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Are central bankers tinkering with interest rates too much?
Central banks face a Herculean task to keep economies right-side up.
- In the shadow of COVID-19, we're rapidly approaching the point where there's nothing to buy, and no one has any money to buy it with.
- Central bankers have responded to the coronavirus's economic fallout by tinkering with interest rates and instituting quantitative easing (QE) plans.
- Artificially lowering interest rates essentially incentivizes debt and discourages fiscal responsibility, whereas other measures, such as subsidized furloughs, may be more effective and better suited to the current situation.
The coronavirus outbreak is bringing fears for the world's economic health – not just its physical health. The global economy was in difficult shape to begin with, due to international trade wars and rising global debt, but now, to a great degree, economic activity has come to a full stop.
Spending has plummeted, and businesses have closed, with the knock-on effect of pushing unemployment through the roof. Factories are shuttered, so production has fallen along with demand. The world's financial markets are spiraling downwards: The S&P has fallen 20 percent since the beginning of the quarter; the Dow Jones is down more than 23 percent; the NASDAQ lost over 1,300 points in three months.
We're rapidly approaching the point where there's nothing to buy, and no one has any money to buy it with.
Central bankers like Jerome Powell, head of the Federal Reserve; Andrew Bailey, head of the Bank of England, central bank of the UK; and Christine Lagarde, head of the EU's European Central Bank (ECB), face a Herculean task to keep their economies right-side up.
They need to deal with the short-term economic spiral as markets, cities, and entire sectors shut down. And on another level, they also need to prevent long-term economic decline that can result from fears of volatile markets, the destruction of numerous SMEs and even larger corporations, and unemployment stretching into a long-term problem as businesses fail to get back on their feet.
We're seeing central bankers primarily respond by tinkering with interest rates and quantitative easing (QE) plans:
- The Federal Reserve led the way, cutting interest rates to almost 0 percent, promising to buy unlimited amounts of treasury bonds and mortgage-backed securities as needed, and agreeing to buy some corporate and municipal debt.
- The Bank of England suddenly cut interest rates to 0.25 percent, then cut them again to 0.1 percent, alongside a promise to buy £200 billion in government bonds.
- The ECB didn't cut interest rates, presumably because they are already at -0.5 percent. This initially provoked a volatile few days for the euro, but it stabilized, and the eurozone has rallied, thanks to the ECB's announcement of a €750 billion QE stimulus package.
The danger is that rate cuts and QE plans may be entirely the wrong approach. Here's why.
Adjusting interest rates could be actively damaging
Interest rates cuts have long been the tool of choice for central banks, but that doesn't mean they're the right tool.
Artificially lowering interest rates essentially incentivizes debt and discourages fiscal responsibility at times when businesses and individuals need to focus on being frugal and sustainable. As a generation saw huge amounts wiped off their pensions, they learned to stop saving and embrace the debt. Businesses and whole governments took the same approach, borrowing more and more in order to invest in their own expansion.
While this creates an image of a healthy economy, it's just a dangerous mirage. Much of the developed world now inhabits an unsteady bubble of personal debt, corporate debt, and government debt, encouraged by the consistently low interest rates, leaving no one able to bear a recession when interest rates have nowhere to go but up.
As Peter Schiff, CEO of Euro Pacific Capital, puts it, the current crisis isn't caused by COVID-19, but by the unsustainable bubble of debt. "Too many analysts are focusing on the pin that burst the bubble, but the problem is really the bubble not the pin," he notes. Indeed, many pundits had long predicted a recession in early 2020 – it's easy to argue that if it hadn't been sparked by coronavirus, it would have been sparked by something else.
In this context, cutting interest rates is simply not helpful and is actively damaging. These steps only increase the amount of debt borne by central banks, inflate the bubble further, and make the situation worse. The recent Federal Reserve interest rate cut didn't help stabilize the markets much, showing that investors no longer have much faith in rate cuts.
What are we seeking to incentivize, anyway? Does society really benefit by people having the discretionary income to spend more time in stores and restaurants? The nature of the current situation calls for a specific type of austerity.
On the other hand, it's true that raising interest rates now would be similarly catastrophic. What businesses need right now is enough cash to stay afloat until after the initial crisis has passed.
