The Washington Post - USA (2022-04-25)

MONDAY, APRIL 25 , 2022. THE WASHINGTON POST EZ RE A21

T

wo years ago, central bankers seemed omnipotent. Responding to the coronavirus shock, the Federal Reserve unleashed a stimulus far larger than the one follow- ing the 2008 financial crisis. The intervention empowered Congress to pursue its own stimulus without worrying about the national debt: The Fed was buying government bonds as fast as the Treasury could issue them. The United States entered the era of don’t tax, just spend. It was the age of magic money. But now the magic has evaporated. Inflation has surged to its highest level since 1980. As a result, the central bank will have to hike interest rates repeatedly this year, perhaps causing a recession. Despite retaining an economics faculty nearly eight times larger than Harvard’s, the Fed has messed up. It is vital to understand where exactly it went wrong — and, therefore, the right lesson for the future. The initial stimulus was not the error. The pandemic suspended the face-to- face economy; by the second quarter of 2020, real gross domestic product had shrunk by a tenth relative to its peak before the pandemic. Without the Fed’s intervention, the United States would have experienced a depression. Instead, the economy expanded. By the second quarter of 2021, real GDP was higher than before the pandemic — a much faster recovery than after the 2008 crisis. By stimulating immediately and in unprecedented size, the Fed performed an extraordinary public service. Moreover, the initial stimulus posed no problem for prices. In 2020, the Fed’s preferred gauge of inflation, which ex- cludes volatile food and energy, came in at 1.4 percent — below the desired target of about 2 percent. The popularly quoted consumer price index rose even less. By the end of 2020, you could begin to tell a story about how inflation might break out: Consumers were looking to spend stimulus checks; the stalling of globaliza- tion removed a brake on prices. But inflation was not the probable scenario. What came next was one forgivable error, and then a really serious one. The forgivable error began in the summer of 2021. By then, the Trump administration’s stimulus had been am- plified by a far larger Biden package; in the second quarter, core inflation came in at 6.1 percent, way above the Fed’s target. But the Fed dismissed this surge as “transitory.” A semiconductor short- age was causing a temporary spike in car prices, the central bank argued. Work- ers’ fear of covid-19 was delaying the return to work and causing temporary bottlenecks. With the benefit of hindsight, this was too optimistic. Forecasters who struck a gloomier note are now entitled to their victory dances. But the error counts as forgivable because the Fed confronted unprecedented questions: How many cit- izens would return to work? How fast would the government stimulus be spent? Many respected analysts agreed with the Fed that inflation would prove transitory. The less forgivable mistake came at the start of this year. It was not a forecasting error, it was a failure of courage and a triumph of inertia. The Fed acknowl- edged inflation. But, anxious about up- setting financial markets and reluctant to grapple with the full implications of its error, it refused to rise to the challenge. At the close of the Fed’s policy meeting in January, Chair Jerome H. Powell de- scribed inflation as “elevated.” But he declined to raise the interest rate. At the next meeting, in mid-March, Powell con- fessed that inflation was “well above” the Fed’s target. Yet still he raised interest rates by only a quarter of a percentage point. Powell embraced this gradualism, moreover, even though the Ukraine war and the associated sanctions were driv- ing commodity prices skyward. The earlier, forgivable error had been compound- ed by a huge stroke of bad luck. But rather than scramble to get on top of the problem, the Fed played tortoise. While the central bank has inched along, inflation has sprinted. Stripping out the effects of seasonal changes, consumer prices were 0.6 percent higher in January than in the previous month. In March, the inflation rate doubled to 1.2 percent. Not surprisingly, the Fed’s credibility has been whacked: More Americans care about inflation than about crime or immigration, according to a CBS News poll. And it’s not as though the Fed needed to act gradually to protect workers. The labor market, in Powell’s words, is “extremely tight.” Three decades ago, when the Fed was less committee-driven and more under the sway of an imperial chairman, it was willing to hike rates with less warning and more aggression. In the tightening cycle of 1994, it raised rates by three- quarters of a percent at a single meeting. Wall Street screamed murder, but Main Street came out fine. Inflation fell, and there was no recession. Today’s Fed should ponder this. To preserve its credibility as an inflation fighter — and hence its ability to react swiftly to growth shocks — the Fed must react equally swiftly when prices acceler- ate upward. Sometimes it’s okay to upset Wall Street, and sometimes the best course is the monetary equivalent of a hand-brake turn. Once upon a time, the Fed knew this.

