The View from Right Field

Is the Federal Reserve Trying To Do More Than It Can? The Evidence From 2007.

Some fascinating news came out the weekend before President Obama’s inauguration, but it was lost in the hoopla of the inauguration.  The news related to the transcripts of the Federal Reserve Board’s meetings in 2007, which were released on Friday, January 18, after the traditional five-year wait.

Here are some excerpts from the Reuters article on the transcripts:

“Top policymakers at the Federal Reserve felt for most of 2007 that problems in housing and banking were isolated and unlikely to tear down the U.S. economy as they ultimately did.

Even as crisis signals started flashing red with the freezing of credit markets during the summer, Fed officials believed the troubles would be moderate and short-lived ….”

On August 10, 2007, Tim Geithner, who was then president of the New York Federal Reserve Bank, said, “We have no indication that the major, more diversified institutions are facing any funding pressure."  In December of 2007, Ben Bernanke, chairman of the Federal Reserve, said, “I do not expect insolvency or near insolvency among major financial institutions.”

There were other, similar statements in the Reuters report and in an article in The Wall Street Journal the next day*, but I am not going to quote them since my purpose is not to embarrass particular individuals because of they said or didn’t foresee in 2007.

My purpose isn’t even to point the finger at the Federal Reserve as a whole.  Rather, I want to look at what the Fed is doing today from the viewpoint of what happened in 2007.  My concern is this:  If the Fed was having so much trouble figuring out what was happening in 2007 and what to do about it, why should we think they will do all that much better today?

The Fed defends its current policies, i.e., near zero interest rates, constant expansion of the money supply, etc., partly on the grounds that, when conditions change, these policies will be changed: liquidity will be removed from the system when inflation threatens; interest rates will be raised when unemployment is down, etc.  But when you see how poorly the Fed understood what was happening in 2007, you wonder why they are going to do a better job of knowing what to do, and when to do it, today.

Also, because Congress and the President were deadlocked throughout most of 2011 and 2012, the Federal Reserve has taken it upon itself to take the lead in not only getting the economy moving but also trying to reduce unemployment.  As part of this, the Fed has been doing things it has never done before, such as, as I mentioned before, keeping short-term interest rates near zero for several years, instituting the quantitative easing programs, etc.

I agreed with the Fed when it was doing all kinds of things in the near panic of 2008 and early 2009.  The Fed was desperately trying to save the United States, and world, economy from possibly the biggest collapse in over 70 years.  But 2013 is not 2008.  The economy may not be growing as much as we would like, and unemployment has been too high for too long, but we are not in a panic or near-panic.  The Fed does not need to act today like it did in 2008.

What I especially worry about today is that the Fed is trying to do things that it really doesn’t know how to do or that are beyond its competence.**  Reading the articles about the Fed’s proceedings in 2007 only increases these worries because the articles clearly show the limitations on what the Fed knows and what it can do.  And it seems to me that what the Fed is doing today is going beyond its knowledge and its competence in at least two very important ways.

First, the Fed is trying to use monetary policy (which is the only tool it has) to do things that monetary policy is not designed to do and that may actually be beyond the power of monetary policy.***  For example, the ability of monetary policy to effect unemployment is unclear.  It hasn’t done much recently.  And when interest rates are already at virtually 0% and the banks have large reserves, it is unclear what more the Fed can do and what effect it will have.

This is a problem because the chances of failing, or of making things worse, increase when you try to do something that is beyond what you normally do.  You may not have enough practice to do it right.  You may not have enough experience to know how things will work in various situations.  Tied in with this, sometimes when you try to do too much, you not only fail at the extra things you are trying to do, but you also can start failing at those things you normally can do.

