Month: October 2019

Politicians’ Contempt For The Truth

Posted on by j.giglio

Russell Baker, the Pulitzer Prize-winning American journalist, said in his memoir that covering Washington was just a matter of sitting in grand marble halls waiting for someone ever more important to come out and lie to you. One could easily make the case that this happens with considerable regularity in state houses and city halls throughout America.

If people think politicians can get ahead without untruths, they’re lying to themselves. Politicians have always had a distant relationship with the truth. They have always lied, are constantly lying, and will always lie. It no longer matters if statements have any basis in reality. Get over it.

Some political lies can lead to unnecessary war. Still others conceal illegal behavior. What matters is firing up your supporters and getting reelected. They promise heaven on earth, and when they can’t deliver, they spin, evade, manipulate the numbers and knowingly engage in falsehoods.

President Trump’s self-serving whoppers are overwhelming and are memorably labeled as B.S. The President’s body of falsehoods is singular in its multiplicity. He may be an outlier, but he is hardly unique in deliberately saying something untrue. The truth about lies is that politicians have always told them. Of course, the exception being America’s first President, George Washington. He could not tell a lie, unlike most politicians who cannot tell the truth.

Trump is not the only one lying. Recall a number of prominent presidential lies. Some are as egregious, such as when President Obama told the American public over and over that “if you like your health care plan you can keep it.” Better still, the many falsehoods President George W. Bush told in the run-up to the Iraq war, which were very damaging to the United States. Or when President Clinton shamelessly said in 1998, “I did not have sexual relations with that woman, Miss Lewinsky.”

Then there was President George H. W. Bush’s “Read my lips, no new taxes.” And of course, “People have got to know whether or not their President’s a crook. Well, I’m not a crook” by President Richard Nixon. Truth tellers in politics are an endangered species. Polling data shows politicians among the least trusted actors in society.

But do the American people care about the veracity of what politicians say. Or do they simply want to hear “their truth”? People have a tendency to view information familiar to them as the truth and search for other information that reinforces their beliefs. Daniel Kahneman, psychologist and winner of the Nobel Memorial Prize in Economics, calls it “cognitive bias” – we tend to avoid those facts that force their brains to work more.

People live in their own social network bubble in the digital world. They go on the internet to search for information that confirms their convictions. They know more but understand less, dividing into hostile tribes. They see the world as a battle between left and right, each living in separate worlds.

They fish in different information streams. Politicized media outlets and online social networks put out completely different representations of the truth. Extreme partisanship is not a new problem. George Washington warned about the dangers of it in his Farewell Address in September 1796.

With social media, lies have the capacity to spread faster than ever before. It is a cheap and easy way to disrupt political discourse. After all, birds of a feather flock together. These days, anybody with a Twitter account can throw spaghetti at the wall and see if it sticks and for how long.

You would be right to conclude that Machiavelli would, with a few exceptions, have a lot to learn from public figures in the age of post-truth politics. The country is beset with tribalism, having forgotten the American forefathers’ motto “E pluribus unum,” which is imprinted on every coin in hopes of avoiding the United States becoming a nation of immigrants divided into tribes.

In Praise Of Negative Interest Rates?

Posted on by j.giglio

Negative interest rates are widely discussed these days as a monetary policy tool to support economic growth. President Donald Trump is a huge fan of low or negative rates and has been browbeating Federal Reserve Chairman Jerome Powell, whom he appointed in 2017, to cut interest rates to zero or even lower. Powell and his colleagues should think long and hard before capitulating.

The apparent goal is to keep the economy percolating until after next year’s presidential election. The Fed appeased the President last month, making a modest quarter-point cut. Egged on by Trump, they seem poised to lower rates further this year.

Negative interest rates have become commonplace in Europe and Japan. Central banks in Denmark, Switzerland, Sweden, Japan, and the European Central Bank have slashed rates below zero to shore up weak economies or strengthen their currencies. The notion is that weakening a country’s currency makes it a less attractive investment than other currencies, giving the country’s exports a competitive advantage. Worldwide, there is more than $17 trillion in debt with negative yields, almost half of it in euros. The majority of the balance is in Japanese yen. Almost all of it is sovereign debt.

Central banks usually pay commercial banks interest on the reserves they keep at the central bank. Under a negative rate policy, the commercial institutions are required to pay interest on any surplus cash beyond what regulators say banks must keep on hand. This penalty is designed to incentivize commercial banks to lend more money. The view is that low or negative interest rates encourage businesses to invest and consumers to spend rather than pay a fee to keep their money safe. Loans put money into circulation and generate economic activity.

Lower or negative interest rates present both costs and benefits for consumers.

Imagine if you go to the bank for a loan and are told the bank will pay you for taking it. Who in their right mind rejects such an offer? Conversely, if you make a deposit, under a negative interest rate scenario you are actually paying the bank to hold your money.

A big concern, which has yet to be explained, is the impact of negative interest rates on money market funds, which are a foundational investment for many households. Negative interest rates reward borrowers at the expense of lenders or savers. The goal is to bring future consumption into the present.

One potential danger of this approach is the liquidity trap that occurs when interest rates are so low that they reduce the flow of money to the Main Street economy. Instead, it goes into investments that don’t generate economic activity, such as the stock market, as people desperately chase higher yields and push up stock prices.

Interest rate cuts tend to stimulate the stock market by making real returns on bonds less competitive. The President seems to think that makes for good economic policy. Negative interest rates might actually lead to lower interest costs on government debt. Debt service is one of the fastest growing drivers of federal spending.

Low interest rates are old hat. Even during the Obama administration, when the economy rarely topped 2 percent annual growth, business did not pick up when money was cheap. For the last decade, the low interest rate scenario has been a secret tax on savers, who are not generally speculators in the stock market.

Millions of Americans are either behind in the race to save for retirement or living off their interest income. They may spend less in a negative interest rate environment, which would reduce economic activity.

How using this unconventional monetary policy will work in the United States is a mystery. It could leave the Fed without any ammunition when an actual recession hits and could increase the likelihood that the President is reelected. One can only hope that Powell and company make the right economic call.