MONEY stocks

Why Precision and Investing Don’t Mix

Heidi Marie Rice—Getty Images

Some fields work with amazing precision. Investing is not one of those fields.

NASA’s New Horizons spacecraft passed by Pluto last week, which is amazing. It was a three-billion mile trip that took nine and half years.

But here’s what blows my mind. According to NASA, the trip “took about one minute less than predicted when the craft was launched in January 2006.”

That is astounding. In an untested, decade-long journey, NASA’s travel forecast was 99.99998% accurate. It’s the equivalent of forecasting a trip from New York to Boston and being accurate to within four millionths of a second. (Your move, Google Maps.)

This is a great reminder that some fields work with amazing precision. They are governed by pure math and physics, and aren’t burdened by the whims of human emotion.

It’s also a great reminder that investing is not one of these fields.

Investing is often taught as if it’s something like aeronautical engineering. It’s filled with precise equations that give exact answers in the way you would calculate, say, how long it takes to fly to Pluto. Seriously, look at this stuff.

Traders calculate moving averages and support bands. Economists create forecasting models to tell us how much GDP will grow this year. Chief market strategists model what the S&P 500 will do in the next year. The bulk of academic finance is based on the idea that if we try hard enough and crunch enough numbers, we can grab capitalism by its horns and forecast what will happen next. And I shake my head at that idea.

Sometimes I say, “Well Morgan, maybe you just don’t understand this stuff.” Which is true! But the evidence is overwhelming that those who wield complicated investing math don’t understand it, either. A novice would never think stocks falling is a once-in-a-billion-year event. You need a Goldman Sachs forecasting model to think that. A normal person would have a hard time losing everything during the booming late 1990s. You need a team of Nobel Prize winners to do that. Find me one person who has gotten rich investing with his mathematical chops and I will show you nine who blew themselves up, plus 20 bumpkins who became rich using simple rules of thumb.

There are two types of stupidity. One is simple ignorance. The other — far more dangerous — is brilliance so deep that you assume it applies to unrelated fields. At the center of every financial catastrophe is the latter; a genius whose forecast was mathematically unassailable right up to the moment of bankruptcy. It wasn’t that their math was wrong. It was that their clean math didn’t apply to the hormonal jungle of finance.

One of biggest investing lessons I’ve learned is that the more precise you try to calculate, the further from reality you’re likely to end up. Precise calculations creates a spell of overconfidence, which makes you double down on whatever you want to believe no matter how wrong it is. Some examples are staggering: Wall Street’s top market strategists predict each January how much the S&P 500 will go up over the following year. Their collective track records are worse than if you just assumedstocks go up by their long-term history average every year.

In a messy world of emotions and misinformation, broad rules of thumb can be an excellent strategy.

Rules of thumb aren’t perfect, of course. But that’s their advantage. By starting with a strategy you know isn’t perfect, you naturally leave yourself room for error, and are more flexible in accepting the market’s whims.

So I don’t use fancy valuation models to calculate how much stocks should return over the next 10 years. I assume 6% a year after inflation over the long haul. I figure that’s good enough.

I don’t forecast what the market will do this year. I assume the market will go down half of all days, a third of all years, and a fifth of all decades. That’s probably good enough.

I don’t predict what the economy will do this year. I assume we’ll have a recession every five to seven years. Good enough.

Don’t bother me with calculators that show me how much money I’ll have in 30 years. I don’t know what my bills will be next month. I save as much money as I reasonably can while living a lifestyle that I’m content with. I figure that’s good enough.

Spare me with your analysis of why I should own stocks from some country because of economic trends. I’m diversified, and accept part of my portfolio will always be doing worse than others. I figure that’s good enough.

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MONEY Economy

Here’s How Hillary Clinton’s Profit Sharing Plan Could Actually Make Everyone Richer

Democratic Presidential candidate Hillary Clinton speaks during a town hall event at Dover City Hall July 16, 2015 in Dover, New Hampshire. Clinton spoke about how to build an economy that will boost the middle class.
Darren McCollester—Getty Images Democratic Presidential candidate Hillary Clinton speaks during a town hall event at Dover City Hall July 16, 2015 in Dover, New Hampshire. Clinton spoke about how to build an economy that will boost the middle class.

Hint: Employers need to share more than profits.