Central banks can be more creative when pressed
Alongside the interest rate cuts and QE measures, we are seeing some more creative moves. The Federal Reserve agreed to buy some corporate and municipal debt, which is, admittedly, another QE measure but also a way of promising cash to large corporations. However, they are only offering this to corporations above a certain scale, which could be problematic because there are so many companies that don't pass the bar.
The Federal Reserve also moved to make it easier for banks to give loans to small businesses, expanding SBA loans and opening a lending facility that will allow it to buy securities backed by student, auto, credit card, and SBA business loans. But this might not be enough to keep small businesses afloat, and the plan to support SMBs is vague and has no start date. Plus, as mentioned above, such measures only encourage the debt bubble to increase.
We are seeing more creative measures from other central bankers.
In the UK, a £350 billion stimulus package includes a government guarantee to pay workers' wages at 80 percent of their pre-corona amount, as well as a £9 billion package to support the self-employed. While the package also involves quantitative easing and the offer of government-backed loans to small businesses, which perpetuates the debt cycle, these steps should help ensure that businesses still exist post-corona and people still have jobs, so the economy can pick up again in a more natural way.
Denmark's ambitious 90-day Temporary Compensation Scheme, moreover, is particularly compelling. Essentially a variant of unemployment insurance, this is "a temporary program of public furlough assistance that allows firms to place workers on paid leaves of absence," as MIT Assistant Professor of Finance Daniel Greenwald describes it.
Greenwald sees this as a great option for the U.S., since "The businesses would be required to maintain each worker's health coverage during the furlough, and return them to employment afterwards." Plus, no incentivized debt and no unnecessary spreading of COVID-19 infection.As a whole, though, the EU has its hands full. The ECB's €750 billion emergency fund focused on QE measures, promising to buy government bonds to shore up the sovereign and corporate debt that threatens to cripple some economies. The ECB is also offering €3 trillion of liquidity through refinancing operations at -0.75 percent. These steps will probably have disastrous long-term effects on eurozone inflation, but it's difficult to see what else the ECB could have done when Italy and Spain are on their economic knees.
A cure that’s worse than the malady
While the recession we're entering was precipitated by the coronavirus, it was probably inevitable even without the health scare and its domino effect. Interest rate cuts and QE measures are the first weapon of choice for central banks, but they are arguably the true cause of any ongoing economic woes.
Central banks that focus on measures to keep workers in jobs and businesses solvent are taking the right steps to deal with the short-term trauma of corona-induced slowdown, but they may not be able to prevent the long-term fallout of years of a fiscal policy that kept rates low, debt high, and savings non-existent.
- How the Fed Caused the Crisis - Big Think ›
- We are entering a recession – but what did we learn from the last one? ›
- What happens if America defaults on its debt? - Big Think ›
Inventions with revolutionary potential made by a mysterious aerospace engineer for the U.S. Navy come to light.
- U.S. Navy holds patents for enigmatic inventions by aerospace engineer Dr. Salvatore Pais.
- Pais came up with technology that can "engineer" reality, devising an ultrafast craft, a fusion reactor, and more.
- While mostly theoretical at this point, the inventions could transform energy, space, and military sectors.
The U.S. Navy controls patents for some futuristic and outlandish technologies, some of which, dubbed "the UFO patents," came to light recently. Of particular note are inventions by the somewhat mysterious Dr. Salvatore Cezar Pais, whose tech claims to be able to "engineer reality." His slate of highly-ambitious, borderline sci-fi designs meant for use by the U.S. government range from gravitational wave generators and compact fusion reactors to next-gen hybrid aerospace-underwater crafts with revolutionary propulsion systems, and beyond.
Of course, the existence of patents does not mean these technologies have actually been created, but there is evidence that some demonstrations of operability have been successfully carried out. As investigated and reported by The War Zone, a possible reason why some of the patents may have been taken on by the Navy is that the Chinese military may also be developing similar advanced gadgets.
