Japan Deflation

Deflation returns to Japan. Tyler Cowen has a thoughtful Marginal Revolution post, expressing puzzlment. Scott Sumner discussion here, and Financial Times coverage.

Let's look at the bigger picture. Here is the discount rate, 10 year government bond rate and core CPI for Japan. (CPI data here if you want to dig.)

If you parachute down from Mars and all you remember from economics is the Fisher equation, this looks utterly sensible. Expected inflation = nominal interest rate - real interest rate. So, if you peg the nominal interest rate, inflation shocks will slowly melt away. Most inflation shocks are individual prices that go up or down, and then it takes some time for the overall price level to work itself out.


The recent experience looks a lot like 1998. As of 2001, it would have been reasonable to think that the dreaded deflationary vortex was going to break out. But it didn't. Inflation came trundling back. As of 2008, you might have thought that low rates would finally spark inflation. But they didn't. In 2014-2015 you might have thought that the latest in a 20-year string of fiscal stimuli, bond purchases, bridges to nowhere and xx-onomics programs were finally going to produce inflation. But, so far at least, no.

It's tough to make predictions, especially about the future,  as the late great Yogi Berra reminds us. Still, this is the third strike.

The long term bond market continued its linear trend throughout the recent episode, a strong sign that expected inflation had not moved. And the sharp jump up and then back down again exactly a year later smacks of data errors, or one specific component. I hope a commenter has more patience for wading through the data than I do to find it. 

To be sure, Tyler emphasizes a central puzzle. Even if you accept the view that the Fisher equation is a stable steady state, that ties down expected inflation, but not actual inflation. There are troublesome multiple equilibria. The fiscal theory of the price level can tie down one equilibrium in theory, but not yet in practical application. But I wonder if we're not overblowing this problem. If we interpret the shocks not as shocks to individual prices that take time to melt away, but as expectational shocks, we still get a pretty good view of the data. Nominal interest rates plus a slowly time-varying real rate tie down expected inflation, little multiple equilibrium shocks let actual inflation vary, but such shocks melt away.

And the earthquake fault under all of this: Even the theory that says pegs can be stable warns they can only be stable if bond investors think they will be paid back. At some point -- 250% debt to gdp, slow growth and no population growth? 300%? What does it take? -- they change their minds. And then Japan gets the inflation it has so long desired, and a bit more to boot.

In the meantime, perhaps rather than worry-worry, we should celebrate 20 years of the optimum quantity of money, achieved at last.

Update David Beckworth on the same topic. I'm less of a NGDP target fan. It's like saying all the Chicago Cubs need is a "win the world series" target. OK, but what do you want them actually to do differently? What 3 trillion of QE wasn't enough, but 6 will do the trick? I know the answer, that talk alone tweaks some off equilibrium paths to generate more "demand" today. And monetary policy does seem to be just talk these days. But still... I'm also less of a fan of looking at monetary aggregates. At zero rates, money = bonds, and MV=PY becomes V = PY/M.  But it's a well stated analysis in these terms, and nice coverage of the fiscal theory at the end.

Five Centrahoma Photographs

In 1995 during my interviews with the Oklahoma family experiencing 'talking poltergeist' phenomena, several photographs with apparent 'paranormal' aspects were shown to me.  A portion of one photo that we discussed (the entire photo is presented above) would be seen several months later during the telecast of a segment of the ABC Television special "Ghosts, Mediums, Psychics: Put To The Test" (similar to this enlarged detail presented below).

photo detail

Family members also described to me some strange aspects of the undated photograph below.

In the back at left of the photo, the family noticed what seemed like a little girl with braids and old-fashioned clothes, while inside the van there was what looked like "an apparition of a black guy" or "dark person" wearing a headband.  When I studied the photo, a more obvious apparent anomaly was noticeable — behind the open door of the vehicle can be seen an image of black objects resembling two legs of a tripod with camera at the top and on the ground a circular shape next to one of the tripod legs.

photo detail

Another photo was mentioned as showing a pair of eyes or 'red eyes' in the dark background of a room.  The image was faint and did, in fact, look like the eyes of a mysterious visitor with other vestiges but there was no noticeable red coloration of the eyes.  Because of the faintness, the photo wasn't included in the case study Testament (1997) but is presented below with an enlargement of the 'eyes' at the center of the 'photo detail' with an amplification in brightness.

Click on photo above for a magnified view.

 

photo detail

When I received some photos from the family for publication in Testament, Maxine had written about the below photo: "The little boy in this picture is at the left."  The children photographed are Heather Bell, Kim's daughter (back) and Desireé Bell, Twyla's daughter.

 

photo detail

 

The caption from Testament (1997) for the photo below is "June Ellis and a spirit at Grocery Store in Wapanucka, Oklahoma on Highway 7."  The photo was taken by A. W. Ellis.

After the ACA

After the ACA, a longish essay on what to do instead of Obamacare. Relative to the policy obsession with health insurance, it focuses more on the market for health care, and relative to the usual focus on demand -- people paying with other people's money -- it focuses on supply restrictions. Paying with your own money doesn't manifest a cab on a rainy Friday afternoon, if you face supply restrictions.

Long time blog readers saw the first drafts. Polished up, it is published at last in the volume  The Future of Healthcare Reform in the United States edited by Anup Malani and Michael H. Schill, just published by the University of Chicago Press.

The rest of the volume is interesting, and the conference was enlightening to me, a part-timer in the massive health-policy area. As the U of C press puts it with perhaps unintentional wry wit: "By turns thought-provoking, counterintuitive, and even contradictory, the essays together cover the landscape of positions on the PPACA's prospects."