Whatever you may think of Hillary Clinton, her profit sharing proposal introduced last week was a very smart piece of politics. It addresses two concerns that are really on the minds of voters, especially Democrats, and it threads a tiny needle of public values.

The first is that people who aren’t at the top of the income distribution haven’t done very well in the years since 2001: Real wages are either flat or down, depending on what measures you look at; job insecurity remains high; hours of work are up; and so forth.

The second is the growing awareness that while wages have stagnated, profits are up, and a much bigger proportion of the national pie is going to owners and investors now. A related issue is that since the 1981 recession, employers have asked employees (especially unionized employees) to make sacrifices in down periods to help business, yet there didn’t seem to be any upside for employees when things improved.

Profit sharing addresses these concerns while navigating around a political hot button. A policy that would explicitly redistribute money from the rich to the poor would likely elicit howls of “class warfare” from Republicans, and the idea of loading another burden on employers doesn’t play that well with many Democrats, either. But a program that shares the gains that employees and employers produce together, and that gives them both an incentive to produce more—well, that sounds fair.

The idea that employers should share profits with employees as a way to secure the cooperation of workers and create incentives for them to work hard probably goes back to ancient civilizations, but the US incarnation seems to have begun with Frederick Taylor’s “scientific management” approach of the 1920s, which led to time-and-motion-studies and the modern factory system. Taylor argued that employers should share profits with workers to get them to follow orders more or less like a robot. Employers like most everything about Taylor’s model except the profit sharing part, which didn’t really take off.

However, something similar temporarily caught on in the 1950s, in the form of an arrangement that came from Joseph Scanlon, a machinist who later became an MIT instructor. Scanlon’s sensible idea was that workplace performance would improve dramatically if employers and employees cooperated with each other. The program he developed, known afterwards as Scanlon Plans, had employers share profits with workers—but, crucially, they also shared information about the business operations, including finances, through a series of employee/management committees that worked on ways to improve productivity. Scanlon plans were quite popular through the 1970s but faded quickly after that. (I discuss other historical shifts in the employer-employee relationship in my new book.)

So what does that history tell us about Clinton’s plan? It demonstrates some of the limits of profit sharing as a means of addressing the slow growth of employee compensation—and also where the opportunities lie.

The first limit is that profit-sharing per se doesn’t seem to improve employee and business performance. Most employees figure out quickly that their individual contributions barely affect company profits, so working harder to try to improve your profit payout doesn’t make sense. Profit sharing seems to matter only when it is combined with increased employee participation in decision making and an approach to management that persuades them that “we’re in this together.” The requirement that employers share more information and engage employees in decision making appears to be what stunted Scanlon plans in the 1980s, and may be a big hurdle for profit sharing plans now as well.

The second limit is the fact that a great many companies already have profit sharing plans. That is especially so if we count retirement plans that include profit sharing. A tax break will induce more companies to use profit sharing plans, but just how many more is not at all clear. How much of the tax break might go to companies that already had profit sharing plans? Certainly some of it will, in which case, nothing changes for employees, and those employers get a windfall from the tax credit.

The third and most important limit is that these plans may not actually increase employee compensation because they may come at the expense of other forms of pay. If a profit sharing plan on average raises pay by 10% per year, for example, some employers will try to get away with paying salaries that are 10% lower. As a result, even in cases where profit sharing plans do give employees an upside when a business turns out to be very successful, they come with an intangible cost in the form of risk because they make pay more variable over time. That might be fine if profit sharing is just an add-on to the pay employees would have received. But on balance it’s a bad thing if it becomes a substitute for predictable wages.

The big plus of the Hillary Clinton proposal is that it might create some interesting conversations in board rooms as to why companies don’t already have profit sharing plans, and what would be required to make them succeed—namely, more sharing of information and decision making. That could happen even if the profit sharing proposal never becomes law, and would be a good thing all around.

Read next: Clinton’s Capital Gains Tax Plan Focuses on Long-Term Growth

Peter Cappelli is the George W. Taylor Professor of Management at the Wharton School of the University of Pennsylvania and director of Wharton’s Center for Human Resources. He is also the author of numerous books, including his most recent, Will College Pay Off?: A Guide to the Most Important Financial Decision You’ll Ever Make.

TIME Economy

More U.S. Children Live In Poverty Now Than During the Recession

MARK RALSTON--AFP/Getty Images Three year old Saria Amaya (L) waits with her mother after receiving shoes and school supplies during a charity event to help more than 4,000 underprivileged children at the Fred Jordan Mission in the Skid Row area of Los Angeles on October 2, 2014.

