The Economics of Social Status

In economics, a good is anything that “satisfies human wants and provides utility.” This includes not just tangible goods like gold, grain, and real estate, but also services (housecleaning, dentistry, etc.) as well as abstract goods like love, health, and social status.

As an economic good, social status is a lot like health. They’re both intangible and highly personal. In proper economic terms, they are private goods — rivalrous and mostly excludable. And the fact that they’re hard to measure doesn’t make them any less valuable — in fact we spend trillions of dollars a year in their pursuit (though they often elude us).

But status differs from health in one very important respect: It can be transacted — spent as well as earned. It’s not a terminal good, but rather an intermediate good that helps us acquire other things of value. For example, I can trade some of my status for money, favors, sex, or information — and vice versa.

Health, if it’s possible to spend at all (e.g. in pursuit of career success), is extremely illiquid. But as I will argue today, status is so liquid — so easy to transact, and in real time — that it plays a fundamental economic role in our day-to-day lives. (...)

Let’s start with transactions, since they form the basis of an economy. Status is part of our system for competing over scarce resources, so it should be no surprise that it participates in so many of our daily transactions. Some examples:

• We trade status for favors (and vice versa). This is so common you might not even realize it, but even the simple act of saying “please” and “thank you” accords a nominal amount of status to the person doing the favor. The fact that status is at stake in these transactions becomes clear when the pleasantries are withheld, which we often interpret as an insult (i.e., a threat to our status).
• An apology is a ritual lowering of one’s status to compensate for a (real or perceived) affront. As with gratitude, withholding an apology is perceived as an insult.
• We trade status for information (and vice versa). This is one component of “powertalk,” as illustrated in the Gervais Principle series.
• We trade status for sex (and vice versa), which often goes by the name “seduction.” Sometimes even the institution of marriage functions as a sex-for-status transaction. Dowries illustrate this principle by working against it — they reinforce class/caste systems by making it harder for high-status men to marry low-status women.
• We reward employees in the form of institutionalized status (titles, promotions, parking spots), which trade off against salary as a form of compensation.
• We can turn money into status by means of conspicuous consumption, or status into money by means of endorsement (i.e., being paid to lend status to an endeavor).

None of these transactions is perfectly clean, and most of them are impossible to audit (arguably a feature rather than a bug, for some transactions). Paying with status is much murkier than paying with dollars, and it’s easy to get something other than what you expected. But don’t let the uncertainty or the potential for cheating distract you. There are real gains to be had from these kinds of trades — so, as humans always do, we find a way. Our emotions, for example, often tell us when we’ve been cheated in a status transaction, even if it’s hard to articulate exactly how.

In addition to participating in direct, X-for-Y trades like the above, status also functions as collateral or “table stakes.” (We often call this type of status “reputation.”) In many ways, a favor is like a loan (of time, energy, or some other resource) collateralized by the status of the borrower. It’s a weird kind of collateral, since it can’t be transfered to the creditor if the borrower defaults. But the borrower’s status can be destroyed or ruined, which provides incentive enough for most purposes. The bigger the favor, of course, the more status needs to be put up as collateral. This explains why it’s hard for a low-status person to ask a high-status person for a favor, but easy for a high-status person to make the request.

“Bidding for status” is another activity with economic characteristics. The nature of a bid is that it sets a particular ‘price’ that can be accepted or rejected. Robin Hanson suspects that speaking in public is a way of bidding for status. The very act of standing in front of a group and speaking authoritatively represents a claim to relatively high status. If you speak on behalf of the group — i.e., making statements that summarize the group’s position or commit the group to a course of action — then you’re claiming even higher status. These bids can either be accepted by the group (if they show approval or rapt attention, and let you continue to speak) or rejected (if they show disapproval, interrupt you, ignore you, or boo you off stage).

