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.

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MED BIZ | Cycle v Wheelchair - The Alinker™

The bicycle, it seems, originated in 1817
 in Germany as a running aid. The Germans
 never loved it as much as the Dutch. 

I am at the Social Venture Network conference in Baltimore and there is a new invention on display here, the Alinker™. I have tried it out and it works.

It looks a lot like the very first bicycle, invented nearly 200 years ago.

It's being positioned as a medical device–a replacement for the wheelchair. It is useful for people who can still walk but need assistance because their legs are weak. It provides mobility while not reducing the patient to total dependence. It provides mobility but doesn't end exercise.

It's like the difference between assisted living and a nursing home. A big difference...

Hobby horse with morris dancers.

I like the walking cycle for three reasons:

First, it keeps its users more active than a wheelchair.

Second, it allows the users to socialize more easily because they are upright.

Third, it is simpler than a motorized wheelchair and promises to be much cheaper, which matters a lot when we look down the road at looming medical costs for elderly people.

The new invention even shares the yellow color of the original walking cycle.

The First Bicycles

The Penny Farthing

I confess to a bias in favor of bicycles. I've been writing about them frequently over the years–for example, here.

• They are so darned efficient.
• Their concept is so simple. The original bicycle was a running cycle, with no pedals or chains or even brakes. Without pedals, the cycle doesn't go fast enough on level ground to need brakes–you stop the same way you stop running.
• The early name for the running cycles was a "hobby horse", such as were used by morris dancers (see drawing) in England.
• My Dutch relatives were pioneers in use of the bicycle in that country.

Innovations

The major innovation in the 19th century was the addition of pedals.

After some experimentation, the penny-farthing bicycle became the most popular shape.

My great-grandfather Charles Boissevain is said to be the first person to bring a penny-farthing to Holland, a country that quickly cottoned on to it.

Germany, which was the origin of the first bicycle, never became a great user of it in the 1920s when it became the rage in Holland. Perhaps it was because the German landscape is more mountainous than Holland's. Germany was also deeply disoriented by the onerous reparations of the Versailles treaty at the beginning of the decade and the Crash of 1929 at its end and had no disposal income to spend on new ideas.

The 19th century bicycle had two serious problems:

• The hard wheels made a "bone-shaker" of a ride.
• The potential for the bicycle to get up some speed without a corresponding brake made it dangerous.

The Safety Bicycle

The Alinker™ in use.

The "safety bicycle" developed in the 20th century changed the shape back to two even wheels and added four things:

• A chain to shift the force from the pedal to the back wheel and allowing the pedal to be located between the two wheels, which made the bicycle much safer.
• Gears to control the revolutions of the pedal that were required per distance traveled.
• Rubber wheels and inner tubes filled with air, providing a smooth ride.
• A brake, either a back-pedaling mechanism or (better) calipers on the handles.

During World War II when gasoline was scarce, the bicycle was a transportation godsend for the Dutch people.

The tricycle has in recent decades been rediscovered in communities with many elderly people, where it can be used for recreation when a bicycle is too arduous, or for travel over short distances – to do shopping, walk a dog or meet with friends.

The 21st Century Alinker™

Your blogger on the Alinker™with its inventor, Barbara
Alink. I took it for a spin at the Social Venture Network
Conference in Baltimore. Photo by Alice Tepper Marlin.

The brand-new Alinker™ invention has three main differences from the original bicycle. The color, at least for the prototypes, is the same, but:

• It uses the tricycle approach for the elderly as has been rediscovered in Florida, with two wheels in front.
• It uses pneumatic tubes on the wheels for a smoother ride.
• It is shaped more like the later 19th century penny-farthing cycles, with the larger wheels in front for maneuverability. The small turning radius is equivalent to that of a wheelchair, so that it can be used indoors.

The most interesting feature of the Alinker™ is that it can be used indoors like a wheelchair.

Its simplicity means that once in full production the price can be brought down and it could compete on price as well as function with the wheelchair in cases where people need support but have use of their legs for propulsion.

Right now the price is $2,000. For further information go to www.thealinker.com, or email info@thealinker.com.

ED BIZ | Fundraising, Harvard 1945

Mason Gaffney, born Oct. 18,
1923.

Lyrics posted for "When the Saints Go
Marching In."

Joe Bain, volunteer class agent, Harvard College Class of 1945, sent an email to economics professor Mason Gaffney.

Class agents collect news from alumni and help with "friend-raising" and fundraising.

I was sent a copy of a part of his email, in which he says to his class:

Social Security Actuarial Tables (2011) indicate that a 92-year-old man has a life expectancy of 3.4 years and that out of 184 surviving '45ers, only 11 will reach 100. 

The message might be construed as – "Get your affairs in order so that whatever you are leaving to Harvard can be handled with a minimum of testamentary hassle. Gaffney responded in a letter addressed to his entire class:

So the actuaries say 11 of us will reach 100, eh? Well "I want to be in that number, when the cents go marching in", and I will be. I expect there will more than 10 more of you, too. 