African-American, American Indian and Latino children are particularly hard hit

In mid-September 2010, almost exactly two years to the date since the monumental collapse of Lehman Brothers, the New York Times published a bleak statistic: the ongoing Great Recession had driven the U.S. poverty rates to their highest in a decade and a half.

Five years of fitful economic recovery have not yet bettered this situation. According to a new report from the Annie E. Casey Foundation, more than one in five American children, about 22%, were living in poverty in 2013. Data for 2014 are not yet available, but the report anticipates that the child poverty rate remains at an “unacceptably high [level].”

The figure for 2008 was 18%.

General terms are insufficient when explaining the economy’s post-recession rebound. There are a number of conflicting statistics — the fall in unemployment versus the rise in poverty, for instance — but even efforts to compare and assess these inconsistencies do not successfully capture the nuances at hand, most of which are dictated by demographic cleavages built on racial lines.

Noting only a “few exceptions,” the report states that “on nearly all of the measures that [it] track[s], African-American, American Indian and Latino children continued to experience negative outcomes at rates that were higher than the national average. Overall unemployment rates have fallen, but the unemployment rate for African-Americans is currently 11 percent — 2.4 percentage points higher than where it was prior to the economic crisis. Nearly 40 percent of African-American children live in poverty, compared to 14 percent of white children.

“The fact that it’s happening is disturbing on lots of levels,” Laura Speer, the Casey Foundation’s associate director for policy reform, told USA Today. “Those kids often don’t have access to the things they need to thrive.”

The Casey Foundation is a philanthropic group that seeks to enable underprivileged children to overcome hardships in pursuit of a brighter future. The foundation is based in Baltimore, a city where systematic inequities contributed in part to a series of protests and demonstrations this past spring.

Read next: Why America is Falling Behind the Rest of the World

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TIME Books

What America Should Learn From Greece

Austerity Greece
Bloomberg/Getty Images Customers queue outside a National Bank of Greece SA bank branch ahead of opening in Athens, July 20, 2015.

Arthur C. Brooks is the author of The Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America

Austerity is a disaster for the vulnerable—but it's the result of runaway spending, not forward-looking belt-tightening

Greece and the European Union may have temporarily staved off disaster. But while economists agree that structural reforms are the right long-term decision, many worry that austerity will impose considerable short-term pain on Greek citizens and further depress the country’s struggling economy. Signs suggest that financial markets and big business would welcome the agreement, but ordinary Greeks will continue to pay a heavy price as the Greek economy continues to contract.

What can America learn from this? At first glance, liberals and conservatives seem to draw opposite lessons. The left sees the Greek disaster as evidence that austerity and belt-tightening are unfair and painful. Meanwhile, the right sees the disaster as a lesson in the need for fiscal restraint and the dangers of big deficits.

Both arguments get something right. First, as I explain in my new book The Conservative Heart, blunt austerity is disastrous for the most vulnerable. Suicides have spiked in Greece since the financial crisis as unemployment rates have surged upward. Rates of homelessness and food insecurity have risen. Just last week, the New York Times reported that many social welfare programs have been a casualty of Greek spending cuts.

But this terrible austerity is not the natural result of tightwad governance and obsession with belt-tightening. Rather, it’s the inevitable outcome of runaway spending, fueled by an ever-growing desire to expand the social safety net across the entire Greek society.

So what is the takeaway lesson for the United States? If social safety net programs metastasize into expansive middle class entitlements, the poor get left behind when it comes time to pay the bill.

Virtually all Americans agree that we need a functioning and financially stable safety net for the truly indigent. Yet a Greek-style welfare state, overextended and insolvent, is the last thing we want. What does a real solution look like?

In The Conservative Heart, I offer three pillars for a conservative approach to the safety net. First, conservatives need to declare “peace” on the safety net in principle. A myth has spread in recent years that conservatives are opposed to any kind of social support. This is plainly untrue. From the famed economist Friedrich Hayek to President Ronald Reagan, conservative heroes have always championed a legitimate government role in providing vulnerable people with basic necessities of life when they are out of work or unable to provide for themselves. This is a conservative principle, and all conservatives should celebrate it.