Similarly, every request for a favor is a complex bidding process (i.e. negotiation) framed largely — and often implicitly — in terms of status. When a manager, for example, gives a task to a subordinate, many nuances are involved in negotiating the ‘price’ of the favor in terms of the subordinate’s status:

by Kevin Simler, Ribbonfarm |  Read more:

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Boko Haram Bid To Join IS

Boko Haram's bid to forge an alliance with the Islamic State group in sub-Saharan Africa will provide only a propaganda boost for now, but in the long term it could internationalize a conflict restricted to Nigeria for nearly six years, analysts say.

The effort comes as both Islamic extremist groups have lost ground in recent weeks and as Nigeria's neighbors are forming a multinational army to confront Boko Haram.

By pledging allegiance to IS, Nigeria's home-grown militants have severed ties to al-Qaida, which is more powerful in the region, said Charlie Winter, a researcher at the London-based Quilliam Foundation.

Boko Haram has never been an affiliate of al-Qaida, but its militants fought alongside al-Qaida-linked groups during northern Mali's Islamic uprising two years ago, and some of its fighters have been trained in Somalia by al-Shabab, another group with ties to al-Qaida, according to the group's propaganda.

Boko Haram's leader, Abubakar Shekau, reportedly pledged allegiance to IS leader Abu Bakr al-Baghdadi in an audio posted Saturday on Twitter. It could take three or four weeks for IS to formally respond, as has been the case with affiliates in Egypt, Yemen and Libya.

An alliance "would lend a more imposing quality to Islamic State with its expansionist model," Winter said. The move was symbolically "a striking development," but he doubted it would "change things on the ground in either Nigeria or Iraq and Syria."

But "over time this pledge of allegiance might lead to the internationalization" of a threat that until now has been mostly confined to a single region of Nigeria with occasional spillover into neighboring countries, warned J. Peter Pham, director of the Washington-based Atlantic Council's Africa Center.

Boko Haram was little known until its April 2014 abduction of nearly 300 Nigerian schoolgirls from a school in the remote town of Chibok drew international outrage. At the time, al-Baghdadi praised the Nigerian insurgents and said the mass kidnapping was justification for the IS abduction of Yazidi women and girls in northern Iraq.

A partnership with IS could also be a recruiting tool. Fighters from IS franchises in North Africa who find it harder to migrate to the Middle East may choose to move to a Boko Haram emirate instead, Pham said.

The international support pouring into anti-Boko Haram forces from the United States, France, the United Kingdom and others "may render the Nigerian militants' fight all the more attractive to these foreign jihadists," Pham said.

The core of Boko Haram's estimated 4,000 to 6,000 militants is from the Kanuri tribe, which spreads across colonial-era borders in a region where people show stronger allegiance to tribes than states.

In August, Boko Haram declared it was reviving an ancient Islamic caliphate in northeastern Nigeria that spilled over those borders, in a move copying the Islamic State group. But Boko Haram's brutality, including beheadings and enslavement, predates and in some cases arguably exceeds that of IS, according to Pham.

Pham expects Boko Haram to engage in even more gruesome tactics if it wins the support of IS.

"The upcoming Nigerian elections and potential postelection upheaval provide too rich of a target environment for the jihadists to pass up," Pham said.

by Michelle Faul, AP |  Read more:

Image: AP

[ed. There's a weiner dog race I plan on attending this summer.]
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Will You Need a New License to Operate a Self-Driving Car?

How do you train a driver not to drive? That’s a question officials in California are wrestling with. The U.S. state furthest along the road to self-driving vehicles is drawing up regulations for the operation of autonomous vehicles by the general public—and it may require motorists to undergo additional instruction or evaluation before they can be chauffeured by robots.

Self-driving cars promise a future where you can watch television, sip cocktails, or snooze all the way home. But what happens when something goes wrong? Today’s drivers have not been taught how to cope with runaway acceleration, unexpected braking, or a car that wants to steer into a wall. (...)

One problem is that regulators do not know whether self-driving technologies will arrive in production vehicles as optional features in luxury cars or as the master control of fully autonomous robo-taxis. Ryan Calo, who teaches a robotics law and policy class at the University of Washington, believes the distinction is crucial. “For an autonomous vehicle without a steering wheel, I’m not sure you need any more training than you’d get for a dishwasher,” he says. “But for a vehicle primarily meant to be driven by a human driver and that has an autonomous mode, I could imagine some additional degree of certification.”