PART 1. ACA and the Law

Chapter 1. Postmortem on NFIB v. Sebelius: Early Reflections on the Decision That Kept the ACA Alive. Carter G. Phillips and Stephanie P. Hales

Chapter 2. Federalism, Liberty, and Risk in NFIB v. Sebelius. Aziz Z. Huq

Chapter 3. The Future of Healthcare Reform Remains in Federal Court. Jonathan H. Adler

Chapter 4. Essential Health Benefits and the Affordable Care Act: Law and Process. Nicholas Bagley and Helen Levy

PART 2. ACA and the Federal Budget

Chapter 5. The Fiscal Consequences of the Affordable Care Act. Charles Blahous

Chapter 6. Estimating the Impact of the Demand for Consumer-Driven Health Plans Following the 2012 Supreme Court Decision of the Constitutionality of the Patient Protection and Affordable Care Act. Stephen T. Parente

 PART 3. ACA and Healthcare Delivery

Chapter 7. After the ACA: Freeing the Market for Healthcare.  John H. Cochrane

Chapter 8. Obamacare and the Theory of the Firm. Einer Elhauge

Chapter 9. Can Federal Provider Payment Reform Produce Better, More Affordable Healthcare Meredith B. Rosenthal

PART 4. Healthcare Costs, Innovation, and ACA

Chapter 10. The Role of Technology in Expenditure Growth in Healthcare. Amitabh Chandra and Jonathan Holmes

Chapter 11. Economic Issues Associated with Incorporating Cost- Effectiveness Analysis into Public Coverage Decisions in the United States. Anupam B. Jena and Tomas J. Philipson

Chapter 12. The Complex Relationship between Healthcare Reform and Innovation. Darius Lakdawalla, Anup Malani, and Julian Reif

PART 5. ACA and Health Insurance Markets

Chapter 13. The Affordable Care Act and Commercial Health Insurance Markets: Fixing What’s Broken?  James B. Rebitzer

Chapter 14. A Cautionary Warning on Healthcare Exchanges: A Plea for Deregulation.  Richard A. Epstein

Who is walking who?

Click here for the rest

It's a graphic novel treatment of Gene Fama's Does the Fed Control Interest Rates? paper, from the Booth school's Capital Ideas magazine, by Eric Cochrane (yes, we're related). If it appears squished, use a wide browser window. The art is better in the printed form. 

Eric captured cointegration and error correction, and Gene's regressions of short and long-term interest rates, cleverly with the story. Does Sally take Lucy for a walk, or is Lucy really leading Sally around?  Well, when Lucy goes off hunting for a squirrel, who then moves to catch up?  

Preceding Centrahoma

My life immediately changed after I traveled to Oklahoma to investigate a contemporary 'talking poltergeist' case.  At the time of my 1995 research trip I was working as a publicity writer for Paramount Pictures.  Among the movies I helped publicize in the 1980s and '90s are some with metaphysical themes, including "Scrooged," "Star Trek" movies, "Ghost," "Dead Again," "The Butcher's Wife," "Leap of Faith," "Fire In The Sky" and the 1989 re-release of "The Ten Commandments."

 

I became Paramount’s publicity department staff writer in December 1987 after working on freelance assignments for the Melrose Avenue studio.  My office was on the third floor of the Zukor Building, where the publicity department was then located.  My work encompassed publicity materials for more than 100 Paramount releases, including such well-known movies as "Braveheart," "Fatal Attraction," "Forrest Gump," "The Godfather Part III" and "Indiana Jones and the Last Crusade."  

Since 1971 when Columbia Pictures relocated to the valley, Paramount Pictures has been the only major movie studio actually located in the district officially designated Hollywood, although the true Hollywood can be said to have no geographical boundaries.  It’s a metaphor for a state of consciousness where for a brief period of time one's attention is focused on some manufactured, usually frivolous narrative.  The word 'Hollywood' has a variety of interesting Urban Dictionary associations.

Preceding my Centrahoma visit, I was employed in the Paramount publicity department for nearly four years and then served as an independent contractor to the studio for several more years while I was living in Echo Park.
 

I learned about one of the many ways that movies can foster a psychological influence on viewers with my work on "Permanent Record" (1988) with a cast that included Keanu Reeves.  The plot of the drama revolved around a popular high school student’s suicide.  I was sitting in my office one morning when suddenly the head of marketing and the senior vice president appeared in the doorway with a large file.  I learned that the file contained the results of research into teen suicide.  There were findings that made both executives feel uneasy.  One conclusion of the research was the likelihood of a movie with this subject motivating impressionable viewers to imitate the character’s actions as a disproportionate means of gaining attention.  I decided to deal with the subject directly in the press kit handbook of production information and include comments from cast and crew that encouraged reflection and discussion. 

Sometimes a movie introduced me to subjects that I’d never before seriously considered to any important degree, such as reincarnation.  This aspect of human existence provided the basis for the plot of "Dead Again" (1991).  More recently (2012), I wrote a blog article about "Channeled Reincarnation Scenarios".

An advisor for the filmmakers and cast during the production of "The Butcher’s Wife" (1991)—a comedy about a clairvoyant wife starring Demi Moore following her "Ghost" success—was psychic Maria Papapetros.  I met Maria in Burbank during a special evening for media visiting the set during filming.  Giving me an indication of her abilities, she told me that she saw someone by the name of Michael was going to be responsible for getting my project done.  My interview with her resulted with her giving me a complimentary psychic reading.  The things she told me later turned out to be correct, such as my joining a fitness club and what people would be coming into my life in the future.  What becomes clear upon considering case studies of psychics and mediums is that they are interpreting ideas communicated in a variety of sensory ways — sometimes intuitively, at other times clairaudiently or clairvoyantly.  It is the Source of these thoughts and messages where there’s absolute knowledge.

 

"Leap of Faith" (1992) is about an evangelist discovering he can actually facilitate spiritual healing.  Like many Paramount films, keen attention would be afforded the movie's musical elements that included the song "Ready for a Miracle" performed by Patti LaBelle.  When I attended a test screening of the film in Pasadena, I noticed that the star of the movie, Steve Martin, was thrilled with the movie.  I realized that his experience of his character included a full understanding of the protagonist’s spiritual awakening, something only superficially visible on the screen.

 

Working in studio marketing, one quickly learns about the psychological state of cast and filmmakers whose continued success is often regarded as dependent upon the reception of their current film.  The usual result is that publicists interact with artists with the enthusiasm that their film is certain to be a big hit while carefully controlling the selection of writers and photographers allowed access to cast and filmmakers during production.  I observed how a single negative press article could have a tremendous impact on perceptions about a movie prior to release.