But this is where the second key principle comes in: the safety net must be carefully targeted towards the poor and indigent. There is a huge difference between genuine social assistance that supports people who truly aren’t making it and a sprawling web of government programs that try to insure middle-class people against all the risks of life. The former encourages earned success; the latter crowds it out. The former makes the economy more dynamic and opportunity more abundant; the latter discourages Americans from remaining in the workforce. The former is financially sustainable; the latter destroys the very economic growth it needs to keep the checks coming.

Third and finally, the safety net must encourage and require work wherever possible. Of course, there are Americans who truly cannot work, and nobody is suggesting yanking the rug out from beneath them. But we are a long, long way from every able-bodied American having access to meaningful work. Only 60-some percent of Americans are even in the labor force at all. And for many citizens, poorly-designed disability insurance programs have morphed into a permanent unemployment benefit that they were never intended to provide.

Human beings are made for work. A wealth of social science shows that, from the standpoint of happiness, government benefits are a terrible substitute for the dignity that comes from working hard and earning one’s own way. This isn’t some conservative cliché. It’s a truth about human nature that is backed by the best research. Americans deserve the opportunity to work—and smart welfare policy has to nudge people in that direction.

These three principles—declare “peace” on the safety net, target spending on the indigent, and insist on work—can form the cornerstone of a New Right movement that dedicates itself to fighting for poor and struggling people. And more important, it will ensure we avoid becoming a Greek tragedy ourselves.

Arthur C. Brooks is president of the American Enterprise Institute, where he is also the Beth and Ravenel Curry Scholar in Free Enterprise. His new book, The Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America, was released on July 14, 2015.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email

MONEY Economy

Would Hillary Clinton’s Profit-Sharing Plan Put More Money in Your Pocket?

Democratic presidential candidate Hillary Clinton speaks during a campaign town hall meeting in Dover, New Hampshire July 16, 2015.
Brian Snyder—Reuters Democratic presidential candidate Hillary Clinton speaks during a campaign town hall meeting in Dover, New Hampshire July 16, 2015.

It might. But it wouldn't address the bigger forces holding down wages.

Democratic presidential candidate Hillary Clinton on Thursday outlined a plan to encourage companies to share more of their earnings with workers. It’s a tax credit companies could get for two years if they set up a profit-sharing plan tilted toward the lower- and middle-income employees on the payroll. (The tax credit would phase out for higher-paid workers.) In an example used by the campaign, if an employee was paid $5,000 in a profit-sharing bonus, the company would get a tax break of up to $750.

At least at first, the plan has generally been interpreted as part of Clinton’s tilt toward the progressive side of the economic debate. “Veering left…” is how the insider political paper The Hill put it.

Clinton herself has fit profit sharing into her broader message about fixing economic inequality. Here’s a graphic from the campaign website that illustrates the story Clinton is telling about what’s driving inequality. Companies are doing great and getting more productive, but they haven’t haven’t been sharing those gains with workers:

SOURCE:, based on data from the Economic Policy Institute

But even though profit sharing has the word “sharing” in it, it’s actually a pretty business-friendly approach. (The idea that the credit phases out for higher earners is the main way you can tell the proposal comes from a Democrat.) Lots of companies like the idea of paying their people more only when the business is doing well; the flip side is they can pay less in fallow years. In the jargon of human resources, other names for profit sharing are the much less warm and fuzzy sounding “pay-at-risk” and “variable pay.” Walmart, a company that’s famously tough about holding down its labor costs, used to be well-known for profit sharing.

At, writer Alison Shrager worries that more profit-sharing would just shift more pay out of steady wages and into up-and-down bonuses, adding another source of instability to the finacial lives of low-and middle-income workers. The Clinton campaign told that companies would only be able to get the credit for profit sharing above regular wages—presumably meaning they couldn’t cut salaries and then get a credit for adding a profit-sharing plan. But over time, as companies gave out regular raises and made new hires, or as new firms started up, the mix of pay might still shift toward variable bonuses. Profit sharing eligible for the credit would be capped at 10% of salary.

If Clinton’s proposal became law, it would really be just one more of several tax policies that shape how companies structure their pay. If you get health insurance at work or a 401(k) match, that’s because the tax code makes it appealing for companies to pay you that way. You pay less tax on $1 of health insurance or $1 of a 401(k) match than you do on $1 of straight cash pay, so companies like to offer those benefits; similarly, it would be slightly cheaper for a company to give you $1 of profit sharing than to give you $1 of a raise. As an economist will tell you, the health insurance you get at work isn’t a free gift on top of your pay. It’s part of your overall compensation. If companies didn’t offer health coverage, they’d have to pay us more. (Of course, then we’d still have use that money to buy insurance.)