Today’s experimental autonomous cars occasionally need to hand control back to their human operators, either because of a bug in the system or for something as innocuous as the car leaving a well-mapped area. These “disengagements” may require the driver to take action quickly. California takes disengagements so seriously that it requires manufacturers testing self-driving cars to log each one. “Today, drivers are not trained or tested for that change in control,” says Patrick Lin, director of the ethics and emerging sciences group at California Polytechnic State University. “Humans aren’t hardwired to sit and monitor a system for long periods of time and then quickly react properly when an emergency happens.”

by Mark Harris, IEEE |  Read more:

Image: Randi Klett

Parenting School

How do you entertain a grumpy three-year-old? My strategy is generally: (a) panic; (b) rustle about in my bag for some breadsticks or – if she’s lucky – a colouring book; (c) hand over my iPhone and let her watch some cartoons – all the while worrying I’m stunting her brain development.

My friend, however, has a different strategy. One morning we were enjoying a coffee when, to distract her three-year-old daughter, she serenely reached into her bag and handed her a sheet of paper with six or seven three-letter words on it and a red pen. She then proceeded to read the words out at random, while her daughter correctly circled each one. It was impressive. I was horrified.

I’d never considered doing similar activities with my own daughter, just four months younger. Although we read to her before bed each night, I’d always assumed formal reading and writing was just something she’d pick up when she went to school. Perhaps I’d got it terribly wrong.

About a week later, when dropping my daughter off at nursery, I was handed a leaflet about parenting classes. Like many mums, no one taught me how to raise my children – I’ve simply muddled by on instinct and the odd book. But perhaps there’s a more evidence-based way to raise happy and successful kids. Maybe I needed to enrol at Parent School.

Trends in parenting have waxed and waned over the years. Although once upon a time, new parents simply fell back on the wisdom and experience of their extended families, doctors started getting involved from the late 19th century onwards. Today there’s no shortage of Supernannys, paediatricians and psychiatrists serving up often conflicting parenting advice. New parents can choose any number of approaches: attachment parenting, minimalist parenting, Tiger Mom parenting. (...)

All of this begs the question: which approach is best? Whereas many parenting trends reflect the opinions of a single psychoanalyst, paediatrician or nanny, CANparent’s providers claim to draw upon the latest scientific research about how children develop and say their strategies are “proven” to make a real, positive difference to families. Others, meanwhile, claim that such evidence-based parenting policies are based on distorted science and undermine parents’ confidence in their ability to raise their children.

“It transforms the meaning of family life,” says Jan Macvarish, who studies the impact of neuroscience on family policy at the University of Kent. “It says ‘we will be able to measure the quality of your family life by the intelligence or emotional intelligence of your child’.” (...)

One solution proposed by the current UK administration is parenting classes from birth – not just for poor families, but for everyone. “We know that the single most important factor in a child’s development is the quality of parenting, yet babies don’t come with instructions included,” says Vera Azuike of CANparent. “Everybody could use a little extra advice or support, but it has to be the right advice.”

Predominant among the classes offered by CANParent are those provided by an Australian company called Triple P (the Ps stand for ‘Positive Parenting Program’). Founded by clinical psychologist Matt Sanders, its original focus was helping children with aggression problems through a series of home visits and interventions drawn from social learning theory – the idea that children develop their model of values and behaviour from what they see and experience around them.

Triple P claims to be one of the few parenting programmes that’s scientifically proven to work, having helped hundreds of thousands of families in 25 different countries to deal with issues ranging from temper tantrums and disobedience to bedtime dramas and teenage rebellion in the 30 years since it was conceived. Today it’s a private company, managed by the University of Queensland’s technology transfer arm, although Sanders – who directs the University’s parenting and family support centre – remains actively involved.