Second, part of the Fed’s explanation as to why it is okay to keep interest rates near zero while, at the same time, pumping more and more money into the economy, is that the Fed will know when it is time to remove this extra liquidity from the economy so inflation won’t break out.  Similarly, the Fed says it will know when to raise interest rates before the economy overheats and some new bubble arises.  The Fed promises it can carefully guide the economy and avoid problems by gradually changing policies as conditions change.  But then I look at 2007 and see that the Fed couldn’t figure out what was happening, let alone what to do.  In fact, fine-tuning the economy was a big part of what Keynesianism was all about in 1960s and into the 70s.  What happened as a result of that attempt at fine-tuning?  By the mid-70s, stagflation.  The problem is that economic prediction is not easy, and fine-tuning an economy is almost impossible.  I really worry whether the Federal Reserve has the knowledge and ability to make the kind of precise and incredibly time-sensitive decisions needed to do what it is trying to do.

When a person or a company – or the Federal Reserve – tries to do more than he or she – or it – is capable of doing, when they try to do thing that are beyond their competence, they are setting themselves up for failure.  I am very much afraid the Federal Reserve is doing that now.

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*Jon Hilsenrath and Kristina Peterson, “Records Show Fed Wavering in 2007,” The Wall Street Journal, January 19, 2013.

** This is something that I have commented on before.  See here and here.

*** The Federal Reserve seems to be succumbing to the old adage:  When all you have is a hammer, everything looks like a nail.

Happy Birthday, Mr. Cub

Happy 82nd birthday to Mr. Cub, Ernie Banks, who was born on January 31, 1931. We saw Ernie at the Cubs Convention a couple of weeks ago, and he still looks great.  Let’s play two!

The Court of Appeals Says That a President’s “Recess Appointment” Must Be Made During an Actual Senate Recess

There was a huge decision by the D.C. Circuit Court of Appeals on Friday.  A year ago I wrote about President Obama’s attempt to make recess appointments (three to the National Labor Relations Board and one to head the Consumer Financial Protection Bureau) at a time when the Senate said it wasn’t in recess.  In fact, the Senate was having pro forma sessions every three days specifically so President Obama couldn’t make recess appointments.  (Interestingly, while the Republicans have been doing it a lot lately, Harry Reid also did this in the last two years of President George W. Bush’s presidency.)  President Obama felt that Republicans in the Senate were improperly holding up his appointments and were preventing him from making recess appointments by claiming the Senate was in session when it really wasn’t.  So he decided that, if the Senate was in a “functional recess,” he could make recess appointments, regardless of what the Republicans in the Senate said.

Not surprisingly, the President’s appointments were challenged in court.  A business that did not like an NLRB ruling challenged the ruling on the grounds that the three “recess appointments” made by President Obama were invalid and that, without those three members, the NLRB did not have to have enough members to make the ruling.*  The Circuit Court agreed unanimously.  The court held the appointments to be invalid on the ground that they were not proper recess appointments since the Senate was not in recess when they were made.  And since the appointments were invalid, the NLRB ruling was overturned.

Presidential Press Secretary Jay Carney was upset, of course.  He said the court’s decision was “unprecedented” and “contradicts 150 years of practice.”  I suppose Mr. Carney is correct when he says the decision was unprecedented.  Since no other president had ever tried to make recess appointments when the Senate said it was in session, there would be no precedent about the kind of appointments President Obama made.  As for “contradict[ing] 150 years of practice,” that is not true.  If Mr. Carney is comparing President Obama’s appointments to more regular recess appointments made over the years, it’s actually sort of embarrassing that Mr. Carney would not acknowledge the distinctions between the appointments, even if he feels that the distinctions should not lead to a different result.

While it is true that presidential appointments need to be voted on more promptly (instead of being delayed and delayed, sometimes forever), this is a problem all presidents have had.  In spite of what his people seem to think at times, Barack Obama is not the first president to have problems with his appointments.  He is, however, the first president to have taken it upon himself to decide when the Senate is in session and when it is not.  And that the Court of Appeals found to be unacceptable.

If President Obama’s view of the president’s power to make recess appointments had stood, then any president, when faced with a Senate of the other party or any Senate that did not like one of his appointments, would have just had to wait for a weekend to make an appointment.  That is not what the power to make recess appointments was designed for.  If President Obama’s interpretation had been allowed to stand, the power of the Senate to advise and consent to the appointments of the President would have been effectively abrogated.  We are lucky the court decided as it did.

