David Stockman On What History Tells Us About Taming Inflation

David Stockman On What History Tells Us About Taming Inflation

Authored by David Stockman via InternationalMan.com,

In the spring of 1980, Paul Volcker did engineer a mini-recession but it didn’t put a dent in the inflation momentum. As shown below by the purple line, real GDP peaked in Q1 1980 and then declined thru Q3 1980 during Volcker’s mini-recession.

Real GDP versus Core PPI, Q4 1979 to Q4 1980.

During that two-quarter interval of “shallow and short,” real GDP contracted by just 2.2%. But the inflation rate (brown line) just kept climbing, rising at an annualized rate of 9.5% during the period.

The second round of the Volcker anti-inflation medicine took another chunk out of real output — this time 2.6% from the Q3 1981 peak to the Q4 1982 bottom. Still, inflation stubbornly resisted the recessionary medicine, rising at a 5.3% annual rate during the five-quarter downturn.

Real GDP versus Core PPI, Q3 1981 to Q4 1982

Moreover, the impact on the labor market was severe. Over the course of the double-dip recession, the U-3 unemployment rate rose from 6.0% in August 1979, when Volcker took the helm in the Eccles Building (Fed headquarters), to 10.8% at the December 1982 bottom.

Likewise, the number of unemployed nearly doubled during this period, rising from 6.3 million to 12.1 million. Accordingly, purging the virulent inflation that became embedded in the wage-price-cost nexus looked nothing like Joe Biden’s itty bitty recession, nor the “soft landing” that Wall Street bulls never stop peddling.

Unemployment Rate and Unemployment Level, August 1979 to January 1983

As it happened, core PPI inflation did not return to the 2.00% zone until Q4 1983. That is, it took Volcker two recessions and four years to wrestle the core PPI rate back to the Fed’s current purported inflation target. By any definition of the term, that’s not “short and shallow.”

Y/Y Change in Core PPI, 1976–1983

When all is said and done, Volcker’s conquest of the 1970’s inflation came at a steep price to the macro-economy because there was no alternative once the inflationary spiral became embedded.

In fact, the chart below makes the cost of the double dip recession plain as day: To wit, real GDP of $6.82 trillion in Q4 1979, when Volcker threw on the monetary brakes, was still at $6.81 trillion by Q4 1982, when the economy finally hit bottom. That is to say, three years of zero net growth in real output.

But even then, the core PPI — which runs lower than the CPI — was still at 4.7% in Q4 1982. Consequently, Volcker did not get the Fed funds rate under 6.0% until October 1986.

Y/Y Change in Core PPI versus Real GDP Level, Q4 1979 to Q4 1982

Needless to say, the Volcker era proved that “stagflation” is a stubborn beast once it worms its way into the price structure of the economy.

Back to today.

In short, a bad stagflation is here. Since the Fed will be locked in a battle to tame the price side of the equation even as real output falters for months and years to come, we seriously doubt that the economic contraction to be recorded on Joe Biden’s watch will be described in the history books as a “very slight recession.”

*  *  *

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Tyler Durden
Thu, 11/03/2022 – 14:05

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‘The Smell Of Fear’ Remains Absent After Powell ‘Rug Pull’, Nomura Hikes Terminal Rate Forecast

‘The Smell Of Fear’ Remains Absent After Powell ‘Rug Pull’, Nomura Hikes Terminal Rate Forecast

Nomura’s Charlie McElligott nailed it yesterday:

“I really think there is potential for another ‘rug pull’ coming… from The Fed acknowledging these realities again and as early as next week’s meeting…”

As markets soared on the FOMC statement seemingly confirming their biases, before Powell dropped this bombshell of hawkish hate-speech:

It’s premature to discuss pausing.  It’s not something that we’re thinking about.  That’s really not a conversation to be had now.  We have a way to go.