“There are some key principles that we think are very important to children’s development,” he says. “The first is that kids grow up in an interesting and engaging environment with age-appropriate things to keep them busy. The second is that children will do better in a world of encouragement and positivity rather than criticism and putdowns. The third principle is really about boundaries and limits setting; parents should have clear ideas about what they expect of their children, and there should be consistent and predictable consequences if they break those boundaries.”

by Linda Geddes, Mosaic |  Read more:

Image: Thomas Slater

armed and dangerous
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今日のさよなら (Today's Goodbye) (by 樹/Tatsuru)
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The Death of Textbooks?

At a recent sit-down with executives representing one of the biggest players in the textbook industry, my colleague and I felt surprisingly out of touch.

The executives spent most of the meeting touting the evolving market, namely how their newfound allegiance to digital learning materials—rather than old-school physical textbooks—would place them at the forefront of the new wave of education technology. Rhetoric describing the company’s unmatched innovation pervaded the hour-long meeting; they raved about the company’s across-the-board shift to digital, how its new state-of-the-art materials comprise a "single roadmap" that is expected to make its generic, stodgy textbooks obsolete. They largely dismissed us as we—online journalists and Millennials in our mid-20s—reminisced about physical books that can be held, highlighted, and leafed through. And it quickly became evident that these men expected us to marvel at the company’s developments because, as soon as they noticed our eyes weren’t lighting up, they balked: "I don’t think you understand how groundbreaking this is," one of them said.

These executives certainly seem to have popular opinion on their side. Textbooks, which have long accounted for various subjects’ bulk of in-class learning materials, have garnered much vitriol in recent years. For some, the discontent starts as early as elementary school; heavy books can result in chronic back pain for children. But by the time those students are in college, textbooks are much more than a mere nuisance. What was once heavy burden on the back becomes an even heavier strain on the wallet. According to a recent College Board report, university students typically spend as much as $1,200 a year total on textbooks.

Nostalgia aside, it may come as a relief to many, then, that textbooks are becoming anachronistic. Digital in-class learning materials, like software that adapts to the ways in which individual students acquire information, and other forms of virtual education content are becoming more effective and intelligent. College-affordability advocates and others hope this growth could result in the normalization of less costly or even free materials down the road.

But as the executives failed to acknowledge in that meeting, the shortcomings of this trend—and its prospective impact on how humans learn—are worth keeping in mind. Many digital learning materials completely overhaul how classes, from pre-k to grad school, are conducted; how students are tested on knowledge; and how teachers fit into the picture. (...)

To find out what’s on the horizon for K-12 textbooks, I recently spoke with representatives (including the ones with whom I met at the sit-down) of two of the world’s largest textbook publishing: McGraw Hill and Houghton Mifflin Harcourt. Both companies, as well as the industry’s other titans, are heavily focused on bolstering their digital arms in an apparent effort to dominate the booming virtual-content industry. Even Pearson, another behemoth in the textbook industry, now brands itself as a "digital learning and services company."

Houghton gave me a live demo of its language-arts program known as "Collections," an English course. The software essentially streamlines the process of analyzing and reviewing a text—think a teacher reading an excerpt, asking questions, and assigning an essay— on a simple interface. This interface allows kids to highlight material, take notes, and ask their classmates questions virtually. It even includes a "raise hand" button that a student can click to alert a teacher if he or she has a question. The program, moreover, pre-selects what it considers difficult or particularly wordy paragraphs, flagging them with a "Close Reading" tag; clicking this button opens up an brief explanatory video. Students can follow along with the audio version as they read the text—perhaps negating the need for the teacher to call on a student to recite the text out loud.

I also tried McGraw Hill’s math software: ALEKS, which stands for Assessment and Learning in Knowledge Spaces, and is a web-based tool that assess students in mathematics, accounting, statistics, and chemistry. (The name alone—which, phonetically, sounds like a human—got me worrying about the prospect of a robot takeover, but I digress.) ALEKS launched in 1999 and operated for more than decade on its own before it McGraw Hill purchased it in 2013 and is predicated on "completely individualized learning"; the program adapts based on an individual’s knowledge and skill set. Behind the scenes, the software builds a database detailing the proficiency of each student, information that is then used to formulate questions tailored to kids based on what they find most challenging. Essentially, the program—which is based on 20 years of research by cognitive scientists, mathematicians and engineers—can instantly assess the individual abilities of an entire class of students at a rate that would be impossible for most teachers. (...)