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* The NLRB has five board members.  It has to have three members to conduct business.  If President Obama’s three “recess” appointments were invalid, then the NLRB did not have enough members to conduct business. 

Bin Laden Is Dead and Libya Was a Success. Why Are We Having So Many Problems in North Africa?

Let me go back to Secretary of State Clinton’s testimony before Congress on Wednesday one more time.  I keep going back to it because there is so much there.  And I go to the report in The Guardian, an English newspaper, because it covered more than just what Secretary Clinton said about Benghazi.  US media focused on Benghazi, understandably, but other things she said were just as interesting.  I talked about one of them yesterday.  Let me comment on a couple others today.

First, during last year’s campaign, President Obama and his supporters were constantly telling us that Osama Bin Laden was dead and the threat from Al Qaeda against the United States was gone.  In his inaugural address on Monday, President Obama said “[a] decade of war is ending.

But Secretary Clinton told Congress something quite different on Wednesday.   She said that the jihadists in northern Africa were a direct threat to the United States and that:

"We now face a spreading jihadist threat. … We have killed a lot of them, including, of course, Bin Laden. But we have to recognize that this is a global movement. …

What we have to do is to recognize we are in for a long-term struggle here."

If this is her view, it may be good that Secretary Clinton is leaving.  It doesn’t sound like she and the President are on the same page.  (Or to put it more up-to-date: They may not be using the same e-reader.)

Second, during our bombing of Libya (and our helping of others to bomb Libya) in 2011, much was made about how we were not going to get involved in Libya.  There would be “no boots on the ground” and that would be safer.  When Moammar Gaddafi was overthrown, we were told the effort in Libya was a success.

But on Wednesday, in her appearance before Congress,

“[Secretary of State] Clinton said the instability [in north Africa] has been fuelled by a flow of weapons from several countries in the region, particularly post-revolutionary Libya after Muammar Gaddafi's well stocked armouries were looted.

‘This Pandora's box of weapons coming out of these countries in the Middle East and north Africa is the source of one of our biggest threats. There's no doubt that the Algerian terrorists had weapons from Libya. There's no doubt that the Malian remnants of al-Qaida in the Islamic Maghreb has weapons from Libya. We have to do a much better job,’ she said.”

In other words, our lack of follow-through in Libya and our failure to foresee what could happen to Colonel Gaddafi’s stores of arms if they were not secured is at least one of the reasons the jihadists in North Africa are so dangerous now.  It looks like, instead of being a success, our operations in Libya may have caused more problems than they solved.

North Korean Missiles – And Our Defenses: The Pyongyang Edition

On December 13 of last year, after North Korea launched a satellite into space, I wrote this:

“If President Obama still uses his new, second-term ‘flexibility’ to give in to Russia’s demands, ‘particularly [on] missile defense,’ we could be in a very difficult position once North Korea develops a nuclear weapon small enough to fit on the top of one of its missiles – or says it has.”

On Thursday, the North Korean National Defense Commission announced another nuclear test.  It said that North Korea would be launching “a variety of satellites and long range rockets.”  It also said that the nuclear test is “target[ed] against the U.S., the sworn enemy of the Korean people”.

So, what is President Obama going to do now?  Rely on diplomacy or work to get a missile defense system in place before North Korea can actually attack the United States?  Missile defense seems more likely to work than diplomacy, and it seems less dangerous that having to take any kind of direct action against North Korea.

Mali and a Very Small Foreign Policy

I am totally confused as to what the United States’ policy is in North Africa.  Consider these excerpts from The Guardian’s report on Secretary of State Clinton’s testimony before Congress on Wednesday:

“The US secretary of state singled out the French-led intervention against armed Islamists in Mali as the most urgent crisis ...