Sometimes I could be perplexed by storylines selected to become studio releases.  One such script was "Eye For An Eye" (1996).  I wondered who would want to see such a grim and downbeat contemporary melodrama.  As made evident with articles of this blog, accounts of 'unexplained phenomena' can expand one's understanding of the human condition and even moral quandaries.  In particular, cases of transcendental communication encompass perspectives of human evolution processes involving what is expressed by terms such as 'soul,' 'karma' and 'reincarnation.'

 

In October 1991, I never suspected that my senior publicist job would be eliminated at the time of a corporate downsizing at Paramount.  This happened when the merger with Viacom was close to completion.  As a result of losing my job, the stock option I’d been given the previous December was nullified due to the term of employment required for the option to bond.  Suddenly I found out just how much appreciation was afforded my work within the corporation.  By being hired as a freelancer to the department, the company would forego the expense of employee healthcare benefits. 

Ironically, as a freelance publicity writer/editor for Paramount, I soon found myself working in my home seemingly longer hours than I’d put in when working on the studio lot.  In retrospect, doing so much work for a single client I didn’t meet federal guidelines at all for being defined as an "independent contractor" according to IRS Common Law Rules.

Working on the "Braveheart" (1995) campaign, my responsibility was to write publicity materials that would ‘position’ a film’s storyline and provide other information that would make people want to see the movie.  When I went to the Central Library downtown and reviewed various sources addressing the life of William Wallace, it became evident that this was a legendary and controversial hero of Scottish lore.  There seemed no way of denying that he was a brutal and vengeful figure, not at all what fit my expectations of heroism derived from reading the screenplay.  However, where books and movies are concerned there seems a common acceptance toward presenting any historical protagonist in a magnanimous way.  In the press kit production information, I decided to suggest historical aspects of the storyline and overlook the accounts that William Wallace was a barbarian who showed no sorrow for the taking of lives.  The screenplay for "Braveheart" emphasized the protagonist as a courageous underdog whose "ill-fated romance results in the Scottish rebellion gaining a selfless and single-minded leader" — as stated in the movie’s press kit.

I still have a couple dozen microcassettes of interviews conducted during this period in my life.  Among them is a telephone conversation with Travis Walton that was conducted while I was working on the press kit production information for "Fire in the Sky" (1993).  I’d read many books about UFOs over the years but none had mentioned Walton’s case.  I’d seen the telefilm "The UFO Incident" based on the Barney and Betty Hill case that aired on October 20, 1975 and the interlude reported by Walton was reported to have taken place on November 5 that same year.  My first priority when interviewing Walton was to get a few quotations relevant to publicity goals.  I also interviewed several prominent UFO researchers along with "Fire in the Sky" screenwriter Tracy Tormé and co-producer Nilo Rodis-Jamero, who’d worked with the film’s director, Robert Lieberman, to conceptualize the film’s scenes utilizing special effects.  The filmmakers never intended to remain faithful to Walton’s written account.

Another film released by Paramount that I helped publicize was "Andre" (1994), based on the true story of a seal that became the pet of a Rockport, Maine family.  One scene of the film featured the character played by Keith Carradine attempting to retrieve a mooring line when the title character, Andre—a sea lion was used for the film when the actual case had involved a harbor seal—began butting his head into him.  I included a quote from Carradine about this in the film’s handbook of production information: ". . . it turned out Harry was actually pulling in an underwater explosive, and he didn’t know it — and apparently this seal did."  This seemed unbelievable yet as I researched the case, I discovered that the event was included in the screenplay because it was something that had actually taken place.  One is left to consider animal intelligence and ‘second nature’ — what is described in the New World Dictionary as "habits, characteristics, etc. acquired and fixed so deeply as to seem part of a person’s nature" (or animal’s in this case).

During the making of the movie adaptation of the Stephen King novel "Pet Sematary" (1989), I learned that crew members had occasionally sighted a mysterious Bigfoot-like creature during principal photography in the vicinity of Ellsworth, Maine.  This had struck me as one of the most bizarre situations imaginable.  The storyline involved a murderous infant among other gruesome situations.  Then during an interview, I inquired about the matter and a filmmaker told me about a moonlight sighting of the apparent hominid revealing a silhouette that didn’t show any detectable head.  I decided this data was just too far-out yet the information would later become significant upon seeing a published Bigfoot photograph with this unexpected physical attribute.  I've read at least one anthropological book mentioning "wild men" with "brown, hairy fur" and "no necks"; and I received an Email about a reported Bigfoot encounter where the 'no neck' description was also made.

Sometimes a mysterious aspect of a historical account won’t make it to the final version of a movie.  This was the case with "1492: Conquest of Paradise" (1992) directed by Ridley Scott and starring Gerard Depardieu.  Just prior to reaching land, Columbus had noted in his diary about sighting in the distance what sporadically appeared like the light of a wax candle moving up and down.  I thought the sighting of a mysterious light was an intriguing element when I read the dramatized scene in the draft of the screenplay presented to me for the initial press release positioning.  Later, I found that this incident wasn’t given interpretation in the final version of the film.  One can only speculate about how many mystical or spiritual circumstances have been ignored or overlooked by filmmakers depicting ‘historical’ events.

Regardless of whatever activity one chooses in life, it is essential to allocate time to developing one's spiritual understanding and learning about what has been expressed in fascinating accounts of transcendental communication as the "higher faculties" and "the soul or psychic faculties of the self" . . . "Man must learn to use his faculties."

Prior to working as a publicist, I'd been a talent agent.  Before these occupations, I’d been a cinema major at the University of Southern California.  This provided the opportunity to see many of the movies I’d been interested in studying — foreign films, documentaries and a variety of American genres fostered analysis of the cinema as an art form.  In the following years beginning with the 1980s, it was disheartening to see the increasing influence of corporate values and a franchise mentality concerning entertainment products geared to the lucrative teen demographic.  

