Dow Jones Reprints: This copy is for your personal, non-commerical use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool on any article or visit

Editorial Commentary


Twisting the Night Away

The Fed's new policy is not better than nothing.

Publish or Perish

Who knew that Chubby Checker was an economist? We haven't done the twist since 1962 or thereabouts, and we weren't very good at it back then, when all our vertebrae were in alignment. Dare we say that we preferred slow dancing?

Let's give Chubby a chance, say Chairman Ben Bernanke and the majority of members of the Federal Open Market Committee:
Let's twist again like we did last summer,
Let's twist again like we did last year,
Do you remember when things were really hummin'?
Let's twist again, twistin' time is here.
Round 'n around 'n up 'n down we go,
Oh baby make me know you love me so,
Let's twist again like we did last summer,
Let's twist again, twistin' time is here.

"Round 'n around 'n up 'n down" indeed. The Federal Reserve keeps trying to flood the country with money, to drive down interest rates and goose the economy. We hardly remember when "things were really hummin,'' nor do we remember the last time that loose monetary policy actually produced the desired results.

Maybe Chubby wasn't an economist but a fortune teller with an extremely long view. The "last year" he sang about was 1960, when his version of "The Twist" first made the top of Billboard's pop chart.

The next year, which was the first year of the Kennedy Administration, the U.S. Treasury and the Federal Reserve tried to move down long-term interest rates to "get the economy moving again." The Treasury issued more short bills and notes than usual while the Fed went into the market and soaked up long bonds. Wall Street wags dubbed it Operation Twist, in homage to Chubby Checker. It was trying to tie the yield curve in a knot.

As a song and a dance, the twist was a sensation, capturing the No. 1 spot two times. "Let's Twist Again" earned Chubby a Grammy. Chubby and a legion of rhythm-and-blues artists went on to crack the white-bread side of the music business, often introducing new songs about dances that came ever closer to vertical copulation.

But the Fed's Operation Twist was a modest technical success, at best. During the four months of twisting in early 1961, long Treasury rates fell about 15 basis points—just 0.15 of a percentage point—according to Titan Alon and Eric Swanson, economists at the San Francisco Federal Reserve Bank. Yet the change in Treasury rates hardly carried over to long corporate-bond rates, which fell not more than four basis points, and no stimulation of the commercial economy was detected.

It was barely statistically significant and economically trivial, and no better can be expected from Operation Twist II, which is smaller, relative to the size of gross domestic product, than the operation 50 years ago.

Militant macroeconomists say that neither Operation Twist I or II could succeed because they were both too mild. Expanding the Fed's balance sheet on the long end while shrinking it on the short end is like a dieter skimping on breakfast, gorging on lunch, eschewing pasta at dinner and having a nice piece of chocolate cake at dessert.

Of course the real militants also say that QE 1 and QE 2, the Fed's previous monetizing of debt, failed because the easing lacked sufficient punch. They want more money, and more, and more.

Paul Volcker knows what happens then, even if other economists ignore the 1970s.

"If, in desperation, we turn to deliberately seeking inflation to solve real problems—our economic imbalances, sluggish productivity and excessive leverage—we would soon find that a little inflation doesn't work. Then the instinct will be to do a little more—a seemingly temporary and 'reasonable' 4% becomes 5, and then 6 and so on," Volcker wrote last week.

He added, "What we know, or should know, from the past is that once inflation becomes anticipated and ingrained—as it eventually would—then the stimulating effects are lost. Once an independent central bank does not simply tolerate a low level of inflation as consistent with 'stability,' but invokes inflation as a policy, it becomes very difficult to eliminate."

Please, no more twisting. Play it straight. No more manipulation of the dollar to "get things really hummin.'" Please, Mr. DJ, put some slow music on the economic turntable. 

Publish or Perish

Users regulate Google better than any government

Google and its Chairman, Eric Schmidt, are the targets of impertinent (in both senses of the word) federal officials these days. The Federal Trade Commission is trying to make a case that Google has monopoly power over Internet advertising—not only ignoring the 35% market share of its online rivals, but also ignoring the vast competing market for advertising in other media.

And the Senate's antitrust subcommittee brought Schmidt to Washington last week to sit in a witness chair to listen to lawyers' speeches and a comic's monologue.

The comic, Sen. Al Franken of Minnesota, used to make his living under the protection of the First Amendment. But he dismissed Google's First Amendment rights as a publisher of search results.

Franken suggested to a Google lawyer at the hearing that maybe a committee should review Google's search algorithm to provide assurances that Google treats everyone equally. "Voluntarily," of course.

She replied mildly that it sounded like "another word for regulation." But she didn't take the next step: Google does not have to treat everyone equally. Maybe it would be nice if it did, but the First Amendment gives Google a right to publish its results without fear, even if it favors its own products or those of people that pay the company. If users notice that Google abuses this privilege, and if they care, they will use another search engine.

Publishers do not have to be fair or accurate as a matter of law; the market of consumers tells us all what standards to follow. Google is well regulated in the market, and the market needs no help from the FTC or the U.S. Senate.

Editorial page editor THOMAS G. DONLAN receives e-mail at

Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit

  • Email
  • Print
  • Reprints

Real-Time Analysis

Get Emails from Barron's