As McElligott notes, the initial “dovish Fed statement” component of yesterday’s market move began squeezing assets (and shorts) higher in painful fashion, the eventual sanity of Powell later in the press conference then differentiating between the “red-herring” focus surrounding the “PACE of tightening”…from what actually matters most, that being the “absolute LEVEL where Terminal Rate ultimately goes,” which is dependent still upon inflation data which is showing no progress in moving back towards target

The resulting rug-pull was the biggest post-Fed-decision loss in history, with Nasdaq now down over 4% from pre-FOMC statement (and down over 5.5% from pre-Powell presser)…

As the market prices in higher rates for longer…

“Short Vol / Short Delta” worked again… with VIX actually closing lower as equity prices plunged…

…and SPX Skew flattens further…

Crucially, SpotGamma explains that this is likely because options on the shorter end were priced for volatility – and that’s what happened. There wasn’t enough hawkishness to lead traders to “pay up” for puts. Had markets received the Fed as dovish, that backwardation would have most certainly flipped to contango, and fueled the markets higher. Instead, that backwardation IV position is simply being held.

Powell seemingly didn’t give traders a reason to buy stock yesterday, but didn’t do enough to bring new levels of fear.

This lack of major change in short dated IV also syncs with few changes in our SG levels. Some put positions did fill in from 3700 to 3650, however our Delta Tilt indicator does not suggest we are yet at “max put” positions.

This would likely occur at 3600 – which is why we see major structural support at that level.

Below is S&P volatility term structure, and there continues to be sharp backwardation due to next weeks elections & CPI. There was also a shift higher in IV for expirations out in time.

This suggests that there is/was some demand for longer dated downside protection.

And as Nomura’s McElligott notes, volatility remains as dealers options positioning is back in “short gamma vs spot” territory, with a bunch of negative delta picking-up…

So, with all that positioning said, what will The Fed do?

The Nomura Econ Team has adjusted their Fed call:

  • We now expect a 50bp hike in December, down 25bp from our previous forecast.

  • However, while we maintain our call for a 50bp hike in February, we expect an additional 50bp in March (up from 25bp previously) and a 25bp hike in May (previously on hold).

  • As a result, our terminal rate forecast is now 25bp higher, at 5.50-5.75%.

While the likely lack of an additional 75bp rate hike in December is disappointing relative to our previous forecast, the broad arc of our Fed call remains unchanged. We believe markets continue to underestimate both how entrenched inflation is, and the Fed’s resolute intention to bring it lower, even at the expense of a recession.

Of course, we do not expect to see The Fed get anywhere neat 5.75% before we start to see -250k payrolls prints and post-midterms political pressure exerts the pause that equity bulls experience for around 30 minutes yesterday… and if we do keep hiking, don’t expect Powell to be running the show a year from now.

Still, stocks remain decoupled (for the 3rd time) from The Fed’s hawkish-rhetoric-induced shift in STIRs.

Tyler Durden
Thu, 11/03/2022 – 13:45

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Lira Hits Record Low As Turkey’s Annual Inflation Soars To Two-Decade High Of 85%

Lira Hits Record Low As Turkey’s Annual Inflation Soars To Two-Decade High Of 85%

Turkey’s annual inflation has hit its highest level in 24 years, worsening the cost-of-living crisis facing the country, even as political opposition parties claim that real numbers are worse than official figures.

The 12-month Consumer Price Index (CPI), which measures inflation on an annual basis, hit 85.51 percent in October, according to a press release from the Turkish Statistical Institute on Nov. 3. This is the seventeenth consecutive month that inflation has risen in Turkey. It is up by 3.54 percent from the previous month. The lowest inflation rate was in the communication and education sectors, which both rose by over 30 percent.

The transportation sector saw the highest annual inflation, at 117.15 percent; followed by food and non-alcoholic beverages at 99.05 percent; furnishings and household equipment at 93.63 percent; and housing at 85.17 percent.

Source: Bloomberg

But, as Naveen Anthrapully reports at The Epoch Times,  despite the high numbers, opposition members and many citizens question the accuracy of the data, and insist that the actual inflation rate is even higher.

Istanbul city annual retail inflation accelerates to 108.77% in October from 107.42% in September, according to data published by the Istanbul Chamber of Commerce (thats basically 10% every month!).

According to independent economists from Turkey’s ENAG research institute, the 12-month CPI was at 185.34 percent in October. On a monthly basis, CPI is calculated to have risen by 7.18 percent for the month.

Opposition leader Kemal Kilicdaroglu insists that the Turkish government is hiding real inflation data due to the salary it owes to public employees.