I can recount some of my insights about the film industry although these have little relevance to my life now.  Considering how many different talents combine in the making of a movie, it is worth realizing how movies are a form of expression that ‘happens’ to the creators; while individually or collectively their values and philosophy will be apparent to some extent.  In my youth, I was impressed by the themes and techniques of such directors as Ingmar Bergman, Federico Fellini, Luis Buñuel, Jean-Luc Godard and Rainer Werner Fassbinder.  I recall that Fassbinder once mentioned something to the effect that ‘if you have to give an actor direction then he or she is the wrong person for the role’ and Francis Ford Coppola once stated an insight about how it is difficult to know when and if all the ingredients of a movie will 'take spark' in the editing room.

Movies have rarely been useful in relation to someone contemplating metaphysical aspects of life.  It has always been more enlightening to read nonfiction books written by authors whose motivation wasn't primarily commercial.  Developing one’s spiritual values should encompass considering the life experiences of wisdom seekers, scientists, philosophers and experiencers of 'anomalous phenomena' who’ve left personal testimonials of their insights and life lessons and/or inspired others to chronicle the experiences.  

In my free time during my school years through the first half of the 1990s I was an aspiring author/screenwriter.  One of the subjects I researched was the ‘Bell Witch’ talking poltergeist case of nineteenth century Tennessee.  Where talking poltergeists were concerned, it was apparent one needed more than a superficial knowledge of the various cases in order to understand the dearth of firsthand testimonials.  There are many parallels between the cases that have occurred throughout the centuries across the world — as previously mentioned in some articles of this blog.

I'd read about curious cases involving the speaking of unseen entities and the telekinesis and materialization of objects such as rocks and coins, among a gamut of other strange occurrences.  A case on the Isle of Man included a reputed 'talking mongoose.'  The case of Mary Jobson involved unseen communicators informing about God, the Son of God and angels.  There are testimonials from diverse countries, including Italy, Iceland and Scotland.  There are also a plethora of chronicled poltergeist cases without any reported vocal manifestations — one 1985 British documentary included the case of 14-year-old Michael Collindridge, who in 1965 was suffering from tonsillitis when he watched such curious displays as a walking stick tapping out "Jingle Bells." 

In 1995 after learning about "America’s Talking Poltergeist", I decided to visit Centrahoma and explore firsthand the talking poltergeist phenomena involving a manifesting entity known as 'Michael.'  My letter to the Mc Wethys in Oklahoma was answered around the beginning of August 1995 with a collect telephone call from Maxine as I’d requested.  I was startled upon learning of the many parallels with the Bell Witch case.  I told her about my planned book about talking poltergeist cases, which I was now calling The Encroachers.  By the end of the conversation, we’d begun making preparations for me to visit the family.

 

I arranged to fly to Oklahoma City on Thursday, August 10, changing planes at Dallas/Fort Worth International Airport.  The date was two days after my 39th birthday and I estimated this to be an interesting way to begin my fortieth year.  One of the things I did to prepare for the trip was purchase some new shirts to wear.  I was delighted when I found just what I was looking for at Structure (Beverly Center) and at the discount store Ross Dress for Less. 

Twyla Eller snapped this photo for me and 'Michael' in Centrahoma in 1995.  Below: this week Mary Zarate photographed me holding the other two shirts selected for my 'talking poltergeist' research expedition.  These two shirts have Nino Cerruti labels.

The week of the expedition in 1995, I dropped by the publicity department on the Paramount studio lot as customary to turn in invoices and pick up copies of completed press kit materials.  I thought it was fortuitous that a bunch of leftover "Star Trek Generations" bookmarkers bearing the message "Boldly Go!" were spread out on the courtesy table.   I turned in drafts for press kit production information for three upcoming movies so I was planning to be able to give my full attention to preparing for my interview with the family.  I even left a copy of the Fortean Times article about the case for the department head.  Taj, one of the new assistants among the staff told me, "You look like a wise old owl."  He explained that this was the first time he’d seen me wearing glasses.  I would soon learn that the former name of Centrahoma was 'Owl.'  Following the visit to the studio, I unexpectedly received a call from a director of publicity to write drafts of news releases for two films being announced: "Thinner" and "Night Falls on Manhattan."  I found myself staying up late on Wednesday to complete the assignments. 

Now when I reflect about those days working at Paramount, I recall watching many times the logo with those stars appearing over the mountain at the beginning of Paramount movies viewed in theaters or studio screening rooms.  I never could’ve imagined this symbol being relevant to the journey of spiritual discovery I’d already begun.

"The Ten Commandments" (1989 re-release)
 

"Ghost"

 

"We're No Angels"

 

"Juice"

 

 "Coneheads"

"1900" (1991 re-release uncut version)

 

"What's Eating Gilbert Grape"

 

"The Firm"

 

 

"Hamburger Hill"

 

"Welcome Home, Roxy Carmichael"

 

 

 "Forrest Gump"
 

Is the Fed Pulling or Pushing?

I did a little interview with Mary Kissel of the Wall Street Journal, following up on thursday's oped. Mary is, as you can tell, a well-informed interviewer and asks some tough questions. She did a great job of pushing hard on the usual Wall Street wisdom about how the Fed, though it has not done anything but talk in years, is secretly behind every gyration of stock or housing prices.

The central point came to me hours later, as it usually does. Is the Fed in fact "holding down" interest rates? Is there some sort of natural market equilibrium that features higher rates now, but the Fed is pushing down rates? That's the conventional view, clearly expressed in Mary's questions.

Well, let's think about that. If a central bank were holding down rates, what would it do? Answer, it would lend a lot of money at low rates. Money would be flowing out the discount window (that's where the Fed lends to banks), to banks, and through banks to the rest of the economy, flooding the place with low-rate loans. The interest rate the Fed pays on reserves and banks pay to borrow from the Fed would be low compared to market rates; credit and term spreads would be large, as the Fed would be trying to drag down those market rates.