SEBASTIAN MALLABY

Where the Fed

went wrong

on inflation

T

he robust victory of France’s middle-of-the-road President Emmanuel Macron in Sun- day’s election is good news for the Western alliance on behalf of Ukraine and bad news for Russian leader Vladimir Putin. Macron’s reelection is also a triumph for the European Union and a setback for those who would weaken it or break it up. And the defeat of far-right leader Marine Le Pen dealt an important blow to nationalist forces in Europe focused on limiting immigration and marginalizing immigrants, particular- ly Muslims. It was thus a victory for democracy as well. The size of Macron’s margin — projected at 59 percent to Le Pen’s 41 percent — was more comfortable than many of his supporters expected even two weeks ago, when Macron and Le Pen advanced to the decisive round. It reflected Macron’s success in making the dangers of a Le Pen presidency more salient to key voter groups than their frustrations with inflation, their sense that he is out of touch, and a conviction among pro- gressives that while he promised five years ago to be neither right nor left, he governed more from the center- right. To woo the left, Macron softened his stance on economic questions, notably his proposals to raise the eligibility age for social security. Macron was especially effective in tying Le Pen to Putin. While Macron’s quest for better relations with Putin brought him criticism from the Rus- sian dictator’s adversaries in the West, Le Pen’s closeness to Putin (and her party’s financial ties to a Russian bank) gave the incumbent a fat target, which he hit squarely during their debate last week. Macron’s insistence

that Le Pen’s proposals were racist, divisive or unworkable did the rest. But Sunday’s good news carried qualifiers and caveats, and Macron used his victory speech to acknowl- edge the “anger” in a country full of “doubt and division” and pledged to fight for a “more just” nation in which “no one will be left by the wayside.” Despite the size of Macron’s projected victory, it fell short of his 66- to 34-percent defeat of Le Pen in 2017. Le Pen’s efforts to transform herself from a dangerous far-right zealot to a friend of the French working class bore fruit. Exit polls showed her especially strong among working-class voters. The fact that so many are now willing to support a candidate of the ultraright suggested how economic distress bred by anger over social and economic change has eroded what the French call the “Republican Front” — the alliance in support of a tolerant, democratic republic. Marine Le Pen’s projected vote is more than double the 17.8 percent that her father, Jean-Marie Le Pen, the founder of the predecessor party to his daughter’s, won in the 2002 runoff against then-president Jacques Chirac. Signs of anger at Macron on the left included relatively low turnout in areas won by leftist candidate Jean- Luc Mélenchon, who ran just behind Le Pen in the first round of voting two weeks ago. Faced with a choice be- tween a challenger they saw as a fascist and an incumbent they regard- ed as a friend of big business and the wealthy, polls found that four Mélen- chon voters in 10 either abstained or cast blank ballots. In Seine-Saint-Denis, a working- class region outside of Paris with a substantial Muslim population, Mé- lenchon won overwhelmingly in the

first round. As of 5 p.m. Sunday, according to the Europe Elects Twitter feed, Seine-Saint-Denis’s turnout was the lowest in the nation at 45 percent. This points to the major challenge Macron faces in French legislative elections that will be held in two rounds on June 12 and June 19. Many lukewarm Macron voters might ex- press their discontent by opposing National Assembly candidates of the president’s party. The political leaning of the French prime minister, who enjoys considerable power, is deter- mined by who controls the Assembly. If Macron’s Republic on the Move party loses its majority, Macron could be faced with a fractured and unruly parliament, the need for elaborate negotiations and possibly, although it’s a long shot, a prime minister hostile to his program. Even before Sunday’s vote, Mélen- chon began campaigning for the prime minister’s job, urging voters to support his radical left party as a check on whoever won the presidency. The legislative elections will also be a test of whether the parties accustomed to governing France before Macron’s 2017 breakthrough — the center-right Republicans and the center-left Socialists — can stage a comeback after being crushed in the first presidential round. None of this, however, should de- tract from Macron’s extraordinary achievement. A loner who broke with the major parties and, from scratch, built a novel coalition of the center managed to win a decisive reelection in a time of deep discontent and uncertainty. He prevailed in a nation that has not looked kindly on incum- bents for decades. And through his victory, he saved Europe from political catastrophe.