Among Dr. Pais's patents are designs, approved in 2018, for an aerospace-underwater craft of incredible speed and maneuverability. This cone-shaped vehicle can potentially fly just as well anywhere it may be, whether air, water or space, without leaving any heat signatures. It can achieve this by creating a quantum vacuum around itself with a very dense polarized energy field. This vacuum would allow it to repel any molecule the craft comes in contact with, no matter the medium. Manipulating "quantum field fluctuations in the local vacuum energy state," would help reduce the craft's inertia. The polarized vacuum would dramatically decrease any elemental resistance and lead to "extreme speeds," claims the paper.
Not only that, if the vacuum-creating technology can be engineered, we'd also be able to "engineer the fabric of our reality at the most fundamental level," states the patent. This would lead to major advancements in aerospace propulsion and generating power. Not to mention other reality-changing outcomes that come to mind.
Among Pais's other patents are inventions that stem from similar thinking, outlining pieces of technology necessary to make his creations come to fruition. His paper presented in 2019, titled "Room Temperature Superconducting System for Use on a Hybrid Aerospace Undersea Craft," proposes a system that can achieve superconductivity at room temperatures. This would become "a highly disruptive technology, capable of a total paradigm change in Science and Technology," conveys Pais.
High frequency gravitational wave generator.
Credit: Dr. Salvatore Pais
Another invention devised by Pais is an electromagnetic field generator that could generate "an impenetrable defensive shield to sea and land as well as space-based military and civilian assets." This shield could protect from threats like anti-ship ballistic missiles, cruise missiles that evade radar, coronal mass ejections, military satellites, and even asteroids.
Dr. Pais's ideas center around the phenomenon he dubbed "The Pais Effect". He referred to it in his writings as the "controlled motion of electrically charged matter (from solid to plasma) via accelerated spin and/or accelerated vibration under rapid (yet smooth) acceleration-deceleration-acceleration transients." In less jargon-heavy terms, Pais claims to have figured out how to spin electromagnetic fields in order to contain a fusion reaction – an accomplishment that would lead to a tremendous change in power consumption and an abundance of energy.
According to his bio in a recently published paper on a new Plasma Compression Fusion Device, which could transform energy production, Dr. Pais is a mechanical and aerospace engineer working at the Naval Air Warfare Center Aircraft Division (NAWCAD), which is headquartered in Patuxent River, Maryland. Holding a Ph.D. from Case Western Reserve University in Cleveland, Ohio, Pais was a NASA Research Fellow and worked with Northrop Grumman Aerospace Systems. His current Department of Defense work involves his "advanced knowledge of theory, analysis, and modern experimental and computational methods in aerodynamics, along with an understanding of air-vehicle and missile design, especially in the domain of hypersonic power plant and vehicle design." He also has expert knowledge of electrooptics, emerging quantum technologies (laser power generation in particular), high-energy electromagnetic field generation, and the "breakthrough field of room temperature superconductivity, as related to advanced field propulsion."
Suffice it to say, with such a list of research credentials that would make Nikola Tesla proud, Dr. Pais seems well-positioned to carry out groundbreaking work.
A craft using an inertial mass reduction device.
Credit: Salvatore Pais
The patents won't necessarily lead to these technologies ever seeing the light of day. The research has its share of detractors and nonbelievers among other scientists, who think the amount of energy required for the fields described by Pais and his ideas on electromagnetic propulsions are well beyond the scope of current tech and are nearly impossible. Yet investigators at The War Zone found comments from Navy officials that indicate the inventions are being looked at seriously enough, and some tests are taking place.
If you'd like to read through Pais's patents yourself, check them out here.
Laser Augmented Turbojet Propulsion System
Credit: Dr. Salvatore Pais
Tips from neuroscience and psychology can make you an expert thinker.
This article was originally published on Big Think Edge.
Problem-solving skills are in demand. Every job posting lists them under must-have qualifications, and every job candidate claims to possess them, par excellence. Young entrepreneurs make solutions to social and global problems the heart of their mission statements, while parents and teachers push for curricula that encourage critical-thinking methods beyond solving for x.
It's ironic then that we continue to cultivate habits that stunt our ability to solve problems. Take, for example, the modern expectation to be "always on." We push ourselves to always be working, always be producing, always be parenting, always be promoting, always be socializing, always be in the know, always be available, always be doing. It's too much, and when things are always on all the time, we deplete the mental resources we need to truly engage with challenges.