That is, of course, the exact opposite of what's happening now. Banks are lending the Fed about $3 trillion worth of reserves, reserves the banks could go out and lend elsewhere if the market were producing great opportunities. Spreads of other rates over the rates banks lend to or borrow from the Fed are very low, not very high. Deposits are flooding in to banks, not loans out of banks.

If you just look out the window, our economy looks a lot more like one in which the Fed is keeping rates high, by sucking deposits out of the economy and paying banks more than they can get elsewhere; not pushing rates down, by lending a lot to banks at rates lower than they can get elsewhere.

In reality of course, the Fed isn't doing that much of anything. Lots of deposits (saving) and a dearth of demand for investment (borrowing) drives (real) interest rates down, and there is not a whole lot the Fed can do about that.  Except to  see the parade going by, grab a flag, jump in front and pretend to be in charge.

5 million thanks

OK, it's not Marginal Revolution. It's not even tops in my own family -- My kids' high-school animation videos do better (8 million here, 5.8 million here). But this blog has worked out far better than I hoped when I started, and I appreciate all of you who read, comment, or otherwise participate.

WSJ oped, director's cut

WSJ Oped, The Fed Needn’t Rush to ‘Normalize’ An ungated version here via Hoover.

Teaser:

The outcomes we desire from monetary policy are about as good as one could hope. Inflation is low and steady. Interest rates are lower than Americans have seen in generations. Unemployment, at 5.1%, has recovered to near normal. And banks and businesses sitting on huge piles of cash don’t go bust, a boon to financial stability.

Yes, economic growth is too slow, too many Americans have dropped out of the workforce, earnings are stagnant, and the country faces other serious challenges. But monetary policy can’t solve long-term structural problems.

Opeds are real Haikus -- 950 words is torture for me. So lots of good stuff got left on the cutting room floor, especially acknowledgement of objections and criticisms.

Yes, I'm aware of recent empirical work that QE has some effect:

Even the strongest empirical research argues that QE bond buying announcements lowered rates on specific issues a few tenths of a percentage point for a few months. But that's not much effect for your $3 trillion. And it does not verify the much larger reach-for-yield, bubble-inducing, or other effects.

An acid test: If QE is indeed so powerful, why did the Fed not just announce, say, a 1% 10 year rate, and buy whatever it takes to get that price? A likely answer: they feared that they would have been steamrolled with demand. And then, the markets would have found out that the Fed can’t really control 10 year rates. Successful soothsayers stay in the shadows of doubt.

Yes,  I'm aware of lots of theory going on:

Granted, economic theories are always in flux. Advocates are ready with after-the-fact patches for traditional theories’ failures. Maybe wages are eternally "sticky" downward, so deflation spirals can't happen. Never mind. Also, researchers are busy adding “frictions” to modern models to try to make them generate huge QE effects. But for policy-making, all of this is new, hypothetical and untested.

We lost an important warning

Economic theories are useful for working out logical connections. The forward-looking [new-Keynesian] theory predicts that an interest rate peg is only stable if fiscal policy is solvent, so people trust government debt. Past interest rate pegs have fallen apart when their governments ran in to fiscal problems. That’s an important warning.

And we lost a lot of nice metaphors

The deflationary spiral story posits that the economy is inherently unstable, like a broom being held upside down. The Fed must actively move interest rates around, as you move the bottom of a broom to keep it toppling over. But when interest rates hit zero, the Fed could no longer adjust interest rates. The broom should have tipped over.  The lesson is clear: In fact, our economy is stable. Small movements of inflation will melt away on their own. The Fed does not need constantly to adjust interest rates to avoid “spirals.”

Later,

This forward-looking (new-Keynesian)  theory predicts inflation is stable because it assumes that people are smart, and look ahead. Traditional theories assume that people form their views of the future mechanically from the past. Yes, if you try to drive a car while looking in the rear view mirror, your driving will be unstable, and a Fed sitting in the right seat telling you where to go would help. But if people look out the front window, cars stably converge to the road without direction.

And on theory vs. practice

As Ben Bernanke wisely noted, “The problem with QE is that it works in practice, but it doesn’t work in theory.” That’s a big problem. If we have no theory why something works, then maybe it doesn’t really work. Doctors long saw that bleeding worked in practice— they bled patients, patients got better — but had no theory for it. 

I also had a lot more on the wonders of living the optimal quantity of money. $3 trillion of reserves means 100% reserve deposits are sitting before us. No inflation means no inflation-induced distortions of the tax code. You don't pay capital gains taxes on inflation, or return taxes on the component of return due to inflation. But all that will wait for the next one, I guess.

And the whole Neo-Fisherian question got left on the cutting room floor too. But if a 0% interest rate peg is stable, then so is a 1% interest rate peg. It follows that raising rates 1% will eventually raise inflation 1%. New Keynesian models echo this consequence of experience. And then the Fed will congratulate itself for foreseeing the inflation that, in fact, it caused.

I didn't go so far as to advocate this, back in draft mode. I don't like the way so many economists have a pet theory and rush to Washington to ask that it be implemented. But given that just how monetary policy works is so uncertain,  a robust policy choice ought to put at least some weight on such a cogent view.

The word "normal" has many connotations. John Taylor likes return to "normal," meaning return to something like a Taylor rule. When the Fed says "normal," I sense they simply mean higher nominal interest rates, and a smaller balance sheet, but continuing lots of talk and lots of discretion.   The "normal" I'm dubious of in the oped is the latter version.

Conundrum Redux

FT's Alphaville has an excellent post by Matthew Klein on long-term interest rates, organized around Greenspan's "conundrum." The "conundrum" was that Greenspan couldn't control long term rates as he wished. Long rates do not always track short rates or Fed pronouncements.  As the post nicely shows, it was ever thus.

The following graph from the post struck me as very useful, especially as so much bond discussion tends to have short memories.

If the 10 year rate had followed the pink line,  you would not have made any more buying 10 year bonds than buying short term bonds. (The pink line is the forward-looking moving average of the one year rates.)

What the graph shows beautifully, then,  is this: Until 1981, long-term bonds were awful. You routinely lost money buying 10 year bonds relative to buying one year bonds. It goes on year in and year out and starts to look like a constant of nature.