Clinton, who is due to leave office shortly, told the Senate foreign relations committee that jihadists in north Africa pose a direct threat to the US …

‘We now face a spreading jihadist threat. We have driven a lot of the AQ [al-Qaida] operatives out of Afghanistan, Pakistan. We have killed a lot of them, including, of course, Bin Laden. But we have to recognise that this is a global movement,’ she said.

The US secretary of state singled out Mali ...

‘We are in for a struggle. But it is a necessary struggle. We cannot permit northern Mali to become a safe haven,’ she said.”

And yet The Wall Street Journal has reported that, when France went into Mali, the United States not only refused France’s request for tankers to help refuel French fighter planes over Mali, but we even tried to bill France for the cost of the transport planes that we did provide.*

Let me see if I can understand this.  The Secretary of State says that “jihadists in north Africa pose a direct threat to the US”, but when France tries to do something about this risk, we not only provide limited help, but we try to get paid for the help we do provide.  No, I can’t understand it.

We did eventually withdraw our request for reimbursement, but the fact that we even asked for the money is small and not befitting the country I want us to be.  It makes me wonder whether, if Barack Obama had been president in 1948, instead of Harry Truman, the Berlin Airlift would have been COD.

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* Bret Stephens, “Obama’s You’re-On-Your-Own World,” The Wall Street Journal, January 22, 2013.

Benghazi and Hillary Clinton’s WAR – “Wins Above Replacement,” That Is

Secretary of State Hillary Clinton’s testimony to Congress on the debacle at Benghazi, happening just weeks or maybe even days before her departure from office, may be an appropriate time to look at the job she has done as Secretary of State.  In doing so, it is hard not to look first at Benghazi. 

Secretary of State Clinton knows that the stand-up thing to do, in situations like this, is to take responsibility.  And she does – sort of.  Appearing before the Senate Foreign Affairs Committee yesterday, she said:

“As I have said many times since Sept. 11 [2012], I take responsibility. Nobody is more committed to getting this right. I am determined to leave the State Department and our country safer, stronger and more secure.”

But while she said she “take[s] responsibility,” she also emphasized that a bipartisan investigation of the Benghazi attack

“made very clear that the level of responsibility for the failures that they outlined was set at the Assistant Secretary of State level and below. These requests don't ordinarily come in to the secretary of State.”

In other words: “I’m responsible – but don’t blame me.  It wasn’t my fault.  It was handled by people way below me.”

I understand why Secretary Clinton wants to sound like a big shot and say “I’m responsible.”  But when she also says, right after that, that it was little people, not her, who made the bad decisions, so it really wasn’t her responsibility, well, that isn’t very impressive.

Which brings me back to the question of what kind of a job Hillary Clinton has done as Secretary of State?  She has certainly been busy.  She has traveled all over the world.  She talked to leaders.  She rushed off to crises.  It was impressive – in a busy sort of way.  But what did she accomplish or do that somebody else would not have done?  That question brings me to a concept that has been developed in baseball that might be helpful in evaluating the kind of job that our elected and appointed officials are doing.

The concept is called “WAR” – or “Wins Above Replacement”.  Here is an explanation of what WAR is (in baseball):

“WAR basically looks at a player and asks the question, ‘If this player got injured and their team had to replace them with a minor leaguer or someone from their bench, how much value would the team be losing?’ This value is expressed in a wins format, so we could say that Player X is worth +6.3 wins to their team [over a 162 game season] while Player Y is only worth +3.5 wins.”

So, the question, for public officials such as Secretary of State Clinton, is not “what did they do?”  The question, rather, is: “What did they do that a replacement secretary of state would not have done; how much better – or worse – were they than a replacement secretary of state would have been?” 

President Nixon going to China in 1972 is an example of something that a replacement president would not have done.  Going after al Qaeda bases in Afghanistan after September 11, 2001?  Any president would have done that, so you wouldn’t get a plus WAR for doing it.

