Negative interest rates

It’s not unusual for interest rates to be negative in the sense of being lower than the rate of inflation. If the Federal Reserve pushes interest rates below inflation to stimulate growth, it becomes cheaper to borrow and buy something now than to wait to make the purchase. If you wait, inflation could make prices go up by more than what you owe on the loan. You can also think of it as inflation reducing the effective amount you owe.
 
What is rarer is for interest rates to go negative on a nominal basis—i.e., even before accounting for inflation. The theory was always that if you tried to impose a negative nominal rate, people would just take their money from the bank and store cash in a private vault or under a mattress to escape the penalty of paying interest on their own money. When the Federal Reserve slashed the federal funds rate in 2008 to combat the worst financial crisis since the Great Depression, it stopped cutting at zero to 0.25 percent, which it assumed to be the absolute floor, the zero lower bound. It turned to buying bonds (“quantitative easing”) to lower long-term rates and give the economy more juice.
 
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Now comes the interesting part. There are signs of an innovation war over negative interest rates. There’s a surge of creativity around ways to drive interest rates deeper into negative territory, possibly by abolishing cash or making it depreciable. And there’s a countersurge around how to prevent rates from going more deeply negative, by making cash even more central and useful than it is now. As this new world takes shape, cash becomes pivotal.
 

Fascinating. It's understandable why banks would want to move to a cashless society, but it might not be a bad idea. The mindset shift required might take a generation or two to overcome, cultural inertia being such a powerful force. What usually wipes the slate clean, as morbid as it may be, is simply the dying off of the previous generation.

Heist movies would be a lot less fun minus Brinks armored trucks and giant vaults filled with cash. I'm fine with a cashless society, but I may be more trusting of government than the average citizen. Those less trusting in government might be more inclined to have a virtual currency like Bitcoin replace cash, but virtual currencies come with technological opacity for the average person that carries its own trust issues.

Like chemotherapy, negative interest rates are a harsh medicine. It’s disorienting when people are paid to borrow and charged to save. “Over time, market disequilibria are dangerous,” G+ Economics Chief Economist Lena Komileva wrote to clients on April 21. Which side of the debate you fall on probably comes down to how much you trust government. On one side, there’s an argument to be made that cash has become what John Maynard Keynes once called gold: a barbarous relic. It thwarts monetary policy and makes life easy for criminals and tax evaders: Seventy-eight percent of the value of American currency is in $100 bills. On the other side, if you’re afraid that central banks are in a war against savers, or that the government will try to control your financial affairs, cash is your best defense. Taking it away “is a prescription for revolution,” Cecchetti says. The longer rates break on through to the other side, the more pressing these questions become.

Neighborhood destiny

A new study by the Harvard economists Raj Chetty and Nathaniel Hendren, when read in combination with an important study they wrote with Lawrence Katz, makes the most compelling case to date that good neighborhoods nurture success. (The Upshot has just published a package of articles and interactives on the study.)
 
Let me be upfront about my own reading: These two new studies are the most powerful demonstration yet that neighborhoods — their schools, community, neighbors, local amenities, economic opportunities and social norms — are a critical factor shaping your children’s outcomes. It’s an intuitive idea, although the earlier evidence for it had been surprisingly thin. As Sean Reardon, a professor of education and sociology at Stanford, said of the study, “I think it will change some of the discussion around how where children grows up matters.”
 

That's Justin Wolfers on this paper (PDF) by Chetty and Hendren.

Those earlier analyses grouped children who moved to a neighborhood as toddlers with those who moved in their late teens. So comparing all of the children whose parents won the lottery with all of those whose parents lost showed small effects. Yet if what matters are years of exposure to a good neighborhood — a hypothesis strongly suggested by the second of these two studies — then the effects might be very different, as those who moved as toddlers enjoyed most of their childhood in better neighborhoods, while those who moved as teens received few such benefits yet still had to deal with the disruption of moving.
 
Armed with this hypothesis and also newer data on the longer-run outcomes of these children, Mr. Chetty, Mr. Hendren and Mr. Katz reanalyzed the outcomes of the same families. (Full disclosure: Lawrence Katz was my Ph.D. adviser.)
 