From 1981 until today, the actual 10 year rate has been well above this ex-post breakeven rate. It's been a great 35 years for long-term bond investors. That too seems like a constant of nature now.

Of course, inflation going down was good for long term bonds. But we usually don't think there can be surprises in the same direction 35 years in a row.


You can also see the steady 35 year downward trend in 10 year rates. Good luck seeing the "massive" effects of quantitative easing or much of anything else here.

A lot of academic papers are devoted to this risk premium in bonds, including "Decomposing the yield curve" that I wrote with Monika Piazzesi.

It is now routine to decompose the spread between long and short term bonds into an expectations component and a risk premium, with changes in risk premium accounting for "conundrums." It is also routine not to present standard errors of this decomposition. The one thing I know for sure is that there is a lot of uncertainty on that decomposition. Any risk-premium estimate comes down to a bond-return forecasting regression. We know how much uncertainty there is in that exercise.

Two for growth

I saw two very nice, short views on growth: John Taylor Can We Restart This Recovery All Over Again? and Andy Atkeson, Lee Ohanian, and William E. Simon, Jr., 4% Economic Growth? Yes, We Can Achieve That.

John gets the art prize

Andy, Lee and William get the boil-it-down-to-basics prose prize

 Safety-net policies should not discourage work through high implicit tax rates resulting from means-tested programs. Regulatory policies should not erect barriers to competition and raise costs. Education policies should expand competition and reward the most successful teachers. Immigration policies should expand the number of skilled workers and immigrant entrepreneurs. And tax policies should simplify the tax code, reduce business and personal marginal income tax rates and broaden the tax base.

The 'Bell Witch' Talking Poltergeist Case

 

 

A profusion of events unlike anything commonly known to have ever happened before is chronicled to have been experienced by John Bell and his family while living on the south bank of the Red River in Robertson County, Tennessee during the early nineteenth century.  One of John's sons, Richard Williams Bell wrote about his family's experiences in a manuscript that he entitled Our Family Trouble.  These memoirs are included in the case study An Authenticated History of the Bell Witch (1894) by Martin Van Buren Ingram (1832-1909).  

 

The version of Ingram's book that is currently available to be read online has some added materials at the beginning and conclusion of the file and is not typographically precise.  Two other significant books about this 'talking poltergeist' case are The Bell Witch: A Mysterious Spirit (1934) by Charles Bailey Bell and The Bell Witch of Middle Tennessee (1930) by Harriet Parks Miller — published in a tandem 1972 edition "reproduced in facsimile" from a Nashville bookseller. 

A newspaper editor and publisher, M. V. Ingram wrote in the Preface about compiling "corroborative testimony . . . transmitted to the present generation of the surrounding country through family reminiscences of that most eventful and exciting period of the century, which set hundreds of people to investigating, including Gen. Andrew Jackson . . ." 

Ingram reminded that "Newspapers were few and far between at the time these events transpired . . ."  Richard Williams Bell wrote his recollections in 1846, describing "a sufficient number of incidents to give the reader a general idea of the phenomena and the afflictions endured by our family."  The manuscript was inherited by his eldest son, James Allen Bell, who consented to publication of his father's memoir among the testimonials gathered by Ingram.

Some passages denounce the haunting presence as culpable not only for physical ailments experienced by Richard's father and sister but even for his father’s death.  An undiagnosed malady was reported to have sometimes left John Bell unable to talk or eat while there was an interval when Betsy Bell was described as having been subjected to recurring fainting spells accompanied by a severe asthmatic condition.  Richard Williams Bell acknowledged: "There is no positive evidence that these spells were produced by the witch.  However, that was the conclusion, from the fact that there was no other apparent cause."

Some authors considering the published accounts have commented on the difficulty of attributing the death of John Bell to the haunting presence as described by Richard Williams Bell.  Colin Wilson wrote in Poltergeist!  A Study in Destructive Haunting (1982): "As [Nandor] Fodor points out, there is something very odd about this death.  The witch had often revealed strength enough to strangle Bell, or kill him by hitting him with some object; yet she never made any such attempt . . ."

Quotations of the initial vocal manifestations was provided by Richard Williams Bell, beginning with:

"I am a spirit; I was once very happy, but have been disturbed."

When Richard's brother John Jr. was planning a trip to North Carolina on horseback "when the witch put in, remonstrating against the trip, dissuading John from going, predicting bad luck . . ."  John Jr. ignored the advice "and was absent six months or more, returning empty handed as predicted."

When asked "How were you disturbed and what makes you unhappy," the reply was heard:

"I am the spirit of a person who was buried in the woods near by, and the grave has been disturbed, my bones disinterred and scattered, and one of my teeth was lost under this house, and I am here looking for that tooth."

A search for the tooth was made and then:

The witch then laughed at father, declaring that it was all a joke to fool "Old Jack."

On another occasion was heard the statement:

"I am the spirit of an early emigrant, who brought a large sum of money and buried my treasure for safe keeping until needed.  In the meantime I died without divulging the secret, and I have returned in the spirit for the purpose of making known the hiding place, and I want Betsy Bell to have the money."

The family was eventually told where the treasure was to be found; however, after a hard day’s labor by Drew Bell and Bennett Porter with family friend Mr. James Johnson supervising them, the spirit was said to have laughed and ridiculed them for being so easily duped.  The most familiar of the disembodied voices was also said to comment on religious subjects.  Among the people interviewed by Ingram was Mrs. Nancy Ayers, daughter of John Johnson and granddaughter of James Johnson.  Ayers related:

The witch talked almost incessantly, gabbing and spouting about everything that was going on in the country, seemed familiar with everybody’s business, telling things that no one present knew anything about, called strangers by name and telling where they were from before they could introduce themselves.  It would also quote scripture, discuss doctrinal questions, sing songs, and pray eloquent prayers . . .

Richard Williams Bell wrote: "The talking was heard in lighted rooms, as in the dark, and finally in the day at any hour."  He reported that "the first exhibition of a religious nature was the assimilation of Mr. James Johnson’s character and worship, repeating the song and prayer, uttering precisely the same petition made by the old gentleman the night himself and wife came for the purpose of investigation, and the personation of Mr. Johnson was so perfect that it appeared like himself present."