How does Secretary of State Clinton rank on a WAR basis?  What has she done that a replacement secretary of state would not have done or what has she done better than what some other secretary of state would have done?  She has gotten a lot of publicity, but has she gotten a lot of accomplishments?  To be honest, in general I don’t know.  But as for Benghazi, she did no better than a minor leaguer or replacement secretary of state off the bench: Claim to take responsibility but then blame somebody else.

A Comment on “Liberty and Equality” in President Obama’s Second Inaugural Address

Others have commented in detail on President Obama’s second inaugural address.  I would like to comment on just one passage:

“Through blood drawn by lash and blood drawn by sword, we learned that no union founded on the principles of liberty and equality could survive half-slave and half-free.”

It is obviously a reference to Abraham Lincoln’s Second Inaugural, with a little bit of the House Divided speech thrown in for good measure.  I don’t object to all of the allusions to Lincoln in the speech.  That is for President Obama and his speechwriter to decide.

Rather I wanted to comment on the reference to a “union founded on the principles of liberty and equality” being unable to “survive half-slave and half-free”.  I would argue that the problem with slavery was not a lack of equality.  There has been, and still is in many places, equality in oppression.  Instead, the problem with slavery was a lack of liberty.

This may seem like a small point, but I think it is important.  A focus on equality can lead some to demand an equality of result that can only be achieved by restrictions on liberty.  A focus on liberty will lead to an equality of opportunity that ensures that we can all have freedom and equality.

The 28th Annual Cubs Convention – January 18-20, 2013

There are lots of articles/posts, etc., out there on this year’s Cubs Convention, so there is no sense in me trying to repeat what others said better than me.  I’m going to focus on those things that seem most important to me.  First, of course, are the plans for restoring Wrigley Field.

The bottom line:  They’re good; they’re really good.  The plans save Wrigley Field as a place to watch baseball, while improving and modernizing the parts off the field.  For example, the Cubs are keeping the upper deck as one of the premier places to watch baseball, while improving the concession areas (and restrooms) behind the field.  I personally don’t care that much about the concessions, but if the Cubs can use the money from more concessions to improve the team – and save Wrigley Field, I am all for it.

The Cubs also understand that, while the posts are inconvenient, they are also essential to the intimacy of the park.  Without posts, the upper deck (and the skyboxes, if you care about them) have to be much higher and much farther back.  That’s what happens in new stadiums, even the good new ones.  It makes a big difference, and it’s one of the reasons Wrigley Field is better.

One thing they emphasized.  What they are doing, is “restoring” Wrigley Field, to the way it was in the 1930s on the outside.  They are not remodeling it; they are restoring it.

The first thing they are improving, and it’s probably the most important, is the clubhouse.  Wrigley Field has a small, cramped clubhouse.   A bigger one, with better exercise facilities, batting cages, and training facilities, would be a big upgrade.  (The picture they showed of the current whirlpools looked a lot like the ones in “Major League”.)

They also seem to be hiring all of the right architects and historic preservation consultants to get the job done right.

The work will take five off-seasons to complete.  In other words, the Cubs are not moving to cellphone field to the south or beer park to the north to play any of their home games, which is good news (even if the Cubs’ last no-hitter was at beer park to the north).  The project will cost $300 million, and the Cubs have, in effect, challenged the City:  We’ll pay for it if you let us do what we want with our property.  But if you want to limit what we can do (through all kinds of ordinances and rules), then how about some help with financing (with such help maybe being not much more than doing something with the 12% amusement tax – my interpretation).*

The session on restoring Wrigley Field was jammed – because Cubs fans care about their park, and I think they were happy with what they saw and heard.

The “Meet Cubs Baseball Management” session was what you would expect.  “Theo and the boys” are following the plan they set last year, and things seem to be progressing.  Theo Epstein talked a lot about the “Cubs Way” of playing baseball.  This is a big deal, and it’s important.  It’s also not the punch line of a joke, as it could have been in the past.  When Lou Piniella was manager, he would complain about young pitchers who would come up from the minors and not know how to hold runners on base.  And there have been infielders who wouldn’t know how to properly turn a double play. 

