Macro Roundup

"...If I were to tell you that in the United States a) nearly 70% of the total wealth is owned by the top 10% of the population and b) only a handful of countries — mostly tiny boutique economies such as Liechtenstein and Hong Kong — had more billionaires per person, you might think I cribbed the info from Bernie Sanders’ big speech Wednesday on democratic socialism. During that address, the Democratic presidential candidate warned of the “growing movement towards oligarchy and authoritarianism in which a small number of incredibly wealthy and powerful billionaires own and control a significant part of the economy and exert enormous influence over the political life of our country.” So America is getting it wrong, big time, according to Sanders. And he’s arguing it’ll take a democratic socialist president to turn things around in a country that has for too long allowed capitalism to run wild over the poor and middle class. Is there a model for a country that’s doing it better? Sanders thinks there is. Back in April, Sanders told a Burlington, Iowa audience that while Soviet-syle socialism was “not my thing,” he did think that countries like Denmark and Sweden do very well.” (Side note: By all means, let’s not be too judgy about the USSR.) Ah yes, the Nordic miracle, the egalitarian paradise powered by Sanders-style socialism. But just how egalitarian? Just how socialist?Admission: I’ve been a bit tricksy here. Those wealth inequality numbers from above are for Sweden, not the United States. In oligarchic America, the top 10% wealth inequality is only a bit higher (74.6% vs. 68.6%), while billionaires per capita (and millionaires, too, for that matter) is lower. What’s more, America’s superich tend to get that way via entrepreneurship — starting companies that produced goods and services that the rest of society greatly values — rather than inheritance, unlike Sweden. Indeed, no large economy has produced as many entrepreneur billionaires per capita as the US...."

James Pethokoukis, "The superficial socialism of Bernie Sanders," American Enterprise Institute, June 14, 2019, https://www.aei.org/economics/the-superficial-socialism-of-bernie-sanders/

The superficial socialism of Bernie Sanders

If I were to tell you that in the United States a) nearly 70% of the total wealth is owned by the top 10% of the population and b) only a handful of countries — mostly tiny boutique economies such as Liechtenstein and Hong Kong — had more billionaires per person, you might think I cribbed the info from Bernie Sanders’ big speech Wednesday on democratic socialism. During that address, the Democratic presidential candidate warned of the “growing movement towards oligarchy and authoritarianism in which a small number of incredibly wealthy and powerful billionaires own and control a significant part of the economy and exert enormous influence over the political life of our country.”

So America is getting it wrong, big time, according to Sanders. And he’s arguing it’ll take a democratic socialist president to turn things around in a country that has for too long allowed capitalism to run wild over the poor and middle class. Is there a model for a country that’s doing it better? Sanders thinks there is. Back in April, Sanders told a Burlington, Iowa audience that while Soviet-syle socialism was “not my thing,” he did think that countries like Denmark and Sweden do very well.” (Side note: By all means, let’s not be too judgy about the USSR.)

Ah yes, the Nordic miracle, the egalitarian paradise powered by Sanders-style socialism. But just how egalitarian? Just how socialist? Admission: I’ve been a bit tricksy here. Those wealth inequality numbers from above are for Sweden, not the United States. In oligarchic America, the top 10% wealth inequality is only a bit higher (74.6% vs. 68.6%), while billionaires per capita (and millionaires, too, for that matter) is lower. What’s more, America’s superich tend to get that way via entrepreneurship — starting companies that produced goods and services that the rest of society greatly values — rather than inheritance, unlike Sweden. Indeed, no large economy has produced as many entrepreneur billionaires per capita as the US.

So why doesn’t Sanders view Scandinavia — which he may not realize is known for having efficient, deregulated economies and flexible labor markets — as being on the cusp of wealth inequality-driven authoritarianism. Maybe because the idea is ridiculous. For instance, the Economist Intelligence Unit ranks Sweden as the world’s third healthiest democracy. Moreover, if Sanders can’t use Scandinavia as an example of socialism done right, then he’s left with nothing but theory and bad examples like the Soviet Union and Venezuela.

A 2018 Credit Suisse global wealth report correctly notes that the rise of the superrich“is often seen as a sign of a country’s economic health and its ability to generate opportunities for wealth creation.” Indeed, places crawling with billionaires tend to be great places to live. As Will Wilkinson wrote in a New York Times column earlier this year, “Inspect any credible international ranking of countries by democratic quality, equal treatment under the law, or level of personal freedom. You’ll find the same passel of billionaire-tolerant states again and again.”