One incident was related where the discussion concerned the commandment ‘Thou shalt not steal.’

A man, whose name I will call John, put in remarking that he did not believe there was any sin in stealing something to eat when one was reduced to hunger, and could not obtain food for his labor.  Instantly, the witch perniciously inquired of John "if he ate that sheepskin."  This settled John.  He was dumb as an oyster, and as soon as the subject was changed he left the company, and was conspicuously absent after that.  The result was the revival of an old scandal, so long past that it has been forgotten, in which John was accused of stealing a sheepskin.

The use of the word ‘witch’ is a reflection of how witnesses to the events perceived the spirit based upon cultural traditions.  'Kate' became a nickname for the haunting entity and, according to Mahala Darden, "The witch told someone that it was ‘Old Kate Batts,’ and this is why the witch took [was given] the name of Kate."  The quotations affirm the Source of the manifestations as stating "I am" the various people and animals seen or heard.

Ingram wrote:
 

Kate the witch never slept, was never idle or confined to any place, but was here and there and everywhere, like the mist of night or the morning sunbeams, was everything and nothing, invisible yet present, spreading all over the neighborhood, prying into everybody’s business and domestic affairs; caught on to every ludicrous thing that happened, and all of the sordid, avaricious meanness that transpired; diving the inmost secrets of the human heart, and withal, was a great blabbermouth; getting neighbors by the ears, taunting people with their sins and shortcomings, and laughing at their folly in trying to discover the identity of the mystery.

 

People now concluded that a good spirit had been sent to the community to work wonders and prepare the good at heart for the second advent.

 

Richard Williams Bell wrote:

People continued to ply our loquacious visitor with shrewd eager questions, trying to elicit some information concerning the mystery . . .

 

Then it told Calvin Johnson that it was the spirit of a child buried in North Carolina, and told John Johnson that it was his stepmother’s witch.

 

What Ingram meant by "his stepmother’s witch" was documented later in the book with an anecdote related by Nancy Ayers.

On another occasion Father said he was postulating with Kate, begging the witch to tell something about itself.  Kate replied, "Well Jack, if you will agree to keep it a secret, and not tell old ‘Sugar Mouth,’ (that was Grandfather) I will tell you."  Of course Father agreed to that.  "Now," says Kate, "I am your stepmother." 

When James Johnson expressed his doubt about this, ". . . the witch at once assumed the voice and tone of his stepmother . . ."  In the in-depth testimonial written by Richard Williams Bell, numerous other incidents are chronicled involving audible voices of manifold people, including some mysterious personalities.  There was "the introduction of four characters [Blackdog, Mathematics, Cypocryphy, Jerusalem] . . . purporting to be a witch family, each one acting a part, making night hideous in their high carnivals . . ."

Here is Richard's description of the occasion when he witnessed his brother Joel "severely whipped" — at the conclusion of this passage is one of many questionable instances in the manuscript where Richard attempts to convince the reader of menacing aspects of the haunting presence.

It happened that Joel and myself were left to occupy a room alone one night, and were troubled less than usual in the early part of the night, but Kate put in good time just before day.  It was quite a cold morning, and rather too early to get up, but Kate continued pulling the cover off and jerking my hair, and I got out of bed and dressed myself.  Joel, however, was much vexed, and said some ugly things about "Old Kate," and gathering up the cover from the floor, he rolled himself up in it for another nap.  Directly the witch snatched it from him again.  Joel became enraged, pulling at the cover while Kate seemed to be hawking and spitting in his face, and he had to turn loose the cover.  This made Joel raving mad, and he laid flat on his back, kicking with all his might, calling old Kate the meanest kind of names.  "Go away from here, you nasty old thing," he exclaimed.  Kate became furious also, exclaiming, "You little rascal, I’ll let you know who you are talking to."  That moment Joel felt the blows falling fast and heavy, and no boy ever received such a spanking as he got that morning, and he never forgot it.  It was absolutely frightful.  I could do nothing for his relief.  He yelled frantically with all of his might, arousing the whole house, nor did his punisher cease spanking until father entered the door with a light, finding him almost lifeless.

The testimonials about this haunting presence encompassed not only numerous accounts of audible manifestations but also apparitions and a gamut of physical demonstrations including the movement and materialization of physical objects.  Similar occurrences may be found in books chronicling mediumship and ‘apports.’ 

The section of Richard Williams Bell’s memoir subtitled "Mother Bell’s Illness—The Witch Sings Sweet Songs and Brings Her Hazelnuts and Grapes" shows Kate treated Mrs. Lucy Bell kindly when she was suffering from pleurisy in September 1820.  Richard Williams Bell wrote that "then it was that Kate manifested a sorrowful nature . . ."

"Luce, poor Luce, I am so sorry you are sick.  Don’t you feel better, Luce?  What can I do for you, Luce?"  These and many other expressions of sympathy and anxious inquiries were given vent by the saddened voice . . .

 

When anything was wanted or called for that was needed for mother’s comfort, the witch would speak promptly, telling precisely where the article could be found.

 

It was noticeable also that Kate kept quiet when mother was apparently at rest or sleeping.

 

The same plaintive voice was heard exclaiming, "Luce, poor Luce, how do you feel now?  Hold out your hands, Luce, and I will give you something."  Mother stretched her arms, holding her hands together open, and the hazelnuts were dropped from above into her hands.

 

After some time the amazement was increased by the same voice inquiring, "Say Luce, why don’t you eat the hazelnuts?"  Mother replied that she could not crack them.  Then the exclamation, "Well I will crack some for you," and instantly the sound of the cracking was heard, and the cracked nuts dropped on her bed within hand’s reach, and the same passionate voice continued insisting on mother’s eating the nuts, that they would do her good.

Grapes were brought in the same way and Richard Williams Bell acknowledged, "From this on mother steadily improved, coming out of a severe spell that held her down some twenty days, and no one could express more joy and gladness than Kate, who also praised Dr. Hopson, the good physician, who brought her through safely."