E.J. DIONNE JR.

Macron wins one for democracy,

but the far right still looms

NATHAN LAINE/BLOOMBERG NEWS French President Emmanuel Macron waves to supporters after winning reelection Sunday.

W

hy on earth would anyone want to rent a pet? The answer, of course, is that almost no one wants to rent their pet. Yet earlier this month, the state of Massachusetts came to an almost $1 million settlement with a financial services firm that the attorney general’s office said was leasing dogs in violation of state law, in cases involving hundreds of people. First, some background: In addition to Massachusetts, seven other states (Cali- fornia, Connecticut, Indiana, Nevada, New Jersey, New York and Washington) have enacted bans on pet-leasing since

According to the American Society
for the Prevention of Cruelty to Animals
(ASPCA), another state, Illinois, has
broader restrictions on the financing of
pet sales.
That leaves swaths of the country
where it’s legal to lease Lassie, much as
you might rent a car.
The ethical quagmire of leased pets
intersects with our hyper-capitalist soci-
ety’s shortcomings on consumer protec-
tions — meaning that if there is money to
be made, someone will try, and the enter-
prise might well be legal, even if it
involves threatening to sic the repo man
on Rover.
People generally acquire pet dogs or
cats by adopting from a shelter or rescue
group, usually for a minimal fee, or
buying from a pet store or breeder. The
latter acquisitions are often of puppies or
kittens, and with dogs many times pure
breeds or designer mutts, such as doodle
dogs. These sorts of pet purchases can
run into the thousands of dollars.
Pet-leasing is a nasty spin on buying.
The practice originated about a decade

ago — a twist on subprime borrowing for people with poor credit and little cash who fell so in love with the puppy in the window that they were not inclined to read the fine print on Spot’s “financing.” One common issue involves consumer consent. According to the American Pet Products Association, 9 percent of dogs and 8 percent of cats are purchased in pet stores. Some retailers — precisely how many is unclear, as there are no official statistics — offer people a “financing” strategy that is, in reality, not a high-interest loan but a lease. Many buyers do not realize they are leasing until there is a problem. In other words, these practices are often deceptive. Technically, a pet lease is not signifi- cantly different from a car lease. Under such agreements, borrowers do not be- come owners until all the payments have been made (and a final balloon payment is typical). Fail to remit the monthly tab, and the property — or “product,” as some contracts describe the animals — can be repossessed. These leasing agreements generally aren’t cheap. Because a lease is not a credit agreement, it might not be subject to state laws that cap interest rates. People can ultimately pay two to three times the original price of the pet over the course of the contract — sometimes more. That’s predatory. But the bottom-line moral issue is that the pet’s human companion lacks full control over the animal. Pet ownership can feel, and be, com- plicated. Radical animal welfare and rights groups pushed several years ago to replace references such as pet “owner” with phrases like “dog guardians.” That didn’t really catch on, in part because the terminology defied reality. You might call

Fifi or Fido a companion, your daughter or son, or even your “favorite child,” yet under the law, a domesticated cat or dog, no matter how well loved, is considered property. Deeming yourself a parent or guardian doesn’t change this basic fact. This is the legal and emotional terrain that pet-leasing exploits. The ASPCA said last week that it was unaware of cases in which a pet had actually been seized for nonpayment. (Jennie Lintz, director of the ASPCA’s puppy mill initiative, told me in an email, “It is not clear these companies really want to be in the business of trying to resell a three-year-old dog.”) Yet several pet owners have publicly said that bill collectors threatened to reclaim their beloved pooch unless they handed over some cash. That’s financial exploitation and emotional abuse of people and their pets. When I reached out to Monterey Fi- nancial Services LLC, the California- based company that recently settled with Massachusetts, a spokesperson denied wrongdoing and said that the company settled only “to move away from the issue to best serve our clients.” It has “never repossessed... n or threatened to repos- sess a pet,” the company added. The Massachusetts settlement included an agreement to transfer full ownership of the dogs involved to hundreds of state residents. That’s a step in the right direction. But no company, in any state, should be able to financially squeeze a family pet over a credit dispute. Not only should other states ban animal leasing, but Congress should restrict the practice as well. Yes, dogs and cats are property, but they are also living, breathing creatures. Man’s best friend deserves better.