And the findings are remarkable. In particular, the previous results actually hide two quite distinct findings, one positive and one negative. The children who moved when they were young enjoyed much greater economic success than similarly aged children who had not won the lottery. And the children who moved when they were older experienced no gains or perhaps worse outcomes, probably the result of a disruptive move, paired with few benefits from spending only a short time in a better neighborhood.
 

As Tyler Cowen notes, the biggest problem with poverty tends to be “you usually end up living near other poor people.” Or, as Judith Rich Harris wrote in her groundbreaking book The Nurture Assumption, a children's peer group may have a great influence on that child's outcomes than their parents. I first learned all this from Boyz in the Hood.

How does this square with the popular theory that general intelligence is most important to one's future outcome? I hypothesize some interaction effects between the two, with the right neighborhood being an environment most conducive to wringing all the potential from genetically inherited general intelligence. Peer emulation or peer pressure exerting an activation effect.

Whatever the reason, it's clear how complex it is to break the cycle of poverty. So many nested problems, from education to urban planning to crime, all nearly impossible to isolate.

Light

The smartphone is the dominant camera in the world now, combining best in class portability with good enough quality. I still own an SLR, though, because for some special situations, the superior lens selection and larger sensor is worth its larger form factor (among other qualities).

Light is a company with a novel approach to bringing smartphone cameras up to SLR quality.

Rather than hewing to this one-to-one ratio, Light aims to put a bunch of small lenses, each paired with its own image sensor, into smartphones and other gadgets. They’ll fire simultaneously when you take a photo, and software will automatically combine the images. This way, Light believes, it can fit the quality and zoom of a bulky, expensive DSLR camera into much smaller, cheaper packages—even phones.
 
Light is still in the early stages, as it doesn’t yet have a prototype of a full product completed. For now it just has camera modules whose pictures can be combined with its software. But the startup says it expects the first Light cameras, with 52-megapixel resolution, to appear in smartphones in 2016.
 

Artist's rendering of what a Light camera array on a smartphone might look like.

I've been curious to see how smartphones continue to improve camera quality. This seems like one credible vector.

RIP Josh Ozersky

I came to embrace a martial philosophy not through any insight of my own but by once getting so mad that I forgot to be a bad cook. I was fighting with my first wife one winter night and I stomped into the kitchen, recklessly jacked up the heat under my cast-iron pan, and slammed a steak onto its smoking surface. I was rewarded, almost instantaneously, with the violent secret of meat. My rage spent, I found a surface of burnished mahogany and an interior still red and raw. I took my time bringing the meat to medium-rare and ate it with a feeling of triumph. Meat, I now understood, called forth not measured skill but courage and animal aggression. Finally, I was in control.
 

From The Violent Secret of Meat by Josh Ozersky, published in Esquire in 2013. Ozersky died this past Monday in Chicago, just before the James Beard awards. I did not know him, though I knew of him through Grub Street, the food blog he founded and which I read when I lived in NYC. The man could spin a sentence about food, as the passage above shows, and I don't say that about too many people with the thankless job of having toput words together to describe food or music.

NY Mag friend and coworker Adam Platt remembers Ozersky.

But I also think that he was the closest thing to a real Liebling-esque figure in this increasingly gaseous world of food writing that we have. Like Liebling, he was an outsider and a glutton who loved sports. The only difference — well, of course, there were a lot of differences — was that Leibling wrote about that world, while Josh actually lived in it.
 
That’s part of why Josh hated Brooklyn the way he did. Professionally he lived there, but publicly he hated it. He thought it had become prissy and pompous, and like all old-fashioned New Yorkers, he viewed it as a place of exile. He hungered for recognition and life in the emerald city. I like to think he found peace in his marriage to Danit, and I like to think he found peace out in Portland, which, when you come to think of it, is an idealized, platonic version of Brooklyn without all the excess baggage. It was much more peaceful, he was under less pressure, he could come and go, and write his Esquire pieces and do his videos and his Meatopia without getting too close to the fire, without getting burnt to a crisp. Pete Wells wrote in the Times that Josh was last seen at a karaoke bar in Chicago singing his giant lungs out at 4 a.m. That’s Mr. Cutlets, more or less in a nutshell. That is how he would want to be remembered.