The family was astonished by vocal manifestations when the Sunday sermons of two reverends were heard in succession.  Both had been delivered at the same time thirteen miles apart.

M. V. Ingram received a written report from Reverend James G. Byrns, the son of the man who was district magistrate during the occurrences that centered on the Bell farm.  Byrns’s objective was "to state faithfully some of the facts impressed upon me, as I have so often heard them" from his father and other witnesses to the events.   Here is an excerpt from the report.
 

Calvin Johnson told me that after some persuasion the witch consented to shake hands with him if he would promise not to catch it.  He promised and held out his hand, and instantly felt something like a soft delicate hand resting on his.  The hand was placed lengthwise on his, so that he could not grasp it.  John Johnson asked the witch why it would not shake hands with him?  The answer was, "You are a rascal, Jack; you want to catch me."  John said that was just what he intended to do.  The witch seemed to have more confidence in Calvin Johnson than any one.  It said Calvin was an honest man, truthful and free from deceit, and this was true of the man.

Ingram’s interview with Nancy Ayers, who was born in 1819, conveyed how importantly the events were regarded by the families of those who witnessed the occurrences.  Ayers told Ingram that her father, John Johnson, once had said, "Tell me where you live, and who and what you are, anyhow?"  The paraphrased answer was quoted:

 

"I live in the woods, in the air, in the water, in houses with people; I live in heaven and in hell; I am all things and anything I want to be; now don’t you know what I am?"

In the account by Richard Williams Bell, on the morning after John Bell's death ‘Kate’ is said to have indulged in wild exultations and derisive songs but these are not detailed.  After the burial, ‘Kate’ was described as having sung "Row me up some brandy O."  There may be misunderstandings of some of the Spirit’s pronouncements — "I have got him this time" may express a remark about the transition all mortals make from the Earth plane to an etheric body in another dimension to begin the so-called afterlife.

Richard Williams Bell's commentary expressed some of the superstitious beliefs of the epoch —

Whether it was witchery, such as afflicted people in past centuries and the darker ages, whether some gifted fiend of hellish nature, practicing sorcery for selfish enjoyment, or some more modern science akin to that of mesmerism, or some hobgoblin native to the wilds of the country, or a disembodied soul shut out from heaven, or an evil spirit like those Paul drove out of the man into the swine, setting them mad; or a demon let loose from hell, I am unable to decide; nor has anyone yet divined the nature or cause for appearing, and I trust this description of the monster in all forms and shapes, and of many tongues, will lead experts who may come with a wiser generation, to a correct conclusion and satisfactory explanation.

 

In 1934 Charles Bailey Bell, M.D. brought forth additional recollections that he reported were handed down by his grandfather, John Bell Jr., a brother of Richard Williams Bell.  The Bell Witch: A Mysterious Spirit offered a profile of the case that includes more than fifty pages describing conversations between the spirit and John Bell Jr.

The visit of a gentleman from England with the expressed determination of solving the mystery coincided with "some extra performances apparently for his enlightenment."  The chapters about John Bell Jr.'s recollections mention: "The Spirit spoke all languages fluently."

Among the remembrances of Betsy Bell presented by Charles Bailey Bell was an anecdote that occurred at a site that became famous as the 'Bell Witch Cave.'

None of us ever knew of the cave being occupied by the Spirit, but on our pleasure trips we always heard its voice on the river or in the cave.

There were beautiful stalactites in the cave.  We often took candles and went back quite a ways to a big room some thirty feet high, with a kind of upstairs to it; after passing through this, the passage became small.

One time when we were "exploring the cave" one of the boys in the crowd came to a place where he had to get down on his knees and crawl; suddenly he went into a kind of quicksand deposit and soon became so jammed in he could not get out.  His candle was out and no one else could get to him; suddenly the big room and all parts of the cave were lit up as if from a big lamp.

A voice called out, "I'll get you out."  The boy's legs were seized as if by strong hands and he was drawn out with a face full of mud and nearly suffocated.

We all agreed not to tell our parents of this nearly fatal accident, but that night when the Spirit arrived at the usual neighborhood gathering at our home, it asked the parents of the boy if they had gotten the mud out of the boy's ears.  Then it told them of his predicament in the cave and advised them to put a halter on him the next time so his companions could pull him out if he got stuck again.

When I first read about the 'Bell Witch' case, I was among the readers wondering what could be the reason for the myriad of supernatural events chronicled to have occurred in the Bell household.  I decided that the mystery could perhaps become better understood in comparison with other cases.  Richard Williams Bell shared one seemingly trivial bit of information concerning the wife of a brother, Jesse, who was living away from the Bell household.

Jesse’s wife, whom the witch called "Pots," . . .

Another case that presented situations that at times in some ways were reminiscent of those associated with the Bell Witch was found in a book written in 1935 and published the following year, The Haunting of Cashen’s Gap: A Modern Miracle Investigated by Harry Price and R. S. Lambert (known as the 'Gef the talking mongoose' case).  I was startled when reading Page 29 of  the book and noticing —

The mongoose usually called Mr. Irving ‘Jim’ or ‘Pots’ . . .

‘Pots’ didn’t seem likely to be a common nineteenth or twentieth century nickname so I was left to consider how it could be found among recollections about the haunting entities in both An Authenticated History of the Famous Bell Witch . . . and The Haunting of Cashen’s Gap.  (A comparison of these cases may be read in a previous blog article.) 

Another 'talking poltergeist' that I found equally intriguing was chronicled in A Faithful Record of the Miraculous Case of Mary Jobson (Second Edition 1841) by W. Reid Clanny, M.D.

In 1995 I'd completed the first draft manuscript for a book about documented 'talking poltergeist' cases when I learned about the contemporary case in Oklahoma.  After contacting Maxine Mc Wethy and learning that Bell was the last name of her previous husband as well as some of her children, I decided that a research expedition was necessary.  I had no idea that my August 1995 visit to Centrahoma and the following events would vastly change my spiritual understanding and experiences in life.