“Why does the TUIK [statistics agency] disguise the real figure?” he asked last month, according to RFI.

“Because when it gives the real figure, the pensions will be determined accordingly. Workers’ wages will be determined accordingly. Civil servants’ salaries will be determined accordingly. If you show it low, it will give a low raise.”

Erdogan’s Contradictory Policies

Many economists blame Turkish President Recep Tayyip Erdogan’s policies for having pushed the country into an inflation crisis. While traditional economic thought posits that raising interest rates will help control inflation, Erdogan believes that higher rates will result in higher prices.

As such, the Turkish president has been pushing to lower interest rates. In October, the country’s central bank slashed interest rates to 10.5 percent, the third straight monthly reduction. Erdogan has also indicated that he plans to implement more rate cuts and bring down rates to single digits.

Economists point out that the policy of lowering interest rates is hurting the national currency lira and adding upward pressure on inflation.

Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in an analyst note that the Turkish central bank will continue to remain under pressure from the president to follow a “looser policy,” according to CNBC.

“Although the CBRT [Central Bank of the Republic of Turkey] said it will deliver one more 150 basis-point interest rate cut at its meeting later this month, there is a risk of further easing beyond that, adding more downward pressure onto the lira,” he said.

…new record lows.

Tyler Durden
Thu, 11/03/2022 – 13:26

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“Intolerable”: Continued N.Korea Missile Launches, Including ICBM, Put Japan On Edge

“Intolerable”: Continued N.Korea Missile Launches, Including ICBM, Put Japan On Edge

On Thursday North Korea fired several more ballistic missiles, including a likely ICBM – according to international reports, which sent Japanese citizens into bomb shelters. 

This comes after the north fired off 23 missiles of different types on Wednesday, which marks the most in a single day. By some estimates, at least 27 missiles have been launched in the last 24 hours. All of this brings the total missiles fired so far this year to at least 60

Illustrative image, via KNCA

“The projectiles, including a suspected intercontinental ballistic missile, have triggered alerts, prompting some residents to seek shelter in two countries — South Korea and Japan — on both days,” according to one US media report.

Japan’s Prime Minister Fumio Kishida has condemned the launches as “intolerable.” Inbound projectile alerts had been issued for three regions of Japan on fears the ICBM was headed toward or over Japan.

However, the ICBM launch may have failed:

The largest of Thursday’s launches, however, “is presumed to have ended in failure,” the South Korean military said.

NPR has cited a South Korean former defense official to say that Pyongyang’s strategy seems to be to sow confusion and put US allies on edge over how to defend against a potential attack

“North Korea staged a very threatening provocation at a magnitude we’ve never seen before,” says Kim Jeong-dae, a former defense official and visiting professor at Yonsei University in Seoul.

“First, they launched missiles from all around the country — east, west, south, north,” he explains. “This seems intended to negate our strategy of striking the source of attack.”

The US is seeking for allies and other regional major powers to increase pressure on Pyongyang: “This action underscores the need for all countries to fully implement DPRK-related UN Security Council resolutions,” said State Department spokesman Ned Price in the wake of the fresh launches.

North Korea has warned against ongoing joint US-South Korea war games taking place this week, calling the US military presence a threat to regional security and stability.

Tyler Durden
Thu, 11/03/2022 – 13:04

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The Fed And Powell: What Now?

The Fed And Powell: What Now?

By Peter Tchir of Academy Securities

The Fed and Powell

The statement added language highlighting that the Fed would take into consideration the cumulative amount of hikes and the lag effect of hikes. That was viewed positively by myself and markets. It was the first nod to the “lag effect” we’ve seen, which was taken to mean the Fed is dialing back on their hikes.

The press conference was used to disabuse the market of that notion. The press conference was taken as hawkish for a few reasons:

  • Potentially higher terminal rate (this was new).

  • Higher rates for longer (not sure this was new).

  • Willingness to overshoot because they can cut if needed (this was new).

  • Little progress on inflation (from the group that transitory all of last year).

  • Mention of CPI (which is highly likely to overstate rent for the coming months because of how it was calculated and concerns those of us who don’t like reliance on data that seems out of sync with what is occurring in real time).

Powell killed the rally, took stocks and bonds down hard and we are seeing that continue overnight and into the morning session.