If we're serious about solving problems, at work and in our personal lives, then we need to become more adept at tuning out so we can hone in.
Solve problems with others (occasionally)
A side effect of being always on is that we are rarely alone. We're connected through the ceaseless chirps of friends texting, social media buzzing, and colleagues pinging us for advice everywhere we go. In some ways, this is a boon. Modern technologies mediate near endless opportunities for collective learning and social problem-solving. Yet, such cooperation has its limits according to a 2018 study out of Harvard Business School.
In the study, participants were divided into three group types and asked to solve traveling salesman problems. The first group type had to work on the problems individually. The second group type exchanged notes after every round of problem-solving while the third collaborated after every three rounds.
The researchers found that lone problem-solvers invented a diverse range of potential solutions. However, their solutions varied wildly in quality, with some being true light bulb moments and others burnt-out duds. Conversely, the always-on group took advantage of their collective learning to tackle more complex problems more effectively. But social influence often led these groups to prematurely converge around a single idea and abandon potentially brilliant outliers.
It was the intermittent collaborators who landed on the Goldilocks strategy. By interacting less frequently, individual group members had more time to nurture their ideas so the best could shine. But when they gathered together, the group managed to improve the overall quality of their solutions thanks to collective learning.
In presenting their work, the study's authors question the value of always-on culture—especially our submissiveness to intrusions. "As we replace those sorts of intermittent cycles with always-on technologies, we might be diminishing our capacity to solve problems well," Ethan Bernstein, an associate professor at Harvard Business School and one of the study's authors, said in a press release.
These findings suggest we should schedule time to ruminate with our inner geniuses and consult the wisdom of the crowd. Rather than dividing our day between productivity output and group problem-solving sessions, we must also create space to focus on problems in isolation. This strategy provides the best of both worlds. It allows us to formulate our ideas before social pressure can push us to abandon them. But it doesn't preclude the group knowledge required to refine those ideas.
And the more distractions you can block out or turn off, the more working memory you'll have to direct at the problem.
A problem-solving booster
The next step is to dedicate time to not dealing with problems. Counterintuitive as it may seem, setting a troublesome task aside and letting your subconscious take a crack at it improves your conscious efforts later.
How should we fill these down hours? That's up to you, but research has shown time and again that healthier habits produce hardier minds. This is especially true regarding executive functions—a catchall term that includes a person's ability to self-control, meet goals, think flexibly, and, yes, solve problems.
"Exercisers outperform couch potatoes in tests that measure long-term memory, reasoning, attention, problem-solving, even so-called fluid-intelligence tasks. These tasks test the ability to reason quickly and think abstractly, improvising off previously learned material to solve a new problem. Essentially, exercise improves a whole host of abilities prized in the classroom and at work," writes John Medina, a developmental molecular biologist at the University of Washington.
One such study, published in the Frontiers in Neuroscience, analyzed data collected from more than 4,000 British adults. After controlling for variables, it found a bidirectional relationship between exercise and higher levels of executive function over time. Another study, this one published in the Frontiers in Aging Neuroscience, compared fitness data from 128 adults with brain scans taken as they were dual-tasking. Its findings showed regular exercisers sported more active executive regions.
Research also demonstrates a link between problem-solving, healthy diets, and proper sleep habits. Taken altogether, these lifestyle choices also help people manage their stress—which is known to impair problem-solving and creativity.
Of course, it can be difficult to untangle the complex relationship between cause and effect. Do people with healthy life habits naturally enjoy strong executive functions? Or do those habits bolster their mental fitness throughout their lives?
That's not an easy question to answer, but the Frontiers in Neuroscience study researchers hypothesize that it's a positive feedback loop. They posit that good sleep, nutritious food, and regular exercise fortify our executive functions. In turn, more potent executive decisions invigorate healthier life choices. And those healthy life choices—you see where this is going.
And while life choices are ultimately up to individuals, organizations have a supportive role to play. They can foster cultures that protect off-hours for relaxing, incentivize healthier habits with PTO, and prompt workers to take time for exercise beyond the usual keyboard calisthenics.