But those realities are hardly the only ones that speech — one deserving of many fact-check Pinocchios on a variety of claims from wage stagnation to Big Tech monopoly — failed to deal with. From Yascha Mounk in The Atlantic:

Anybody who has studied the history of Europe — or, for that matter, Latin America — should know that some socialists crafted systems that left virtually no space to private enterprise and crushed the political freedoms of dissenters, while others combined government benefits with a robust market economy and the rule of law. … view, the threat of autocracy comes exclusively from the right. Just as in the 1930s, “America and the world are once again moving towards authoritarianism.” This danger is driven by “right-wing forces of oligarchy, corporatism, nationalism, racism, and xenophobia.” The only answer that will stave off fascism is, you guessed it, “democratic socialism.” Thus Sanders name-checked Adolf Hitler and Benito Mussolini but remained silent about Joseph Stalin and Mao Zedong. And while he rightly decried the autocratic tendencies of Russia’s Vladimir Putin, China’s Xi Jinping, Saudi Arabia’s Mohammed bin Salman, the Philippines’ Rodrigo Duterte, Brazil’s Jair Bolsonaro, and Hungary’s Viktor Orbán, he neglected to mention leftist autocrats such as Venezuela’s Nicolás Maduro, Cuba’s Raúl Castro, Nicaragua’s Daniel Ortega, Zimbabwe’s Emmerson Mnangagwa, or North Korea’s Kim Jung Un.

Mike Gonzalez, "Carranza’s ideology insults the people he claims to help,"New York Post, June 17, 2019, https://nypost.com/2019/06/17/carranzas-ideology-insults-the-people-he-claims-to-help/

Carranza’s ideology insults the people he claims to help

The academic achievement gap in education in New York City has a face: the goateed visage of Chancellor Richard Carranza. He personifies the damage the ideological radicalization of education schools does to our children.

To be sure, black students and those with Latin American ancestry lagged their white and Asian peers long before Carranza arrived. Cultural factors, such as rates of divorce and out-of-wedlock birth, partially account for this. Compounding these factors are lousy classroom discipline, unaccountable teaching and other failures that plague inner-city school systems.

But Carranza has no time for all that. He pins most of the blame on “structural racism.” And if racism is solely to blame, then the solution is ideological, not a matter of better family models, teaching or school leadership.

Thus, Carranza would destroy the city’s eight selective high schools by removing colorblind exams. Instead of the much tougher work of uplifting minority children to standards of ­excellence, he wants to banish excellence itself.

Plus, he is submitting teachers to re-education sessions to stamp out the “white-supremacy culture” he sees lurking behind every subconscious corner.

One of the consciousness-raising exercises that Carranza has forced principals to sit through identifies several “white-supremacy” hallmarks that educators in New York City are to avoid henceforth. Among these are “perfectionism,” “worship of the written word,” ­“either/or thinking,” “individualism,” ­“objectivity” and a “sense of ­urgency.”

With the zeal of a modern-day Thomas Cromwell, Carranza says of the struggle sessions: “It’s good work. It’s hard work.” Its critics, he maintains, need re-education the most.

One has to have years of indoctrination at a teachers’ college to miss the enormity of the insult.

Believing American students with ancestry in Indonesia, ­Nigeria or Uzbekistan can’t develop a love of poetry, petrochemical engineering or natural law marks a return to Jim Crow thinking. Perfectionism and love of reading are human traits, as evidenced by the fact we have all perfected our way from the Stone Age and now read on hand-held tablets.

All of these traits contribute to academic and lifetime success. Without striving for perfection, a person will accept shoddy work; love of reading will lead to learning; linear thinking makes a person try to work through contradictions.

Sadly, Carranza isn’t an outlier. Many aspiring educators have had leftist agitprop drilled into them at schools of education, and Carranza got his woolly beliefs at the University of Arizona’s College of Education, where he graduated in 1991.

“I remember the lessons I learned about bilingual education, equity and access for all students, lessons I draw upon in my day-to-day work as a superintendent,” he told the school’s alumni publication. “It is fundamentally what shaped me as an educator.”