What Now?

The “buy everything” rally has pulled back, with the S&P 500 back to 3,745 (where it was on 10/21. The 10-year yield is back to 4.2%, just below the 4.22% on 10/21.

We will get more Fed speakers. They will “clarify” the message.

The “hope” for bulls (and I am still in that camp, though having to re-think it after yesterday’s reversal which highlighted positioning that wasn’t extremely bearish) is data dependence.

Bulls need to see progress on the inflation front in the official data.

Getting weaker than expected inflation data is my base case. While the Fed doesn’t see it, many economists and companies see it.

Whether that can show up in the data the Fed watches most closely is the question as OER for example, incorporates old data and is catching up to the rent inflation it missed from almost a year ago.

The least concerning issue is that Powell isn’t seeing inflation as his track record on predicting inflation has been mediocre at best. (difficult not to wonder what things would look like had that cut QE last spring and started hiking last fall, but no use crying over spilled milk).

Most concerning is the renewed pressure on the Euro and the Yen. FX volatility is gut wrenching for investors, companies and even countries. Some viewed yesterday’s changes in the statement as a subtle sign that the Fed was paying attention to concerns from other countries that the strong dollar policy was hurting them. Well, we are right back to that.

With yields back to their highs and threatening to break into uncharted territory, aided by potential foreign selling and it all being so fresh in our minds that we went weeks without treasuries catching a bid on their march higher, it is difficult to be bullish anything here.

On the other hand, for the first time since Jackson Hole, the Fed seems data dependent and is not on a pre-set course, which should be bullish (but is concerning that it hasn’t been bullish since the presser).

Basically leaves me licking some wounds, reducing position size, and trying to re-evaluate whether there is hope for the everything rally? I think there is, but price action is telling me to tread extremely carefully.

Tyler Durden
Thu, 11/03/2022 – 12:50

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“Inflation? No Thanks”: Walmart Rolls Back Thanksgiving Food To 2021 Prices

“Inflation? No Thanks”: Walmart Rolls Back Thanksgiving Food To 2021 Prices

Walmart Inc. announced that a basket of Thanksgiving items at retail stores would have prices rolled back to 2021 levels through the holiday season amid the worst inflation in forty years. 

“Saving money is a top priority for our customers right now, so this year, we’re removing inflation on an entire basket containing traditional Thanksgiving items,” Walmart wrote in a press release

The items to be rolled back to last year’s prices include the following: “… turkey, ham, potatoes and stuffing … convenience items are there too, like ready-to-heat mac and cheese or freshly made pumpkin pie.” 

“We’re proud to offer customers this year’s Thanksgiving meal at last year’s price so families don’t need to worry about how they’ll set their holiday table,” the largest retailer in the country said. 

These deals will only last through Dec. 26, and the company offered a link to a landing page on their website titled “This year’s meal at last year’s price*.”

Dozens of items were rolled back by the retailer. One of the most significant rollbacks was 50% off whole turkeys. 

“Our approach this holiday helps make sure customers don’t have to compromise on what matters: we’re keeping prices low and our assortment strong to serve them all season long,” Walmart concluded. 

In the latest inflation report, Headline and Core CPI printed hotter than expected — both remain at four-decade highs. 

Food inflation has been one of the most shocking increases over the past year. 

High inflation has crushed household finances as real wages are negative for the 18th consecutive month…

Meanwhile, the personal savings rate has tumbled to multi-decade lows at 3.1%, just shy of the record low of 3.0%…

And some experts are concerned about the pace of growth in consumer credit as debt loads for households soar as their wages can’t cover added costs of food, shelter, and energy. 

The stimulus checks are long gone. Savings are being depleted. And the largest retailer in the country is rolling back food prices for the holiday season because it knows consumers are immense financial pressures. 

But, but, the economy is “strong as hell”? 

Tyler Durden
Thu, 11/03/2022 – 12:25

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“The Old Party Paradigm Is Over, Much As Markets Refuse To Accept It”

“The Old Party Paradigm Is Over, Much As Markets Refuse To Accept It”

By Michael Every of Rabobank

The party is ending / The Party is starting

First, the important good news: the Ukraine grain deal is back on after Russia backed off. As our grains maven Michael Magdovitz comments, the Kremlin phone was probably ringing off the hook… and not from the West, but from hungry Russian allies. Now to the bad news.