Ultimately, these digitized materials are somewhat of a paradox. They are standardized at the top—the programs are aligned with the Common Core and rely on big data—but personalized underneath, customized around each student according to what the software gleans from assessments.

This shift also means that kids are spending more time than ever looking at screens, which could be physically and cognitively detrimental in the long run. The American Academy of Pediatrics, at least for now, recommends that kids spend no longer than two hours a day looking at digital devices. The shift is also taking a toll on the frequency that children engage in handwritten work, whichreports have shown is far more beneficial than taking notes on a laptop. And these changes could be disregarding how kids want to learn. Recent studies suggest that "digital natives" still prefer reading in print. One University of Washington pilot study of digital textbooks found that a quarter of students surveyed bought the print versions of e-textbooks that they were given for free, according to a recent Washington Post report.

Bill Buxton, the founder of the open-source publisher Textbook Equity, is skeptical of technology as a substitute for traditional learning materials. "I haven’t seen really strong evidence that people are doing a lot better with the online stuff than textbooks," he said. "Where’s the evidence? ... It’s coming from the biased companies; they want to make sure people buy it."

by Terrence F. Ross, The Atlantic |  Read more:

Image: McGraw Hill

Empire of the Pig

Pig number 5422 saunters into the pen, circles its few square metres and mounts a plastic stand. The farmer cleans the animal’s underside, feels around and draws out what appears to be a thin pink tube around 30cm long. He begins to massage. Pigs elsewhere snort, grunt or squeal, but the alpha pig is unmoved. Soon he has filled a thermal cup with more than 60 billion sperm. Around 150 pigs will owe their short, brutish lives to this emission.

A malty smell hangs in the air at the Fuxin Breeding Farm in Jiangxi province in central China, 10 hectares of low concrete barns and fields beside a small reservoir, which is home to around 2,000 pigs. The business was started four years ago by 31-year-old Ouyang Kuanxue. Mr Ouyang’s friends say he was destined to be a pig farmer—he was born in the Chinese zodiacal year of the pig—but his own explanation is more prosaic: when he came back to Pingxiang, his hometown, in 2003 after studying management at university in Beijing, he could not think what else to do. His grandfather was a coalminer who kept a few pigs. His father already had 100. He decided to expand.

Now the whole family is involved: together they have three farms with a total of around 5,000 swine. Mr Ouyang’s younger brother is in charge of production; his sister-in-law runs the office. The past year has been hard for them and other pig farmers, Mr Ouyang says, because pork prices have been low and feed expensive. But this lean year followed many fat ones. Mr Ouyang drives a Volkswagen SUV; his wife has a new Audi, wears a Cartier bracelet and runs two nail bars; they own an apartment in a new block in the local town. Mr Ouyang has a panoply of pig-related news feeds on his phone. Still, when he goes out for dinner with friends, he tends to avoid pork. (...)

The family’s good fortune is emblematic of China’s flying pig market over the past 35 years. Since the late 1970s, when the government liberalised agriculture, pork consumption has increased nearly sevenfold in China. It now produces and consumes almost 500m swine a year, half of all the pigs in the world. The tale of Chinese pigs is thus a parable of the country’s breakneck economic rise. But it is more than symbolic: China’s lust for pork has serious consequences for the country’s economy and environment—and for the world. (...)

For Mr Lei, as for many of his countrymen, the years of deprivation are well within living memory. Not surprising, then, that eating meat has become a symbol of triumph over hardship, as much a part of China’s transformation as the towering skyscrapers and glistening cities. Grandparents who once went hungry stuff their grandchildren with the treats they lacked—and top of the list is pork. The average Chinese now eats 39kg of pork a year (roughly a third of a pig), more even than Americans (who typically prefer beef), and five times more per person than they ate in 1979.