That’s the problem. In a major report released earlier this year, the James G. Martin Center for Academic Renewal found that the colleges that teach our teachers have become veritable factories of leftist indoctrination.

“Teacher education has become one of the most politicized corners of academia, an institution that is already out of step with the rest of the country politically,” said the report. ­“Education schools are leading the charge to ‘transform’ the nation, and that transformation is not leading us to a better, freer, more prosperous, more humane society.”

The Martin Center study found that “faculty and authors who are on the fringes of political thought in the general public and who advocate that the purpose of education is to transform society according to their radical visions are the most frequently assigned writers in some of the most prominent schools of education.”

Abandoning respect for the written word would certainly go a long way toward transforming a republic based on written documents and a society grounded on sacred scripture. But Carranza’s job is to shrink the achievement gap in a massive school system that is 41% Hispanic, 26% black and 16% Asian. Developing a love of the written word could only help elevate those lagging behind.

Discrimination is an unfortunate reality everywhere, and it stings those on the receiving end. The success of Chinese Americans and Indian Americans means, however, that racism alone can’t explain the achievement gap. But discrimination is all Carranza sees; none of Carranza’s initiatives will thus improve students’ educational attainment. They will only hold them back further.

"...The yield on 10-year Treasurys has fallen to 2.12% this month from 3.24% in November 2018—perhaps due to the rush of foreign earnings repatriated after the 2017 federal tax cuts, the inflow of foreign capital attracted by the surge in U.S. growth, or the fall in domestic investment triggered by massive trade uncertainty. In the past month banks have increased excess reserves by more than $64 billion at the same time the Fed reduced overall bank reserves by selling $33 billion of assets. To prevent an outright contraction of the money supply and the economic disruption it could cause, the FOMC will be forced at its Tuesday meeting either to reduce dramatically the interest the Fed pays on reserves or end its debt wind-down and begin buying securities in the open market. The Fed will likely also cut the upper limit of the fed-funds rate to signal its goal of further monetary easing. Never in the Fed’s 105-year history has it had less control over market interest rates than it has today. As long as the Fed maintains its bloated balance sheet and the banking system holds massive excess reserves, the Fed will be required to respond to changes in market rates by either adjusting the rate it pays on reserves or using other policy tools to offset the impact market-rate changes have on bank reserve holdings and the money supply. To expect the Fed to hold interest rates above or below the market rate under these circumstances is not only naive but dangerous...."

Phil Gramm and Thomas Saving, "Has the Federal Reserve Lost Its Mojo?,"Wall Street Journal, June 17, 2019, https://www.wsj.com/articles/has-the-federal-reserve-lost-its-mojo-11560813464

The central bank has less control over market interest rates today than at any time in its history.

When the Federal Open Market Committee’s meeting concluded last month, reporters focused on the federal-funds rate, announcing that it would be held constant at 2.25% to 2.5%. Unnoticed by even the financial media, and unmentioned in the lead section of the FOMC’s statement, was its decision to cut the interest rate the Federal Reserve pays on bank reserves—a rate that, unlike the fed-funds rate, still has a direct effect on the money supply. The Fed cut the rate paid on reserves because the market yield on one-year Treasurys had fallen below it, inducing banks to build up excess reserves. When banks expand reserve holdings, the money supply contracts—so the Fed was forced to act.

But it wasn’t enough. Because market rates have continued falling since the last FOMC meeting, even the lower rate that the Fed now pays on reserves is 0.35 percentage point higher than Friday’s yield on one-year Treasurys and 0.25 point above the yield on 10-year Treasurys. The return differential has caused banks to increase excess reserves by 5.5%, or $65 billion, over the past month. The size of these yield spreads and the buildup of excess reserves virtually guarantee that the Fed will again cut the interest paid on reserves at Tuesday’s FOMC meeting.

The rate paid on reserves receives too little attention. As a result of the unprecedented monetary easing of the Obama era, when the Fed bought or offset 45% of all federal debt issued—more than five times the amount it bought to support the World War II effort—commercial banks now hold massive excess reserves. By paying interest on reserves, the Fed effectively converted them into income-yielding assets, giving banks an incentive to hold excess reserves instead of expanding credit and the money supply. As banks became awash in liquidity, they all but stopped engaging in borrowing and lending in the overnight fed-funds market. The fed-funds market has contracted 80% since 2008, meaning the fed-funds rate has almost no direct effect on monetary policy.