The party is ending…

…and all those expecting the Fed to shift in a dovish direction yesterday are being shown up as a bunch of pivots.

The Fed raised 75bp to 4.00% yesterday, as expected. There was an initial market attempt to rally at language suggesting they were aware policy acts with a lag, which sounded pivot-y. Then Powell spoke, and crushed those hopes. True, he flagged the pace of rate hikes might slow from its breakneck pace: but he made it abundantly clear smaller rate hikes would continue for longer than many expected. Moreover, when a journalist pointed out to him that stocks were rising after his latest move, he deliberately underlined that if the FOMC had known in September what it knows now, it would have plotted its dots higher for where Fed Funds will peak. That means a higher terminal rate ahead –the market’s assumption is now 5.10% vs. 4.85% recently– and a deliberate attempt to jawbone markets lower, not higher.

You can make the argument that this is about a wage-price spiral, which Powell said he doesn’t see, despite the ADP report yesterday suggesting nominal wage growth is up to 7.7% y-o-y; or that this is about overheating; or that Powell is wrong, because things are cooling fast; or that he hates financialisation and loves the industrial economy – as the FT flags that the US will be sucking in EU industry crippled by rising power bills; or, relatedly, that this is about the geopolitics of power, and of commodities vs. the global role and value of the US dollar; or any combination of the above. It actually doesn’t matter, because the key conclusion is still the same:

Powell doesn’t want to see financial conditions ease. He doesn’t want to see higher equities. He doesn’t want to see lower bond yields. He doesn’t want to see a weaker dollar. The old party paradigm is over, much as markets refuse to accept it.

The Party is starting…

…and all those expecting a shift in a bullish stimulus direction are also being shown up as a bunch of pivots.

Speaking earlier yesterday at Hong Kong’s financial shindig, the UBS CEO stated he doesn’t read the US press, only the Chinese, and that global banks are “very pro-China” despite the 20th CCP Congress reiterating its belief in a Marxism-Leninism which says, “The Capitalists will sell us the rope with which we will hang them.” One also has to wonder, if global banks are pro-China, but Western politicians are increasingly not, where does that logically leave said politicians vis-à-vis global banks?

True, money-over-ideology worked nicely for both sides for years. Yet it also did under Lenin’s New Economic Policy in the USSR in the 1920s until that ended with Stalinism, as Joe saw the 1940s coming, and decided to prepare. As unaware of that history as CEOs but perhaps indirectly echoing it, Bloomberg’s Shuli Ren bewails in ‘Hong Kong Bankers Fear for Their Careers’ that: “Xi, for one, doesn’t see bankers offering much value. Six of the 13 new members of the Politburo have backgrounds in science and tech. He Lifeng, widely tipped as the next economic tsar, is not a member of the Politburo Standing Committee, China’s most powerful decision-making body. For decades, financiers in Hong Kong have been China’s biggest cheerleaders and its bridge to developed nations. They advocated for economic growth and argued for a better relationship between the two superpowers when no one else was. Even they’re losing faith in Xi’s China.”

Indeed, Leland Miller of the China Beige Book notes despite screenshots(!) about Covid-Zero being zeroed (as fresh lockdowns hit Shanghai and the world’s largest iPhone factory), past high GDP growth is not coming back – for ideological reasons. “It is over because the Chinese government has identified a continuation of this economic growth model as a vulnerability to CCP rule,” he states. They know the model, which they actually borrowed or co-opted from the West, no longer works; they fear what happens if they add yet more debt, or try outright QE, or monetisation. The result is the structural growth slump we now all see, and few saw coming.

It is true that Soviet economies, and China pre-reform, had soft budget constraints, monetised debts, and repressed inflation. However, today’s China reads history and Marx carefully. Contrary to common misperception, Marx was opposed to the inflation of fiat currency as well as the stupidity and revolution-inducing inequality of “fictitious capital”, preferring the gold standard. Lenin ran dual currency systems in the USSR, one gold backed, one fiat, with dual circulation (external, internal): the gold one won out as long as Lenin was around.   