So perhaps Clinton’s plan would largely move money from one line in your pay stub to another. But it might be better than a zero-sum game. For one thing, it’s effectively a tax cut on pay, which the Clinton campaign says is worth $10 billion to $20 billion over ten years—not huge as these things go. Companies would get the credit directly, but to the extent that it encouraged companies to make more money available for profit-based bonuses, the tax break could flow through to workers. (Though the campaign says one purpose of the temporary credit is simply to offset the administrative costs of starting up a profit-sharing program.)

And there’s at least some evidence that companies with profit sharing actually do pay more overall. An influential think-tank policy paper on “inclusive prosperity,” which the Clinton campaign is reported to be be drawing from, points to a study of the effects of profit sharing by the economists Joseph Blasi, Richard Freeman, and Douglas Kruse. Based on surveys of workers, it found that pay was generally as high or higher among companies that gave workers some kind of stake in company performance. That includes not just profit-sharing bonuses but employee stock options and other programs.

Why? Partly it may be because you have to give people a shot at higher total pay to compensate for the risk that they might not do as well in some years. Or, the economists write, it could be that people are getting paid more because profit sharing spurs them to be more productive. That looks like a win-win, but its not exactly money for nothing. Maybe profit sharing works because it improve morale, reduces employee turnover and gives people an incentive to worker smarter and more creatively. Or perhaps anxiety over losing a bonus scares people into working harder and faster.

But the wage stagnation of the past several decades isn’t mainly a productivity problem—just look at the Clinton campaign’s own graphic above. People with jobs these days are already working smart and working hard.

Profit-sharing tax credits might nudge some companies to share more of the gains from that productivity with people outside the C-suites. But the story of the last several years is that it’s taken employment a long time to climb back from the hit it took in 2008. One thing that really helps people get more pay—whether it’s in cash, bonuses, stock option, pensions, or insurance—is full employment and a hot labor market, where companies have to do everything they can to get the workers they need. That’s something Washington has had a hard time delivering.

TIME 2016 Election

Bush Hails Uber, While Clinton Criticizes

Democratic presidential candidate Hillary Clinton speaks at The New School on July 13, 2015 in New York City.
Andrew Burton—Getty Images Democratic presidential candidate Hillary Clinton speaks at the New School in New York City on July 13, 2015

The tricky politics of the gig economy

Uber hitched an unexpected ride on the 2016 campaign trail this week.

During a rollout of her economic plan Monday, Democratic frontrunner Hillary Clinton took companies like Uber to task for not giving drivers benefits. On Friday morning, Republican presidential candidate Jeb Bush plans on hailing an Uber in San Francisco to show his support for the ride-sharing company and others like it.

For some Republicans, the contrast made Clinton an easy target.

Rep. Elise Stefanik of New York, the youngest woman ever elected to Congress, argued the former Secretary of State was out of touch with the younger generation. “If you look at millenials, we love those companies [like Uber], we love consumer choices,” she said. “It’s a big mistake, I think, that Secretary Clinton chose to go after those companies that are really disrupting those industries for the better.”

But the politics of Uber aren’t so clear cut for either side.

While Republicans love the idea of breaking taxi unions, GOP support for the sharing economy isn’t so clear-cut. Most of the sharing economy vanguard—companies like Uber, AirBnB and Lyft—were born in California, a big blue state, and their corporate blueprints assume the kind of large social safety net favored by Democrats.

As Uber CEO Travis Kalanick told reporters in Washington in November, the Affordable Care Act was “huge” for his company because the “democratization of those types of benefits allow people to have more flexible ways to make a living.” In other words, his company didn’t have to provide health insurance because drivers could buy it on their own through Obamacare. (That was eight months before a California court ruled that Uber drivers are, in fact, employees and thus were owed typical benefits, a decision the company is appealing.)

