In “Started at the Bottom” Bobo has decided to tell us about four Hispanic young people who peel back the curtain into a different wiring of aspirations and loyalties than those held by the empirical kids he described in March. He could have used this column to repudiate the bigoted Heritage Foundation study by Jason Redwine, but he apparently chose not to do so. Prof. Krugman has a question in “Bernanke, Blower of Bubbles?” He asks, with all the talk about financial bubbles lately, do current bond and stock prices make sense? Here’s Bobo:
Not long ago, I devoted a column to the mostly upper-middle-class students at elite universities — the empirical kids. I thought it would be interesting to devote a column to students who at least started at the other end of the social scale. So the Times researcher Anne Snyder and I interviewed a bunch of young people whom we had met earlier through the Congressional Hispanic Caucus Institute.
Edgar Leon’s background was pretty typical. Both of his parents immigrated from Mexico. His mom does janitorial work in Chicago, while his dad commuted to Indiana to fix railroad lines.
These young people have been shaped by their awesome life trajectories, from poor neighborhoods, to college, to internships on Capitol Hill. Cristi Privado is the last of seven children and the only one to graduate from high school. Kimberly Lopez has a brother and a sister who dropped out of school in the 9th and 10th grades. Her sister got pregnant at 16. “I got lucky,” Kimberly explained.
None of them had pressuring parents who organized their children’s lives for success. “College was more of an encouragement in my home, less a given,” Edgar recalled.
Almost all of them experienced a life-altering move when they were teenagers. Reuben Kapp benefited from a school choice program that enabled him to move from an urban Michigan high school to a suburban one. “I’m a big believer in school choice,” he said. “If it wasn’t for choice, I wouldn’t be here.” Cristi’s parents took her from a poorly performing middle school and moved to Greenville, S.C. At her new school there, she fell in with the smart kids. She developed a taste for country music. She ended up as class president.
She was not babied in school. “Until I got to D.C., I never heard the word mentor. When I got here, it seemed that everybody has one,” Cristi joked.
Like several of the others, she was discouraged from applying to a competitive college. Cristi said her guidance counselor mentioned that her own son had been rejected by Clemson so Cristi shouldn’t apply. “That made me definitely want to apply.”
In college and at internships, they found a new world. “My mom and dad always worked the third shift. It dawned on me that some people leave work at 5 p.m.,” Edgar remembered.
Edgar lived at home while going to DePaul, commuting 45 minutes each way. “I was just going to class and going to work,” he noted, uncomplainingly. Cristi’s father died a month before graduation. She had to finish the term through her grief.
Most of the students had some trouble gelling with the whiter, richer student body in college and hung out mostly with fellow Hispanics. “We love our culture,” said Reuben. “That’s what makes our group stronger and bonds us together.” Now they seem to flow fluidly across cultural lines.
We met them as they were finishing a stint as Congressional staffers, often answering the phones and hearing the public rage about everything from the sequester to immigration reform.
All of them have experienced culture shock in coming to Washington. Kimberly observed, “I feel that here people will do whatever it takes to get to the top. It was really overwhelming at the beginning. Are they being sincere? I could never tell.” Edgar echoed that: “Everyone is on a mission. People are all about networking. How can we use each other to get what we want? Maybe there’s a lack of genuineness?”
Still, most wanted to stay in politics. As Kimberly put it: “I really want to go back to Delaware and seek elective office, whether it is local office or national office. To be president would be really cool.”
The economy has been bad during their adult lives, but they’ve been shooting upward. Anne Snyder and I both came away with the impression that they have fewer anxieties than the more affluent students or empirical kids, less of a fear that one false move can lead to disaster.
They seemed both hardy and a bit naïve, made more resilient by reality but not jaded by it. Their conversational styles were enthusiastic, grateful, direct and earnest. They seemed to us unself-conscious about how they present themselves — unironic, matter of fact, sincere and un-meta — not tripping in loops of self-awareness. They also have a less methodical sense of the exact steps you have to take to make it in the world.
Their ambitions were perpetually sandwiched by their affections. “I know people who move across the country for a job. They see their family once or twice a year. I could never do that,” Kimberly remarked.