China doesn’t want to see more financialisation or higher house prices. It doesn’t want to see higher equities for equities’ sake. It doesn’t want to see lower bond yields for bonds’ sake. It won’t be able to see a stronger CNY. The old Party paradigm is returning, much as markets refuse to accept it.

The Social Democrat party is starting to end…

…and Germans look like a bunch of pivots regarding a shift towards China.

Despite our new geopolitical era, Berlin still wants to do more trade with Beijing. Chancellor Scholz, now in China, not only ignored an open letter from 186 Chinese intellectuals and dissidents asking him not to go, but has stressed he is looking to “collaborate” wherever possible. There was a waiting list of 100 top German firms wanting to tag along – a dozen did. In the eyes of critics, including the EU Chamber of Commerce in China, this makes Germany look like a particularly stupid dinosaur gawping up at a falling meteor and wondering if it wants to be friends.

Germany’s problem is not just what is happening in China, which it takes a “global bank” view of, but what is happening in an EU looking at this latest mercantilism with very mixed feelings after Berlin’s self-serving energy-price subsidies and relative lack of action re: Ukraine.

Moreover, the US selling Germany LNG and protecting it is watching too. Do you think there might be more or less desire to pull German industrial supply chains into the cheap-energy US economy now? Or to prevent German capital stock in China exporting back to the US? USTR Tai just made an offer to the EU to join them in green industrial policy, subsidies, and presumably future tariffs against China. Say no and see what happens. And meanwhile the Fed is ensuring global demand for German goods tanks – just as the Germans don’t have any of their own tanks.

The Social Democrat Party paradigm is over, much as it refuses to accept it.

The Twitter party is ending…

…and the latest headline in a never-ending sequence from this bunch of pivots is that we’ll get an edit button – and half of all jobs there are to go. Hey! That means lower US rates, right?!

Tyler Durden
Thu, 11/03/2022 – 12:08

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Tesla October Deliveries For China Reported At 71,704, Down From 83,135 In September

Tesla October Deliveries For China Reported At 71,704, Down From 83,135 In September

Preliminary delivery numbers for Tesla coming out of China on Thursday morning show a sizeable dropoff in month-to-month numbers. 

Chinese press has reported that Tesla had preliminary deliveries of 71,704 vehicles in October compared to 83,135 deliveries in September. 

The news comes just days after it was reported that Tesla was shutting down one of its flagship retail stores in China, shuttering its “Flagship” location in Beijing. 

“The Beijing showroom was in Parkview Green, an upscale downtown shopping center. A member of the mall’s staff confirmed to Reuters during a visit to the site on Wednesday that Tesla had shut the showroom,” StreetInsider reported on Wednesday. 

“Their contract with us expired and Tesla decided not to extend it,” one mall staff member said. 

Recall, last month we noted that the China Passenger Car Association’s data for September marked an 8% increase from August and “outpaced the more than the 5% month-over-month growth of all wholesale electric vehicle sales in China”, CNBC noted at the time.

The record set in September may have partly been the result of backed up demand after Tesla shut down Shanghai for a portion of the summer in order to upgrade the facilities. As you can see from the chart below, October’s numbers will still mark growth from the year prior, though comparables will be far more difficult heading into the new year. 

Recall, the automaker also broke total delivery records for Q3, despite the fact that it missed expectations from Wall Street for the quarter. Tesla reported 343,830 deliveries for Q3 2022.

The company delivered 325,158 Model 3 and Model Y vehicles, and delivered 18,672 Model S and Model X vehicles. It blamed logistics for its miss of estimates and noted that a number of vehicles were “in transit”. 

Tyler Durden
Thu, 11/03/2022 – 11:45

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“Strangers on the Internet” Podcast Episode 11: Dating as a Criminal Law Professor

The eleventh episode (Apple Podcasts link here and Spotify link here) of Strangers on the Internet with co-host and psychologist Michelle Lange has us chatting with Prof. Erin Sheley who brings her personal and professional wisdom to the world of online dating.

Erin found love (and indeed, a fiance) on Bumble after dating app adventures across North America. While last time we had Catgate, this week’s episode brings us Fishgate: this vegetarian scholar and her avid fisherman date from the apps did NOT see eye to eye when it comes to how many fish it’s okay to kill in a year. Erin also tells the tale of how a man tried to throw her on the train tracks in Calgary and how an intrepid cowboy intervened just in time to save her life!