Democratic Sen. Mark Warner of Virginia, who built a fortune in cell phone technology, calls it “the gig economy.” Part-time or temporary workers already account for 40.4% of the workforce, up from 35.3% in 2006. Many of these workers have several jobs doing things like driving for Uber, renting out their couch through Airbnb or doing freelance journalism, software coding or videography. These jobs provide workers with flexibility and give them an alternative to unemployment, but the drawback is that they don’t come with the standard package of benefits most full-time workers have long enjoyed.

Underlining Clinton’s concerns about the gig economy, Jake Sullivan, one of her top policy advisors, told a group of Washington journalists at a breakfast Tuesday organized by the Christian Science Monitor that there’s no easy answer. “It’s a huge question and a very hard one,” he said.

While Clinton faces the risk of looking uncool by criticizing companies like Uber, Bush faces an even tougher question. After all, repealing Obamacare is at the top of every 2016 Republican candidates’ list. It’s one thing to ride in an Uber, but quite another to figure out how to fix its business model if the safety net shrinks.

But if the 2016 candidates are just skirting around the edges of the issue, Congress has barely touched it.

A self-described pro-business moderate, Warner is just about the only one on Capitol Hill thinking about these issues. He’s exploring legislation that would help freelancers, such as creating an Obamacare-type program for retirement benefits or building off the model that some trade unions have for contract workers to receive benefits. He also is looking to revamp the tax code to create a category for “dependent workers,” a hybrid between a contractor and a full-time employee that would end the debates, if not the legal challenges, on exactly what kind of an employee gig economy workers are.

But Warner is months, if not years, away from legislation and little is likely to pass before the election, regardless. Which leaves the issue open for debate among the 2016 field. Where should workers in the gig economy get benefits: from their employers or the government?

TIME Greece

Greek Anti-Austerity Protests Turn Violent

Athens clashes
Yannis Behrakis—Reuters Riot policemen try to avoid an exploding petrol bomb during clashes in Athens, on July 15, 2015.

Groups of youths among the more than 12,000 protesters smashed storefronts and set at least one vehicle alight

(ATHENS, Greece) — Rioters hurled petrol bombs at police who responded with tear gas as an anti-austerity demonstration outside parliament turned violent Wednesday, while Greek lawmakers began debating contentious measures needed to start negotiations on a new bailout and avoid financial collapse.

Groups of youths among the more than 12,000 protesters smashed storefronts and set at least one vehicle alight. The clashes were the first significant protest violence since the left-wing Syriza government came to power in January promising to repeal bailout austerity. Police said at least 50 people were detained.

The protest was timed to coincide with the start of debate on the bill, which includes consumer tax increases and pension reforms that will condemn Greeks to years of more economic hardship.

The bill has fueled anger among the governing left-wing Syriza party and led to a revolt by many party members against Prime Minister Alexis Tsipras, who has insisted the deal forged early Monday after a marathon weekend eurozone summit was the best he could do to prevent Greece from crashing out of Europe’s joint currency.

“I must tell you, that Monday morning at 9:30, it was the most difficult day of my life. It was a decision that will weigh on me for the rest of my life,” said Finance Minister Euclid Tsakalotos.

“I don’t know if we did the right thing. But I know we did something with the sense that we had no choice. Nothing was certain and nothing is,” he said as the debate kicked off.

Civil servants protested with a 24-hour strike that disrupted public transport and shut down state-run services across the country.

Large numbers of Syriza lawmakers are almost certain to vote against the package, though the bill is expected to pass with support from pro-European opposition parties.

Alternate Finance Minister Nadia Valavani resigned from her post, saying she could not vote in favor of the bill.

In a letter she sent to Tsipras on Monday and released by the finance ministry Wednesday, Valavani said she believed “dominant circles in Germany” were intent on “the full humiliation of the government and the country.”

The economy ministry’s secretary general, Manos Manousakis, also resigned over the agreement.

Tsipras agreed to a deal after a marathon 17-hour eurozone summit that ended Monday morning. It calls for Greece to pass new austerity measures his left-wing government had long battled against in return for the start of negotiations on a third bailout worth about 85 billion euros ($93 billion) in loans over three years.

The government, a coalition between Syriza and the small right-wing Independent Greeks, holds 162 seats in Greece’s 300-member parliament. More than 30 of Syriza’s own lawmakers have publicly voiced objections.

Tsipras has acknowledged the measures he agreed to go against his election pledges to repeal austerity, and described them in a Tuesday night television interview as “irrational.”

But he said he had no option if he was to prevent Greece’s financial collapse.