The rate the Fed pays on reserves has eclipsed the fed-funds rate as its key monetary tool, with a much more direct influence over the money supply. If the interest rate on reserves is set near the market rate, other things being the same, the money supply will remain unchanged. If market interest rates rise above the rate the Fed pays on bank reserves, banks will expand loans, and the money supply will increase. If the Fed sets the rate it pays on reserves above the market alternative for banks, they will expand their excess reserve holding and the money supply will shrink.

Before the Fed started paying interest on reserves, and before banks held more reserves than they have demand deposits outstanding, the money supply changed when the Fed acted. Now when market rates change, the money supply also changes unless the Fed acts.

As the Fed acquired assets in its three monetary easings, the interest it paid on the reserves induced banks to hold the resulting excess reserves pumped into the banking system. Reserves then earned an average of 0.095 percentage point more than the yield on one-year Treasurys. After quadrupling its balance sheet over eight years the Fed started to sell down the assets on its balance sheet in October 2017. The Fed sold off Treasurys and mortgage-backed securities, and set the rate it paid on reserves so that one-year Treasurys paid 0.43 percentage point more than reserves and 10-year Treasurys paid 1.08 points more.

As a result, banks reduced their reserve holdings enough to offset the effects of Fed asset sales on bank reserves and the money supply. In what was a clear policy success, in the first year of its asset-reduction program the Fed managed to sell $300 billion of assets and induced banks to reduce excess reserves by $467 billion. This expanded the money supply modestly without disrupting prices or spiking interest rates.

The yield on 10-year Treasurys has fallen to 2.12% this month from 3.24% in November 2018—perhaps due to the rush of foreign earnings repatriated after the 2017 federal tax cuts, the inflow of foreign capital attracted by the surge in U.S. growth, or the fall in domestic investment triggered by massive trade uncertainty. In the past month banks have increased excess reserves by more than $64 billion at the same time the Fed reduced overall bank reserves by selling $33 billion of assets.

To prevent an outright contraction of the money supply and the economic disruption it could cause, the FOMC will be forced at its Tuesday meeting either to reduce dramatically the interest the Fed pays on reserves or end its debt wind-down and begin buying securities in the open market. The Fed will likely also cut the upper limit of the fed-funds rate to signal its goal of further monetary easing.

Never in the Fed’s 105-year history has it had less control over market interest rates than it has today. As long as the Fed maintains its bloated balance sheet and the banking system holds massive excess reserves, the Fed will be required to respond to changes in market rates by either adjusting the rate it pays on reserves or using other policy tools to offset the impact market-rate changes have on bank reserve holdings and the money supply. To expect the Fed to hold interest rates above or below the market rate under these circumstances is not only naive but dangerous.

Report you asked about

"....Education school syllabi were obtained from three leading schools of education: the University of North Carolina at Chapel Hill, the University of Michigan, and the University of Wisconsin at Madison. Recommended and assigned reading selections were quantified to discover the most popular authors. The results are unequivocal: the “long march” through the education schools has been successful; the most influential thinkers in our education schools are political radicals intent on transforming the nation to a collectivist, utopian vision.....There were 101 such reading selections in all. Of them, 33 (the first category in the chart) merely used the word “science” but were not,in fact, about science or science pedagogy. One example of a non-scientific work is from Michigan’s ED 516: “Montessori, The Science Behind the Genius.” Of the remaining 68 reading selections, 27 had titles that demonstrated some clear political intent.....The other 41 titles that included a variation of the keyword “science” were straightforward and betrayed little or no hint of politicization, such as a selection from UNC’s EDUC 504, “How Students Learn: History, Mathematics and Science in the Classroom.” While these reading selections’ titles may be apolitical, their contents may not be. One example is a book by Mario Biagioli, recommended in Michigan’s EDUC 830, with the innocuous-sounding title of The Science Studies Reader. The table of contents reveals a lengthy list of contributors, nearly all of whom can be identified as belonging to the political left, including French sociologist and philosopher of power relations Pierre Bourdieu. Many contributors were influenced by other French leftists, particularly Michel Foucault.....

Jay Schalin, "The Politicization of University Schools of Education," The James G. Martin Center for Academic Renewal, February 20, 2019, https://files.eric.ed.gov/fulltext/ED594180.pdf