We will discuss the difficulties in settling down romantically as an itinerant academic, so come join us on this journey from DC to Canada, Oklahoma, Dallas, and finally San Diego.

Also, what exactly was that guy planning to do on their car ride if Erin hadn’t sent his info to her friends in advance? Can even a criminal law professor stay safe from crime by strangers on the Internet? We’ve got the tea—grab a cup and have a listen!

The post "Strangers on the Internet" Podcast Episode 11: Dating as a Criminal Law Professor appeared first on Reason.com.

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Government Entity’s Excluding “Off-Topic” Comments on Social Media Posts May Be Constitutional

From Krasno v. Mnookin, decided yesterday by Magistrate Judge Stephen Crocker (W.D. Wisc.):

Although there is no requirement of narrow tailoring in a nonpublic forum, the
government’s restrictions still must be viewpoint neutral and must be “reasonable in light of the purpose served by the forum.” In order to show that a speech restriction is “reasonable,” the government must show that its restraint: (1) furthers a “permissible objective;” and (2) contains “objective, workable standards” that are “capable of reasoned application.”

{[C]ourts often describe a forum opened by the government that is limited to certain speakers or subjects as a “limited public forum.” Although most of these cases use the term interchangeably with “nonpublic,” meaning that regulations in both are subject to a lower level of scrutiny, at times the term “limited public forum” has been used to describe a subcategory of “designated public” fora subject to the strict scrutiny test. In the instant case, when the University argues that the comment threads to its social media posts are “limited public” fora, I understand it to mean a forum governed by the reasonableness and viewpoint neutrality requirements applied to “nonpublic” fora. To avoid confusion, I will use the term “nonpublic” in this opinion to designate such a forum.}

[T]he University has a legitimate, viewpoint-neutral interest in limiting the comment threads to discussion of or reaction to the specific topic of the University’s post. The University uses its Facebook page and Instagram account as channels to communicate official University announcements, events and policies to the public, including its student body, and as a means of promoting the UW-Madison “brand.” With respect to the interactive comment threads, the University monitors what other social media users are saying in response to the University’s posts, to see how its content is generally being received and to see the reactions its posts are generating. The University also wants to see if anyone has questions, and it may engage in its own speech in the comment threads to answer them. Allowing off-topic comments to proliferate makes it more difficult for the University to engage with its followers and to see comments to which it may wish to respond.

It also is legitimate for the University to consider the distraction that off-topic comments may present to other users seeking to engage in and to discuss the topic of the University’s post. It is reasonable for the University to conclude that these other users may be less inclined to leave a comment, to ask a question, or to engage in on-topic discussion with other users if the University’s pages are fraught with off-topic comments…. “[F]ailure to effectively moderate a public discussion may be as deleterious to dialogue in such a forum as censorship.”  There is nothing unreasonable about the University preferring that the interactive comment threads have the look and feel of a brown bag lunch discussion rather than its open-air Library Mall at the foot of State Street.

Krasno argues that this court should find the University’s goal of preserving its comment threads for on-topic discussion to be illegitimate because the University has not come forth with evidence of a time when a large volume of off-topic comments that actually prevented it from seeing a comment to which it would have responded, or with evidence that other users have complained or stopped commenting because of a proliferation of such comments. Krasno further points out that, unlike other public fora such as board meetings, where irrelevant commentary can take up the board’s limited time for conducting business, Facebook and Instagram are designed to host dozens, if not hundreds of comments within a user’s posts. In light of this, contends Krasno, off-topic comments are not inherently more disruptive of the purpose of the forum than large amounts of on-topic comments, which the University indisputably tolerates.

I agree with Krasno that the University’s stated interests in limiting its fora to on-topic speech are not so strong as to be unassailable, but in a nonpublic forum, they don’t have to be. “In contrast to a public forum, a finding of strict incompatibility between the nature of the speech or the identity of the speaker and the functioning of the nonpublic forum is not mandated.”  Thus, whether large volumes of on-topic speech may or may not be disruptive is not the question; the question is whether it is unreasonable for the University to prohibit off-topic speech.  Given that the University has a legitimate interest in hosting a moderated forum for discussion of the subjects on which it posts, off-topic comments are, by definition, more disruptive than on-topic comments….