Without even being asked, almost all of them burst into rhapsodies about their country. “I love the United States,” Reuben explained. “I have a lot of pride in the United States. I’m not a hockey fan, but when the American team is playing I go crazy.”
Now here’s Prof. Krugman:
Bubbles can be bad for your financial health — and bad for the health of the economy, too. The dot-com bubble of the late 1990s left behind many vacant buildings and many more failed dreams. When the housing bubble of the next decade burst, the result was the greatest economic crisis since the 1930s — a crisis from which we have yet to emerge.
So when people talk about bubbles, you should listen carefully and evaluate their claims — not scornfully dismiss them, which was the way many self-proclaimed experts reacted to warnings about housing.
And there’s a lot of bubble talk out there right now. Much of it is about an alleged bond bubble that is supposedly keeping bond prices unrealistically high and interest rates — which move in the opposite direction from bond prices — unrealistically low. But the rising Dow has raised fears of a stock bubble, too.
So do we have a major bond and/or stock bubble? On bonds, I’d say definitely not. On stocks, probably not, although I’m not as certain.
What is a bubble, anyway? Surprisingly, there’s no standard definition. But I’d define it as a situation in which asset prices appear to be based on implausible or inconsistent views about the future. Dot-com prices in 1999 made sense only if you believed that many companies would all turn out to be a Microsoft; housing prices in 2006 only made sense if you believed that home prices could keep rising much faster than buyers’ incomes for years to come.
Is there anything comparable going on in today’s bond market? Well, the interest rate on long-term bonds depends mainly on the expected path of short-term interest rates, which are controlled by the Federal Reserve. You don’t want to buy a 10-year bond at less than 2 percent, the current going rate, if you believe that the Fed will be raising short-term rates to 4 percent or 5 percent in the not-too-distant future.
But why, exactly, should you believe any such thing? The Fed normally cuts rates when unemployment is high and inflation is low — which is the situation today. True, it can’t cut rates any further because they’re already near zero and can’t go lower. (Otherwise investors would just sit on cash.) But it’s hard to see why the Fed should raise rates until unemployment falls a lot and/or inflation surges, and there’s no hint in the data that anything like that is going to happen for years to come.
Why, then, all the talk of a bond bubble? Partly it reflects the correct observation that interest rates are very low by historical standards. What you need to bear in mind, however, is that the economy is also in especially terrible shape by historical standards — once-in-three-generations terrible. The usual rules about what constitutes a reasonable level of interest rates don’t apply.
There’s also, one has to say, an element of wishful thinking here. For whatever reason, many people in the financial industry have developed a deep hatred for Ben Bernanke, the Fed chairman, and everything he does; they want his easy-money policies ended, and they also want to see those policies fail in some spectacular fashion. As it turns out, however, dislike for bearded Princeton professors is not a good basis for investment strategy.
And one should never forget the example of Japan, where bets against government bonds — justified by more or less the same arguments currently made to justify claims of a U.S. bond bubble — ended in grief so often that the whole trade came to be known as the “widow maker.” At this point, Japan’s debt is well over twice its G.D.P., its budget deficit remains large, and the interest rate on 10-year bonds is 0.6 percent. No, that’s not a misprint.
O.K., what about stocks? Major stock indexes are now higher than they were at the end of the 1990s, which can sound ominous. It sounds a lot less ominous, however, when you learn that corporate profits — which are, after all, what stocks are shares in — are more than two-and-a-half times higher than they were when the 1990s bubble burst. Also, with bond yields so low, you would expect investors to move into stocks, driving their prices higher.
All in all, the case for significant bubbles in stocks or, especially, bonds is weak. And that conclusion matters for policy as well as investment.
For one important subtext of all the recent bubble rhetoric is the demand that Mr. Bernanke and his colleagues stop trying to fight mass unemployment, that they must cease and desist their efforts to boost the economy or dire consequences will follow. In fact, however, there isn’t any case for believing that we face any broad bubble problem, let alone that worrying about hypothetical bubbles should take precedence over the task of getting Americans back to work. Mr. Bernanke should brush aside the babbling barons of bubbleism, and get on with doing his job.