The idea of the “Cubs Way” is to make sure this doesn’t keep happening.  The Cubs Way includes a manual on how to play the game and, especially, how to teach the game.  All of the coaches in the minors will follow the same philosophy (like on hitting) and use the same terms when they are teaching the players.  This is something that has been missing in the Cubs organization for years.  And it is, I believe, a reason why there needed to be a turnover in people in the minor league system.  The Cubs have been drafting good players over the last six-to-seven years, but they didn’t seem to be developing them once they were drafted, at least based on what was coming out of the minor league system.  This is what the “Cubs Way” is designed to deal with.  I’m glad to see it.

One thing that was not specifically spelled out, but that seems pretty clear to me is the way the Cubs, at least last year, used mid-season trades to, in effect, “buy prospects”.  When Theo, et al, came to the Cubs, they were planning on upgrading the team by spending lots and lots of money on prospects, both in the amateur draft and internationally.  Right after they came, however, the new collective bargaining agreement put the kybosh on that.  The collective bargaining agreement put very strict limits put on the amounts that can be paid to draft choices or on international signing.  If a team “overspends” one year on draft choices, they lose draft choices the next year.  So what the Cubs did last year, when they traded Ryan Dempster, etc., was to play a lot of the his remaining salary and get a prospect in return.  Instead of dumping salary, there were, in effect, buying prospects.  In the case of Paul Maholm, they used the one year and two months left on his contract to “buy” a prospect.

I saw Jim Deshaies, the new color guy on TV, at the Stats Sunday session.  He is going to be really good.  He could almost get me to listen to the Cubs on TV, instead of the radio.  I almost feel sorry for Houston, both moving to the American League and losing him, except it’s Houston, so I don’t.

A comment on the new venue, the Sheraton Chicago Hotel & Towers.  The Cubs did this because they are establishing a partnership with the Starwood hotel group.  The Cubs will be staying at Sheratons on the road.  The Ricketts are hoping to build a boutique hotel with the Starwood group across the street from Wrigley Field.  That’s fine, but the Sheraton isn’t going to work in the future.  It worked for the Convention this year\ because the 2012 season was so bad, crowds were down.  When the Cubs get better and the crowds increase, the Sheraton isn’t going to be able to handle it.

One final comment.  Cubs’ management understands that being a Cubs fan is a generational thing.  They talked about it in the Restoring Wrigley Field session, and the Ricketts mentioned it.  Jed Hoyer even mentioned it in “Meet Cubs Baseball Management”.  Jed Hoyer talked about how they want to build a core of a team that will stay together for a long time.  They see how Cubs fans love the late 60s team and that is what they want to do, too.  (Dallas Green never did understand that, which is one reason why it did not work out for him in Chicago.)

I appreciate that they get this about Cubs fans, but they keep getting one thing terribly wrong when they do it.  They talk about grandfathers and fathers and sons.  AND THAT’S NOT RIGHT!  It’s not just grandfathers, it’s grandmothers.  It’s not just dads, it’s moms.  And it is not just sons, it’s daughters, too!  I don’t just take my son to where I went with my dad, I take my daughter, too.  Because being a Cubs fan is for everybody.

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* The Cubs were not complaining about landmark preservation restrictions, but other things that interfere with their ability to make money.  The theory is, I guess, if you want us to spend our own money, you have to let us use our property to make money. For some of the use restrictions the Cubs are apparently talking about, see Paul Sullivan’s article here.

UPDATE (1/20/13 11:01 pm):  One more thing:  Darwin Barney said during WGN Radio’s Sports Night on Friday evening that he was told just a few days after the season was over that he had won the Gold Glove for N.L. second basemen, and he had to keep it quiet until it was announced on October 30.

Stan Musial, RIP

My memory of Stan Musial:  It was 1958, and I had to stay home from school because I was sick.  I saw Stan Musial pinch hit for the Cardinals against the Cubs and get his 3000th hit off Moe Drabowsky.  It was a double. He was an absolutely great player.  But as much as he was appreciated, he was underappreciated.