals (1946), although his Rules for Radicals (1971, the year before his death) is now better known. 

The Rules were circulating in draft in the 1960s; Alinsky said that in this book he was seeking to provide the kind of guidance to "Have-Nots" (the 99 percent) that centuries ago Niccolo Macchiavelli's The Prince provided for the "Haves" (what we call today the 1 percent).

Less known is that Alinsky was brought in to Chelsea in the late 1950s by Hudson Guild, which obtained for him a $300,000 grant to organize Chelsea. At that time, the area between 23rd Street and 28th Street that was soon to be razed to make way for ILGWU leader David Dubinsky's Penn [Station] South development was still mostly composed of aging tenements, which were largely occupied by the families of Irish Catholic longshoremen and their families.

There was much discussion of a need for urban renewal in the area, and in 1958 the ILGWU plan for developing the area was made public. Dan Carpenter heard of Alinsky's success in Chicago and thought he would be useful in mobilizing Chelsea to address its urban reutilization needs, perhaps with an alternative plan to the one that the ILGWU was working on,

Security officers on the roof opposite the house
Obama is visiting.

Dan Carpenter was originally "head worker" at Hudson Guild, the well-regarded settlement house. He was then named Executive Director. Around that time he married the daughter of the founder of Hudson Guild, John Lovejoy Elliott, who was active with the Ethical Culture Society ("deeds not creeds"). I am familiar with the Society because both of my children went to the Ethical Culture School in Manhattan.

Alinsky's first move, following his Back of the Yards playbook, was to form the Chelsea Community Council, with Hudson Guild as his main local partner. However, at its organizing meeting in 1958, this Council, according to someone who was there and told me about it, fell apart.

The entry tent to the house.

The problem seems to be that Alinsky was following the playbook he had developed in Chicago, where his success had depended on the active cooperation of several Cardinal Archbishops of Chicago - Stritch until 1958, then Meyer and Bernardin. So he recruited Father Robert Dunn of St. Columba's Church on 25th Street east of Eighth Avenue. But this greatly distressed Dan Carpenter and other members of the Liberal Party, because the Catholics in the area operated independently of, and were suspicious of, the local socialists and Communists who led some of the labor union locals.

The Catholic Church was focused on its flock - ministering to the Irish and Puerto Rican residents who constituted, by one report, two-thirds of the 60,000 area residents - and had little time or patience to work with Alinsky's other main partners. St. Columba's and the Guardian Angel Church on 10th Avenue between 21st and 22nd Street were struggling to care for their aging Irish dockworkers and families, at the same time as the influx of Puerto Rican immigrants was changing the character and needs of the congregations.

The house at 460 West 22 Street. Note
Cipriani catering truck and glass-enclosed
penthouse. 

Hudson Guild was seen as challenging Catholic doctrine when, for example, it distributed information in the neighborhood about birth control or the philosophy of the Ethical Culture Society.

So when at the organizing meeting of the Chelsea Community Council, Father Dunn arrived with a list of people he was going to appoint to get things done, the Liberal Party members were distressed. They were expecting a proper election.

Both sides were shocked at each other, and the possibility of a viable partnership among the competing groups was pretty much all over after that. Dan Carpenter - a courtly man with a gentle manner - told me before he died that he was personally glad to see Alinsky leave town.

Dan lived in the 400 block of 20th Street, opposite the Episcopal General Theological Seminary, part of the Chelsea Historic District. He told me the 400 West 22nd Street block was very important during the controversy.

The Clintons have a connection to the story - not just that they named their daughter after the neighborhood (and the song "Chelsea Morning") but also that Hillary wrote her senior thesis at Wellesley on Saul Alinsky.

Looking east from the 400 block of West 22 Street. 

She basically said, according to a report - the thesis was kept under wraps during the Clinton presidency - that Alinsky's methods were not always successful. She could have used Chelsea as a case in point. Saul Alinsky reportedly was impressed enough with her thesis to offer Hillary Clinton a job when she graduated from Wellesley. Instead, she went on to law school; but she kept in touch with Alinsky by mail during the next few years.

The House That Obama Visited

Clever For Sale signs at 412 W 22 St.