Nor would such initiatives be entirely selfless. They come with the added benefit of boosting a workforce's collective problem-solving capabilities.
Live and learn and learn some more
Another advantage of tuning out is the advantage to pursue life-long learning opportunities. People who engage in creative or problem-solving activities in their downtime—think playing music, puzzles, and even board games—show improved executive functions and mental acuity as they age. In other words, by learning to enjoy the act of problem-solving, you may enhance your ability to do so.
Similarly, lifelong learners are often interdisciplinary thinkers. By diving into various subjects, they can come to understand the nuances of different skills and bodies of knowledge to see when ideas from one field may provide a solution to a problem in another. That doesn't mean lifelong learners must become experts in every discipline. On the contrary, they are far more likely to understand where the limits of their knowledge lie. But those self-perceived horizons can also provide insight into where collaboration is necessary and when to follow someone else's lead.
In this way, lifelong learning can be key to problem-solving in both business and our personal lives. It pushes us toward self-improvement, gives us an understanding of how things work, hints at what's possible, and, above all, gives us permission to tune out and focus on what matters.
Cultivate lifelong learning at your organization with lessons 'For Business' from Big Think Edge. At Edge, more than 350 experts, academics, and entrepreneurs come together to teach essential skills in career development and lifelong learning. Heighten your problem-solving aptitude with lessons such as:
- Make Room for Innovation: Key Characteristics of Innovative Companies, with Lisa Bodell, Founder and CEO, FutureThink, and Author, Why Simple Wins
- Use Design Thinking: An Alternative Approach to Tackling the World's Greatest Problems, with Tim Brown, CEO and President, IDEO
- The Power of Onlyness: Give Your People Permission to Co-Create the Future, with Nilofer Merchant, Marketing Expert and Author, The Power of Onlyness
- How to Build a Talent-First Organization: Put People Before Numbers, with Ram Charan, Business Consultant
- The Science of Successful Things: Case Studies in Product Hits and Flops, with Derek Thompson, Senior Editor, The Atlantic, and Author, Hit Makers
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The Rijksmuseum employed an AI to repaint lost parts of Rembrandt's "The Night Watch." Here's how they did it.
- In 1715, Amsterdam's Town Hall sliced off all four outer edges of Rembrandt's priceless masterpiece so that it would fit on a wall.
- Neural networks were used to fill in the missing pieces.
- An unprecedented collaboration between man and machine is now on display at the Rijksmuseum.
Robert Erdmann, a senior scientist working for the Rijksmuseum, cannot help but smile when I ask him to explain — in as much detail as possible — how exactly he used artificial intelligence to recreate long-lost portions of Rembrandt van Rijn's most famous painting, The Night Watch (1642). "Most people just want the elevator pitch," he tells me over Zoom.
The Night Watch is a mammoth of a painting, and it used to be even bigger. In 1715, it came into the possession of the bureaucrats in charge of Amsterdam's Town Hall. In order to fit it on their wall, they sliced off all four outer edges of Rembrandt's priceless masterpiece, inadvertently creating the compromised version we know today.
Rembrandt's "The Night Watch," with the missing edges shown in black.
The missing pieces of "The Night Watch" were never recovered, but we know what they looked like thanks to Gerrit Lundens, a contemporary of Rembrandt who copied the painting when it was complete. These missing sections depict the top of the arch, a balustrade at the bottom, and two soldiers of Frans Banninck Cocq's militia company that stood at the far left.
Though the absence of these elements does not make "The Night Watch" any less impressive, their presence greatly alters the painting's look and feel. The balustrade emphasizes the company's movement forward. Together, the four missing pieces shift the principal figures — Cocq and Willem van Ruytenburch — to the right, creating a more compelling composition.
Copy of "The Night Watch" by Gerrit Lundens.
As part of Operation Night Watch, a multimillion-dollar restoration mission, the Rijksmuseum set out to recreate these missing pieces of the painting to show visitors The Night Watch as Rembrandt had originally constructed it. One easy way to do this would be to upload the smaller Lundens copy into Photoshop, blow it up by a factor of five, print it out, and call it a day.