The most obvious impact has been on the pigs themselves. Until the 1980s farms as large as Mr Ouyang’s were unknown: 95% of Chinese pigs came from smallholdings with fewer than five animals. Today just 20% come from these backyard farms, says Mindi Schneider of the International Institute of Social Studies in The Hague. Some industrial facilities, often owned by the state or by multinationals, produce as many as 100,000 swine a year. These are born and live for ever on slatted metal beds; most never see direct sunlight; very few ever get to breed. The pigs themselves have changed physically, too. Three foreign breeds now account for 95% of them; to preserve its own kinds, China has a national gene bank (basically a giant freezer of pig semen) and a network of indigenous-pig menageries. Nevertheless, scores of ancient variants may soon die out.

But China’s pigs are far from the only victims of their popularity. Demand for them worries the Communist Party, underpins what will soon be the world’s biggest economy and threatens Amazon rainforests. (...)

The Communist Party prizes self-sufficiency in food. Most of the pigs China eats are indeed home-grown. But each kilogram of pork requires 6kg of feed, usually processed soy or corn. Given the scarcity of water and land in China, it cannot feed its pigs as well as its people. The upshot is that Chinese swine, which previously ate household scraps, increasingly rely on imported feed.

Ms Schneider reckons that more than half of the world’s feed crops will soon be eaten by Chinese pigs. Already in 2010 China’s soy imports accounted for more than 50% of the total global soy market. From a low base, grain imports are rising fast as well: the US Grains Council, a trade body, predicts that by 2022 China will need to import 19m-32m tonnes of corn. That equates to between a fifth and a third of the world’s entire trade in corn today.

As a result, land use is changing drastically on the other side of the world. In Brazil, more than 25m hectares of land—parts of which were once Amazon rainforest—are being used to cultivate soy (Chinese companies have not signed up to the “soy roundtable”, a voluntary association, the members of which agree not to buy soyabeans from newly deforested land). Entire species of plants and trees are being sacrificed to fatten China’s pigs. Argentina has chopped down thousands of hectares of forest and shifted its traditional cattle-breeding to remote areas to make way for soyabeans. Since 1990 the Argentine acreage given over to that crop has quadrupled: the country exports almost all of its whole soyabeans—around 8m tonnes—to China. In some areas farmers harvest two or three crops a year, using herbicides that have been linked to birth defects and increased cancer rates.

by The Economist |  Read more:

Image: Getty

Joan Miro, 1968
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Pot, Kettle, Black

[ed. See also: PETA launches annual campaign against the Iditirod]

People for the Ethical Treatment of Animals killed most of the animals at its Norfolk, Virginia, shelter in 2014, according to preliminary figures filed with the Virginia Department of Agriculture and Consumer Services.

The group euthanized 2,454 of its 3,369 cats and dogs, the vast majority of which were "owner surrenders," meaning that they'd been relinquished to the group voluntarily. Just 23 dogs and 16 cats were adopted.

These figures aren't shocking to PETA's long-time critics -- who have for years pointed out the discrepancy between how this prominent animal rights group is perceived, and what they actually do -- but they are leading to a renewed call from no-kill advocates to put the shelter out of business.

Here's how long-time PETA critic Nathan Winograd, a well-known shelter reform advocate, recently put it on his Facebook page:

How much money did PETA take in last year from unsuspecting donors who helped pay for this mass carnage? $51,933,001: $50,449,023 in contributions, $627,336 in merchandise sales, and $856,642 in interest and dividends. They finished the year with $4,551,786 more in the bank than they started, after expenses. They did not see fit to use some of that to comprehensively promote animals for adoption or to provide veterinary care for the animals who needed it. 

By contrast, the Lynchburg Humane Society, also in Virginia, took in about the same number of animals as PETA but saved 94% and without PETA’s millions. Seagoville Animal Services in Texas took in 1/3 of the numbers (about 700 animals) but only 1/20th of 1% of the amount of money that PETA did, saving 99% of them on a paltry $29,700 budget. In fact, hundreds of cities and towns across America are saving over 90% of the animals and doing so on a fraction of PETA’s wealth.