The house at 460 West 22 Street is approximately 5,000 sf, which would put the asking price at $3,250 per sf. The listing says it has a garden in back. It is featured on the "Driven by Design" tour of Architectural Digest. The listing goes on:

Not so effective a sign.

Originally constructed in 1840, this landmarked, Italianate single-family townhouse just underwent a multi-million dollar complete artisanal-renovation and full restoration by Fanuka, Inc. (of Million Dollar Contractor) and Suk Design. Located on Chelsea's most refined block, this house is directly adjacent to picturesque Clement Moore Park, and is within short distance to the High Line, the Hudson River, Avenues World School, and the Dia Museum / Chelsea Art District. At 64' deep, this home features triple exposures and over 6000 sf of indoor living & outdoor entertaining space, which has been pristinely cultivated into a 6-floor [including basement], 4 bedroom / 4 bathroom + 1 powder-room mansion with 4 gas fireplaces and elevator.

According to the New York Times and HuffPost (Blake Fleetwood), the fundraiser is at a building with landmark status and is owned by Bryan Eure and his husband Bill White, the former president of Intrepid Sea, Air and Space Museum and the chairman of business development firm Constellation Group.

Huge pumpkin outside 460
W 22 St. - trick or treaters,
here is the stop to make!

I fear this post might be viewed as "native advertising" - i.e., advertising that serves the purposes of Douglas Elliman while ostensibly just telling a story.

May I therefore draw your attention to two other houses on the same side of the street in the same block, also for sale, one with three For Sale signs and one with a hand-made sign that notes how much space you would get with this house.

Meanwhile, I recommend that trick-or-treaters stop by 460 West 22 Street at the end of October. Brownstoners on the block take Halloween seriously. They are also pretty organized and I wouldn't be surprised if some lawyers connected with or hired by property-owners in the neighborhood are right now looking for ways to limit the number of events that residents are allowed to have that shut down the block for a week at a time. New York City has a process for approving parades and street fairs, and some of these fairs are less disruptive than this fundraiser was. Stay tuned.

Sources include interviews with local residents and: John T.  McGreevy, Parish Borders: The Catholic Encounter with Race in the Twentieth Century Urban North, Historical Studies of Urban America, University of Chicago, 1996.

Chicago Prof Mahoney Praises Card Law by Maloney

Rep. Carolyn Maloney (D-NYC) gets her pen after Pres.

Obama signs the law she introduced, the CARD Act.

Man bites dog. The NY Times Business Section highlights a Chicago School economist who set out on a routine debunking of credit-card regulation and along the way decided the data show the opposite.

He meant to show the law did not benefit consumers... and found that it actually did benefit them. In fact the law was a $20.8 billion gift of lower fees to credit-card holders, not just in 2010 but every year.

Credit-card users are paying $20.8 billion less per year, just because of the law, concludes Prof. Neale Mahoney, along with his three NBER co-authors -- Sumit Agarwal, Souphala Chomsisengphet and Johannes Stroebel -- the last of whom is a professor at NYU Stern School.

But where did this law come from? The Credit Card Accountability Responsibility and Disclosure (CARD) Act resulted from a long struggle. Surprisingly for a newspaper published in New York City, Floyd Norris does not mention that the law was introduced by New York City's Congresswoman from the Silk Stocking District, Rep. Carolyn B. Maloney, and was supported by then-Senator Barack Obama on the Senate side.

Maloney first introduced the bill as the Credit Cardholders' Bill of Rights in the 110th Congress (H.R. 5244) when she chaired the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit. The bill passed 312-112 in the House. Although Sen. Obama supported the bill, it was not voted on in the Senate.

Maloney reintroduced the bill in the 111th Congress (H.R. 627), during which she chaired the Joint Economic Committee. On April 30, 2009, the House passed the bill 357-70, the Senate passed an amended version on May 19, 90-5, and the House passed the amended bill May 20, 279-147.

The bill was signed by President Obama on May 22 at a White House ceremony at which he acknowledged Maloney's key role in it by putting her right behind him when he signed the bill and bestowed on her a pen and a kiss. The law went into effect February 22, 2010.

Give credit where credit is due.