Having concluded that the University may hide or delete off-topic comments, the remaining question to be answered is whether the University’s off-topic rule, which is undoubtedly viewpoint neutral on its face, is “capable of reasoned application.” To meet this test, “the State must be able to articulate some sensible basis for distinguishing what may come in from what must stay out.”  Minnesota Voters Alliance v. Mansky. This does not require eliminating all discretion but merely that any discretion “must be guided by objective, workable standards.”  In Mansky, for example, the Court found that Minnesota’s law prohibiting anyone from wearing a “political” badge, button or other political insignia at a polling place was too vague to pass this test.  Although the Court found that Minnesota had a legitimate interest in maintaining a polling place free of partisan discord, Minnesota had failed to offer any interpretations of the expansive term that were capable of reasoned application….

Although the Court recognized that election judges screening individuals at the entrance to the polls needed to have some degree of discretion and that “[p]erfect clarity and precise guidance” were not required, the problems with Minnesota’s restriction went “beyond close calls on borderline or fanciful cases” and was therefore unreasonable….

[W]hether a statement is “off” or “on” topic is content and context specific. To apply it, one needs an objectively sufficient understanding of the substance and scope of the underlying topic. Even then, interpreting whether a comment is off this topic necessarily will involve a fair amount of interpretive discretion, because “the point at which speech becomes unduly repetitious or largely irrelevant is not mathematically determinable.”

Krasno contends that the subjectivity inherent in deciding whether something is off topic, along with the undisputed evidence of inconsistent application, means that the University must abandon the rule. See Mansky (“It is ‘self-evident’ that an indeterminate prohibition carries with it ‘[t]he opportunity for abuse, especially where [it] has received a virtually open-ended interpretation.’ “). However, Krasno hasn’t explained how the University could preserve the forum for its intended use — discussion of the topics selected for posting by the University—without vesting significant discretion in its moderators. Depending on the nature of the forum, even a rule that “may defy objective description and may vary with individual circumstances” is not necessarily unreasonable. Griffin v. Secretary of Veterans Affairs (Fed. Cir. 2002) (rule vesting discretion in VA administrators to ensure that cemeteries remain “sacred to the honor and memory of those interred or memorialized there” was reasonable in light of characteristic nature and function of national cemeteries).

Here, just like in any moderated discussion, a fair amount of judgment must be vested in the moderator in order to ensure the forum serves its intended purpose. But that doesn’t make the terms “not germane” or “off topic” wholly subject to the whims of the moderator. To the contrary, although reasonable people may have different degrees of tolerance for when something is “not germane” or “off topic,” the terms as commonly understood are sufficiently objective to preclude wildly divergent applications, particularly now that the University has made clear in its Social Media Statement that the comparison point for relevancy purposes is the subject of the University’s post. Further, by prohibiting its moderators from engaging in viewpoint discrimination, it has reduced the likelihood that the “off topic” rule will be used as a cudgel to stifle speech with which the moderator disagrees.

Finally, the existence of alternative channels of communication is a factor in the reasonableness analysis.  Here, myriad alternative means of communication exist by which Krasno, fellow animal rights advocates—and everyone else in the world—may express their off-topic views about the University to the public. To the extent the internet has become the “modern public square,” Krasno et omnes in mundo can say whatever they wish about the University on their own media accounts, major, popular platforms for which extend well beyond Facebook and Instagram. Given these alternatives and the University’s professed intolerance of viewpoint discrimination, I am satisfied that the risk that the University may sometimes hide arguably relevant comments does not outweigh its interests in maintaining the comment threads for their intended purpose.

In sum, the University’s rule allowing for moderation of off-topic comments is a reasonable and viewpoint neutral rule that furthers the University’s permissible interest in preserving the interactive comment threads for discussion of the subjects posted by the University. Krasno is free to post her views about testing on animals on her own pages or anywhere else allowed on the internet. However, she has no First Amendment right to post them on the University’s social media pages unless they are germane to the topic of the University’s post….

The post Government Entity's Excluding "Off-Topic" Comments on Social Media Posts May Be Constitutional appeared first on Reason.com.

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