There are no shortcuts in this race, though, so keep your sense of humor and leave 'em laughing when we go!

End of this story.

However, I was curious who wrote "When the Saints Come Marching In," and dug up some more information. I have excerpted below from a much longer exposition in JazzStandards.com:

“When the Saints Go Marching In” was popularized by Louis Armstrong who first recorded it on May 13, 1938, and [...] and some 40 times since then. [...] Armstrong had grown up knowing the gospel tune, played somberly for funerals by the marching bands that accompanied the mourners to the graveyard and played joyously on their return. Armstrong’s lively recording of the tune [...] transformed it into the jazz standard we know today, closely associated with New Orleans’ Dixieland bands and performed by musicians of every style. So well known is the song that it is commonly referred to as “The Saints.” [...] In 1951 the Weavers (Pete Seeger, Lee Hays, Ronnie Gilbert, and Fred Hellerman) recorded it with Leo Diamond and His Orchestra. [...] Throughout the years Armstrong constantly changed his performance of “The Saints,” and he is captured on film at the 1958 Newport Jazz Festival (Jazz on a Summer’s Day) and with Danny Kaye in the 1958 film The Five Pennies. New Orleans is now famous worldwide as the city of jazz and the marching song, “When the Saints Go Marching In”.

FOMC | Jobs Soar, Rate Hike Likely, But *100%*?

Payroll jobs in October exceed prior
months and forecasts.

The BLS reported this morning that nonfarm payrolls rose 271,000 in October, with a slight drop in unemployment to 5 percent.

The payroll-job increase was well above the 185,000 increase forecast by economists who do that kind of thing (a foolhardy activity, since a forecast on Thursday will definitely be proven wrong on Friday).

Caution: There will be another jobs report in early December before the FOMC meets in mid-December. But Bill Gross says there is a "100% chance" that the FOMC raises rates in December, regardless of the December jobs report.

The October increase is exceeds the 137,000 increase in September and a similar number in August, and paves the way for a December increase in the federal funds rate, which would be the first such move since the zero-bound level set in December 2008.

The Fed Funds rate has been at the zero bound for 7 years.

In January 2009 I posted a comment on the December 16, 2008 decision by the FOMC after hearing from Laurence Meyer, former Vice Chairman of the Fed.

Meyer recommended that the Fed take a long vacation, but I am pretty sure he didn't mean a vacation that would last this long.

The average monthly job growth for the three months August-October is about 150,000, well below the 210,000 per month first-half-2015 average.

The potential for a rate rise has pumped up the dollar to one-month high against the British pound and a three-month high against the euro.

Here are links to the BLS data:

Payroll employment rises by 271,000 in October; jobless rate essentially unchanged (5.0%)

Total nonfarm payroll employment increased by 271,000 in October, and the unemployment rate was essentially unchanged at 5.0 percent. Job gains occurred in professional and business services, health care, retail trade, food services and drinking places, and construction.

HTML | PDF | RSS | Commissioner's Statement.

AWARD | Statistical Beaver 2015–ACS

CityEconomist has decided to give its 2015 Statistical Beaver Award to the U.S. Census Bureau for releasing their 2010-2014 American Community Survey (ACS) 5-year estimates one  week early.

In the statistical arena, the huge advances that have been made in communications technology have not made much of a dent in the reporting speed of many government statistics.

However, lags in release of routine government data make it harder to control access. Some innocent-looking numbers have great value in the private sector to those who get them before the general public.

In the case of the many monthly numbers, they are handed on to Federal agencies routinely by each state. State statistical agencies collect data against national standards. As years go by, it stands to reason that delays could be reduced.

It is encouraging when statistical agencies voluntarily move up the date of release of their data. In this case, users will have more time to analyze the new information before they leave for their holidays.

Here is the Census Bureau announcement that gave rise to the CityEconomist Statistical Beaver Award.

Release Date for 2010-2014 ACS 5-year Estimates  The 2010-2014 ACS 5-year estimates are now planned for release on Thursday, December 3, 2015, a week earlier than the initially planned date of Thursday, December 10, 2015. You can access the complete 2014 Release Schedule on our website. The 2010-2014 ACS 5-year estimates will be available for all geographic areas including census tracts, ZIP Code Tabulation Areas (ZCTAs), and block groups. For the first time, users will be able to compare two non-overlapping 5-year datasets (2005-2009 and 2010-2014).  Embargo subscribers will have access to these statistics beginning Tuesday, December 1. A pre-release webinar is scheduled for Monday, November 30 from 1:00-2:00 PM.  Information on how to log-in will be added to the Events. The ACS provides reliable statistics that are used to make informed decisions about the future. These statistics are required by all levels of government to manage or evaluate a wide range of programs, but are also useful for research, business, education, journalism, and advocacy. If you have questions about this survey, please call our Customer Services Center on 1 (800) 923-8282. Thank you,

American Community Survey Office
U.S. Census Bureau