VDACS collects and publishes information about how many animals are taken in and what becomes of them, for every public and private shelter, humane society, pound and other sort of animal rescue group in the state.

Indeed, as can be seen in this chart, Virginia as a whole has far lower euthanasia rates. And while PETA says it must euthanize animals because it's an "open-admissions" shelter -- meaning that it will accept any animal brought to it -- other such Virginia shelters, like the Lynchburg Humane Society, present far differently:

The initial figures for PETA's 2014 numbers were obtained via a Freedom of Information Act request filed by Winograd, a leader in the "no-kill" movement, which aims to reduce (or, even better, eliminate) the number of shelter animals that are put down every year.

VDACS spokeswoman Elaine Lidholm told The Huffington Post the figures may be amended before the final report is published online. The numbers, however, are in line with those from previous years -- numbers that have earned the high-profile animal rights group a significant amount of criticism.

by Arin Greenwoood, Huffington Post |  Read more:

Image: PETA via Wikipedia

Blowing Bubbles

Friday’s strong jobs report has revived an old and tired debate about inflation and unemployment. Rather than celebrating the news that the jobless rate has dropped to 5.5 per cent, the lowest rate since May 2008, investors sold off stocks, based on expectations that the Federal Reserve will soon start raising interest rates to head off the threat of inflation. By noon, the Dow was down almost two hundred points.

That’s nothing to worry about, taken on its own. Stocks rise and fall every day. But the constant focus on the link between inflation and unemployment, which is evident in the minutes of the Federal Reserve’s Federal Open Market Committee and in the media discussion of what the Fed should do next, does present a real danger. It reflects an outdated economic paradigm that, twice in the past twenty years, has misled policy-makers and produced bad policy decisions.

During the late nineteen-nineties, and again in the mid-aughts, the Fed set interest rates based on the supposed threat of inflation. When that threat failed to materialize, it kept rates at low levels for long periods. Cheap credit, in turn, encouraged the development of speculative bubbles and other financial imbalances. And when the bubbles eventually burst, the economy went into recession. But rather than changing its policy framework to prioritize avoiding yet another speculative bust, top Fed policy makers once again committed themselves to focusing on inflation, publishing a target rate of two per cent. Bubble-prevention was delegated to the Fed’s regulatory apparatus.

At the moment, thankfully, the threat of another bubble appears to be contained, despite ultra-low interest rates. Still, it can’t be ignored. Rather than obsessing about inflation, Fed chair Janet Yellen and her colleagues should be seeking to provide as much support as they can to the economy, consistent with preventing bubbles from forming in asset markets such as stocks, bonds, and, especially, real estate. That is where the threat lies, not in rising inflation.

Things used to be different. In the nineteen-seventies and nineteen-eighties, there was very real danger of a wage-price spiral (in which rising wages and prices become self-reinforcing, pushing inflation upward). In the fall of 1974, the rate of inflation topped twelve per cent; in 1980, it reached almost fifteen per cent. But in today’s globalized and technology-driven economy, workers have little bargaining power, and the prices of many products, such as electronics, have a tendency to fall rather than rise. The last time the inflation rate rose above six per cent was 1990—twenty-six years ago.

When prices are rising at an annual rate of less than two per cent, as they have been for most of the past three years, it’s silly to worry about another wage-price spiral emerging. Still, many people, including some at the Fed, refuse to learn the lessons of history. As the unemployment rate dipped below six per cent last year, Richard Fisher, the president of the Federal Reserve Bank of Dallas, repeatedly warned that wage and price inflation would start to rise. Friday’s jobs report confirmed that it hasn’t happened; average hourly earning rose by just 0.1 per cent in January. Over the course of the past year, it has risen by two per cent, which is a very modest rate of increase.