The International Monetary Fund, which was involved Greece’s previous two bailouts and will also play a role in the third, has long argued the country’s debt is too high and that any deal must include debt relief — something the Greek side has also insisted on.

In a report released late Tuesday, the IMF said Greece’s debt was now “highly unsustainable” and would reach “close to 200 percent of GDP in the next two years.”

On Wednesday, the European Union’s executive Commission echoed that analysis, saying there are “serious concerns” about the sustainability of Greece’s debt due to a worsening in the economy.

Tsipras has faced strident dissent even from top ministers, with Energy Minister Panagiotis Lafazanis saying in a post on his ministry’s website that the deal the prime minister reached was “unacceptable” and calling on him to withdraw it.

The civil servants’ strike disrupted public services. Pharmacies joined in with their own 24-hour strike to object to the austerity deal, which will allow some non-prescription drugs to be sold by supermarkets.

“These laws will pass through parliament today, because they can’t do otherwise,” said Eleni Sari, 45, as she walked through central Athens.

“Naturally, the people are furious, and they have not allowed them any choice. Unfortunately it’s not in our hands anymore. That is, it’s no longer in the people’s hands. By necessity … they will pass them in parliament, and by necessity we will bear their burden.”

Greeks continued to struggle with limits on cash withdrawals and transfers outside of the country. Banks were shut down June 29 and the finance ministry said they would remain closed through Thursday.

With its banks dangerously low on liquidity and the state practically out of cash, Greece desperately needs funds. It faces a Monday deadline to repay 4.2 billion euros ($4.6 billion) to the European Central Bank, and is also in arrears on 2 billion euros to the IMF.

Negotiations on the new bailout will take an estimated four weeks, leaving European finance ministers scrambling to find ways to get Athens some money sooner.

The European Commission has proposed giving Greece 7 billion euros in loans from a special fund overseen by all 28 EU nations so it can meet its upcoming debts. The loan would be made pending the start of a full bailout program, but faces resistance from Britain, a non-euro member of the EU.

Germany argued one way for Greece to meet its financing obligations was for it to issue IOUs for domestic needs.


Associated Press writers Efty Katsareas in Athens and Raf Casert in Brussels contributed to this report.

TIME Congress

13 Reasons the Government Could Shut Down Again This Fall

Congress Convenes On Columbus Day As Government Shutdown Continues
Mark Wilson—Getty Images The U.S. Capitol in Washington in 2013.

Democrats and Republicans don't see eye to eye on spending

Do you miss the government shutdown? Don’t worry, another one could be coming as soon as this fall.

You might have thought the threat of another shutdown was shelved last year when congressional Budget Committee Chairs Rep. Paul Ryan and Sen. Patty Murray came to a two-year bipartisan deal to fund the government.

But the new Republican Congress blew up that deal, and a shutdown could be part of the fallout.

Republicans are now attempting to undo controversial cuts to military spending in the 2013 sequester. Democrats are having none of that: if the Pentagon gets its money, they argue, so too should entitlements, as was part of the original deal. Unless Republicans relent on this point, Democrats have vowed to block all 13 appropriations bills from coming to the Senate floor.

But even if those bills were to get voted on, odds are they won’t pass since they have dozens of provisions that Democrats object to — and which President Obama has threatened to veto.

If some sort of funding isn’t passed by the end of September, the government will shut down. Senate Majority Leader Mitch McConnell swears that will not happen on his watch, but for now the two sides aren’t even talking.

So what could cause a shutdown? Here’s a look at the 13 most controversial provisions, any one of which could trigger a partial or total government shutdown if Democrats and Republicans can’t come to an agreement.