Easy, but far from adequate. As Erdmann puts it: "There's nothing wrong with using an artist like that. However, the final product would still contain traces of that artist's own style." For Erdmann, the only viable solution was to create a series of neural networks — software that mimics the human brain through the use of artificial neurons — to transform the Lundens copy into an "original" Rembrandt.
Humans, unlike computers, aren't able to make perfect copies. Faithful though Lundens' painting is — especially in its visual detail, for example, the number of buttons on a coat, plumes on a feather, or engravings on a halberd — it still contains a myriad of miniscule differences that prevented Erdmann from simply copy-pasting it onto the original.
Perspective was the first and arguably most important item on Erdmann's list. "The geometric correspondence is pretty good at the bottom of the copy," he says. "At the top, that correspondence starts to fall apart; the composition looks stretched out, supposedly because Lundens was unable to reach the top of the painting to get its precise measurements."
Lundens' copy, adjusted for perspective by the AI.
After creating a neural network that could identify corresponding elements in both versions of The Night Watch — from faces and hands to clothing and weapons — Erdmann made a second neural network that could stretch, rotate, foreshorten, compress, and decompress the Lundens copy so that its measurements matched the Rembrandt original as closely as possible.
According to Erdman, this step was "a guide to where we should place the figures on the left, because they need to be consistent with the extrapolation from the original Night Watch." Aside from aligning the two paintings, Erdmann's adjustments also transformed the facial structure of figures like Cocq, bringing them closer to Rembrandt's expert rendering.
Detail of the Lundens copy before perspectival adjustments.
Detail of the Lundens copy after perspectival adjustments.
Just as a painter must tone their canvas before they can work on composition and color, so too did Erdmann have to get the dimensions right before he could move on to the third and final stage of his coding process. Erdmann's next part of the neural network involved — to paraphrase his elevator pitch — sending the artificial intelligence algorithm to art school.
"Not unlike how you might translate a text from Dutch to English, we wanted to see if we could transform Lundens' painterly style and palette into Rembrandt's," he explains, comparing the learning curve to a quiz. To educate it, the AI was given random tiles from the Lundens copy and asked to render the tiles in the style of Rembrandt.
As with any pedagogical situation, Erdmann evaluated the AI's efforts with a corresponding grade. The closer its output matched the contents of the original Night Watch, the higher the grade it received. When grading, Erdmann considered things like color, texture, and representation (i.e., how well does this frowning face resemble a frowning face, or this sword an actual sword?).
"Once you've defined what makes a good copy, you can train the network on thousands and thousands of these tiles," Erdmann goes on. There are 265 gigabytes of memory of thousands of attempts stored, which demonstrates improvement in quality over a very short time. Within less than a day, the error margin between the AI and the real Rembrandt grew so small it became insignificant; the training was complete.
Lundens copy when adjusted for perspective and Rembrandt's style by AI.
Along the way, the AI had developed a thorough understanding of what made Rembrandt Rembrandt. When translating Lundens' copy, it used a less saturated color palette and thicker, sketchier brushstrokes. It even adopted the painter's signature use of chiaroscuro — a technique involving sharp contrasts between light and shadow.
Then it was time for the final exam. Using the knowledge gained from copying Rembrandt, Erdmann ordered the AI to transform the four outer edges of the Lundens copy — removed from the original Night Watch — into Rembrandt's signature style. The result, an unprecedented collaboration between man and machine, is now on display in the Eregalerij of the Rijksmuseum.
Detail of the completed "Night Watch." The two figures on the left were added from the adjusted Lundens copy.
The missing pieces, resuscitated by AI, were printed onto canvas and varnished so that they had a similar gloss to the rest of the painting. The pieces were then attached to metal plates, which were placed in front of the original Night Watch at a distance of less than one centimeter, thus creating an optical illusion for visitors without actually touching Rembrandt's work.
While conservation science is evolving rapidly, the achievements of people like Erdmann are still eclipsed by the artistic genius of the painters whose work they try to preserve, which is a shame because Erdmann's software can be just as inventive as Rembrandt's brushwork. At the very least, Erdmann's problem-solving skills would have made the master proud.