HELAINE OLEN

Stop the inhumane practice of renting pets

E

lon Musk has always been seriously weird, but his weirdings have rarely been serious. His periodic flights of fancy, like pricing Teslas in bitcoin, or musing about taking the company pri- vate, are simply the billionaire equivalent of getting a face tattoo — from the temporary tattoo booth at a school fair. Having now lived through, and covered, many of these brain spasms, I initially found it impossible to pay much attention to his latest fad. Yeah, Elon, I’m sure you’re going to buy Twitter, gut the moderation policies, and turn it back into a bastion of freewheeling, no-holds-barred commen- tary. That will absolutely happen... r ight after you buy Disney and move Disney World to Altoona. But Musk has gone and surprised me by lining up real letters of commitment from actual bankers to fund the acquisition, and I am starting to think that he actually wants to buy Twitter. Since this makes little financial sense, I guess he really does think he can make a difference by loosening Twit- ter’s content policies. Now, I am still skeptical that this will happen. For one thing, the board is hostile, which would make it tricky for Musk to close the deal. For another, there are plenty of reasons for Musk to get cold feet before any consummation. I mean, I too preferred the old, unmoderated Internet to today’s crowdsourced cultural revolution. But I probably wouldn’t risk seriously impairing my personal net worth to bring it back. Musk has much more money than I do, of course — about $264.6 billion more, in fact. But buying Twitter will cost him tens of billions, plus substantial financing and op- erational costs, which could add up to a billion a year. That’s a lot of money, even for him, especially since most of his net worth is illiquid, consisting of Tesla stock that would start to lose its value the minute he sold any appreciable amount. And aside from these hard financial real- ities, there are hard institutional ones to contemplate, too: Buying Twitter isn’t the same thing as making it into whatever Musk wants.

Ordinary people tend to think of ownership and control as functionally the same; I bought my house, I get to decide if I want to renovate. But homeowners making changes only have to worry about the local build- ing authority, the reliability of their general contractor and the laws of physics. They don’t have to contend with 7,500 employees with their own ideas about how the house should look — and who will, in many cases, fiercely resist attempted changes. Corporate renovations are a whole different level of difficulty. There are certainly policies Musk could alter by executive order, and thereby immediately improve the public discourse. He could rejigger the algo- rithms to show us tweets in simple reverse chronological order, rather than promoting the tweets most likely to “engage” us, which would make users less likely to encounter the latest highly engaging outrage. He could de-emphasize advertising, which would lessen advertiser pressure to ban offensive speech. He could ax the retweet- ing functions that promote the formation of cancellation mobs. All those things would make a big difference — but they would also probably make Twitter a less viable business, costing him a bunch of money. And probably the hardest thing to fix is the one thing that Musk’s fans (and maybe Musk himself) are imagining he can jetti- son: its moderation policies. Which brings us back to Twitter’s 7,500 workers. Twitter’s formal moderation policies are only one of the factors that determine what gets banned; at least as important is Twit- ter’s corporate culture, and the sensibilities of the employees who would make moderation decisions while Musk is off running Tesla. Whatever rules Musk sets, they are the ones who will police the gray zones — and there will always be gray zones, because no one, not even Elon Musk, wants a truly unmoderated space where child porn and spam tweets jostle with libel and copyright infringement for our attention, crowding out the interesting discussions we’d like to have. Changing a company’s culture is so notoriously difficult that bosses attempting turnarounds sometimes nuke it from orbit so they can start over: fire everyone and make them reapply for their jobs, or move the company to another city that most current workers don’t want to live in. But those aren’t practical options with a company the size of Twitter. The alternative is the slow and patient work of leadership, changing behaviors one hire, and one meeting, at a time. It can be done, but it is hard to imagine it being done by a boss who has another, bigger, company to run. Harder still when that boss is the whimsical Mr. Musk, whose attention never rests on any one project for long. That short attention span makes him an ideal customer for Twitter, but also a most unlikely savior.

MEGAN MCARDLE

Buying Twitter

is one thing.

Good luck

changing it.

Changing a company’s culture

is so notoriously difficult that

bosses attempting turnarounds

sometimes nuke it from orbit so

they can start over.

The Washington Post - USA (2022-04-25)

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