Baum on Money: Pay to Pray
Good morning, dear readers. Welcome to the new week and a new installment of what I'm reading on issues affecting the U.S. economy.
The President doesn't get his man.
News broke yesterday afternoon that Larry Summers won't be the next Fed chairman. Not because President Barack Obama decided to tap someone else, but because Summers withdrew his name from consideration. In light of opposition from liberal Democrats, the former Treasury secretary wanted to spare Obama a possible acrimonious confirmation process that "would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing recovery," Summers wrote in a letter to the president. You don't have to be brilliant to count the votes and figure out that your nomination wouldn't have made it out of the Senate Banking Committee.
Right decision, wrong reason.
Opposition from the political left is a badge of honor, according to the Wall Street Journal editorial board. "The real reason to oppose Mr. Summers for the Fed job is that he would have been an exceptionally political Fed chairman at a time when the institution needs the opposite," they write. Summers was reportedly Obama's choice for the job, and Summers wanted to add Fed chair to his impressive CV. The last thing the country needs is a Fed chief beholden to a president.
This time is different.
That's what the Bank for International Settlements said in its Quarterly Review about the current U.S. bond market sell-off. It differs from the 1994 and 2003-2004 bear markets, both of which saw an increase in both real long-term rates and inflation expectations. This time around, the biggest part of the move has been in real rates and driven by an increase in the term premium, or the extra yield investors demand for the risk of holding a long-term security. The BIS blames the "uncertainty" about monetary policy. Fine, but there isn't a heck of a lot one can do about a future that is always uncertain.
Mark Curtis, a visiting scholar in the Atlanta Fed's research department, has an interesting analysis on the bank's Macroblog. He and other researchers are finding that falling reallocation rates -- how quickly resources are reallocated to productive areas of the economy -- are a major contributor to the slow U.S. recovery. Looking at job creation and destruction rates across a variety of industries and areas of the country, Curtis observes "a stark trend: The economy is reallocating jobs at much slower rates than 20 or even 10 years ago, and this decline is, with only a few exceptions, common across states and industries." Call it creative destruction without the creative part.
Pay to Pray, or free-market capitalism meets the synagogue.
On Saturday, Jews around the world celebrated Yom Kippur, the holiest day of the year. There was a time when synagogues opened their doors to non-members on the High Holy Days. Donations were encouraged. Now it's become commonplace to "pay to pray." "I was once of the opinion it should be free for everybody, before I realized that if it’s free for everybody, then some people are underwriting everyone else," Amichai Lau-Lavie, the spiritual leader of Lab/Shul, tells the New York Times, describing what economists call the "free rider" problem. Spoken like a true capitalist.
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)