The fact that Fisher’s prediction didn’t come true shouldn’t surprise anybody. Economists have never been able to pin down the jobless rate at which inflation takes off—the so-called NAIRU, or Non-Accelerating Inflation Rate of Unemployment. Theoretically, the concept makes sense. Empirically, it’s extremely elusive, because it depends on many other things, such as the rate of productivity growth, tax rates, the labor-force participation rate, and the level of unionization.

At some point—a point we can’t predict in advance—tighter labor markets will lead to higher wages. And that wouldn’t necessarily be a bad thing. To the contrary, with median household incomes still well below their 2007 levels, and with labor’s share of overall income having fallen to historic lows, American families badly need a raise in pay. Back in the late nineteen-nineties, as the Fed stood pat, wages and incomes grew for an extended period without causing an inflationary spiral. This only happened after a big fall in unemployment, however. In 1999, the jobless rate hit four per cent. But by that stage, unfortunately, the dot-com bubble was also in place.

In short, the real policy dilemma isn’t the trade-off between inflation and unemployment. It’s the tradeoff between cheap money and financial instability. How long can the Fed keep interest at ultra-low levels without sparking another bubble and all that goes with it?

by John Cassidy, New Yorker |  Read more:

Image: Gary Gardiner, Bloomberg via Getty

It's the end of the world as we know it (and I feel fine)
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Rachel Yamagata

[Repost]

Larry Fink, N.Y.C Club Cornich, from the Portfolio 82 Photographs 1974 to 1982, 1982; Printed 1983
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Slow Love

One-night stands; hooking-up; friends with benefits; living together; pre-nups; civil unions. These all spell caution. But they also spell logic—because our brain is soft-wired to attach slowly to a partner.

The basic circuits for romantic love lie in primitive regions of the brain, near those that orchestrate thirst and hunger. Romantic love is a drive—one of three basic brain systems that evolved to direct our fundamental human mating and breeding strategy. The sex drive predisposes you to seek a range of mating partners; romantic love enables you to focus your mating energy on a single individual at a time; and feelings of attachment incline you to form a pair-bond at least through the infancy of a single child. Feelings of romantic love and deep attachment to a partner emerge in a pattern highly compatible with the spirit of the times—that is, with slow love.

I say this because my colleagues Lucy Brown, Art Aron, Bianca Acevedo, and I have put new lovers into a brain scanner (using functional Magnetic Resonance Imaging, or fMRI) to measure neural activity as these men and women gazed at a photo of their sweetheart. Those who had fallen madly in love within the past eight months showed activity in brain regions associated with energy, focus, motivation, craving, and intense romantic love. But those who had been passionately in love for eight to 17 months also showed activity in an additional brain region associated with feelings of attachment.

Romantic love is like a sleeping cat; it can be awakened at any time. Feelings of deep attachment, however, take time, and they can endure. In another of our studies, led by Acevedo, we put 17 men and women in their 50s and early 60s into the brain scanner. These participants had been married an average of 21 years, and all maintained that they were still madly in love with their spouse. Their brains showed that they were: They were deeply attached as well.

We have even begun to map some of the brain circuitry responsible for this marital happiness. In our study of long-term lovers, those who scored higher on a marital satisfaction questionnaire showed more activity in a brain region linked with empathy, a trait they had most likely retained from their initial passion. Moreover, when psychologist Mona Xu and her team used my original research design to collect similar brain data on 18 young men and women in China, she found that those who were in love long term showed activity in a brain region associated with the ability to suspend negative judgment and over-evaluate a partner, what psychologists call “positive illusions.” Much like men and women who have just fallen madly in love, these long-term partners still swept aside what they didn’t like about their mate and focused on what they adored.

Because feelings of attachment emerge with time, slow love is natural. In fact, rapidly committing to a new partner before the liquor of attachment has emerged may be more risky to long-term happiness than first getting to know a partner via casual sex, friends with benefits and living together. Sexual liberalism has aligned our courtship tactics with our primordial brain circuits for slow love.

by Helen Fischer, Nautilus |  Read more:

Image: Before Sunrise, Hulton Archive / handout

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