  1. Obamacare: Of course, the bills cut funding for the implementation of Obamacare — the same law that caused the last shutdown.
  2. The environment: The bills would essentially defund or block the President’s climate change plan—including his recently issued controversial rule for coal fired power plants, a clean water rule and a bunch of endangered species listings. All told there are more than 30 riders that environmental groups are protesting.
  3. Cybersecurity: On the heels of a massive breach of personal information for tens of millions of government employees, the GOP budgets would delay installation of cybersecurity upgrades to federal agencies to protect against foreign attacks and cut funding to protect the nation’s electronic grid from cyber attacks and extreme weather by 40%.
  4. Education: The GOP bills would cut nearly $6 billion in education funding, eliminating six pre-K-12 programs, slashing Head Start by $1.5 billion, cutting 21st Century Community Learning Centers by 10% and School Improvement Grants by 11% and $300 million in Pell Grants.
  5. Labor: As the President negotiates two of the largest free trade pacts in the world, he has pledged to ensure that they will meet fair labor standards and not empower countries to abuse their workforces. But the enforcement of these provisions falls on a Labor Department office, the same office that Republicans are looking to cut by 67%. Also on the chopping block: 5% of the Occupational Safety and Health Administration’s budget and 8% of the budget of the office that protects workers from wage theft and abuse.
  6. Veterans: Despite the ongoing scandal plaguing the Veterans Affairs Administration, the budgets cut $255 million from veterans medical care and $105 million from maintenance for VA hospitals.
  7. Consumer protection: The GOP bills would cut $200 million in funds to implement Wall Street re-regulation, or the Dodd-Frank bill passed in the wake of the financial crisis to prevent something like that from happening again. And it attempts to defund Sen. Elizabeth Warren’s darling, the Consumer Financial Protection Bureau, which was set up in the wake of the crisis to better protect Main Street from the risks Wall Street is taking.
  8. Women’s health: The bills cut funding for Title X family planning service programs, eliminating access to birth control for the 4.7 million clients that the programs served in 2012, preventing an estimated 1.2 million unintended pregnancies. They also slash funding to prevent teen pregnancies by 81%.
  9. Infrastructure: In the wake of a fire in a Chicago radar facility that knee capped Midwest air traffic for weeks as air traffic controllers tracked planes with pen and paper, the Transportation Department asked for more money for air traffic control. Instead, Republicans are seeking to cut $255 million from the air traffic control system. Other targets include: $479 million in cuts to water infrastructure $400 million in cuts to innovation grants and $1.7 billion in cuts to transit projects across the country.
  10. Job training: The bills propose cutting $650 million from job training programs.
  11. Wildfires and disease: The GOP budgets envision cutting $1 billion from funding to fight wildfires. Also on the chopping block: $500 million for the Agriculture Department to research diseases like the avian flu.
  12. National parks and national service: The bills cut the National Park Services budget by $321 million, despite the fact that the agency has a massive $11 billion backlog. It also cuts $340 million, or 29%, from AmeriCorps, which translates into 32,000 fewer members serving their communities.
  13. Health: The GOP budgets propose cutting lead paint removal in low-income households, potentially putting more than 2,000 children at risk. And they cut funding for 9,000 scientists’ research at the National Science Foundation.

TIME Economy

Avian Flu Outbreak Nearly Doubles Egg Prices

healthiest foods, health food, diet, nutrition, stock, eggs, breakfast, dairy
Photograph by Danny Kim for TIME; Gif by Mia Tramz for TIME

The price jump marks the largest increase recorded since the government began tracking producer costs in 1937

(WASHINGTON) — Prices for the producers of goods and services rose modestly in June, a sign that broader inflation is being kept in check. But an outbreak of avian influenza caused the cost of eggs to nearly double, as prices soared at the fastest pace ever recorded.

The Labor Department said Wednesday that its producer price index increased 0.4 percent in June. Inflation remains tame as producer prices have fallen 0.7 percent over the past 12 months due to lower oil and gasoline costs. Wholesale gas prices rose 4.3 percent last month but are down 30.3 percent from a year ago.

Chicken egg prices jumped 84.5 percent last month, the largest increase recorded since the government began tracking producer costs in 1937. More than 49 million chickens and turkeys died or were euthanized in 15 states this spring as the flu virus spread from the Pacific Northwest into Midwest farms.

Core prices, which exclude energy and food, rose 0.3 percent in June.

Relatively cheap oil has limited inflation across much of the U.S. economy. The cost of Brent crude oil in the markets barely budged for much of June, after climbing at the start of May to nearly $68 a barrel.

Gasoline prices have stayed relatively flat so far in July, dropping to a national average of $2.78 a gallon from $2.80 a month ago, according to AAA. Average retail gas prices have fallen nearly 23 percent over the past 12 months.

Federal Reserve officials are monitoring measures of inflation as they weigh whether to raise a key short-term interest rate. They have kept the federal funds rate at a record low near zero for more than six years, making it cheaper to borrow, spend and invest in ways that aid economic growth.

Fed officials have said they want to be “reasonably confident” that inflation is headed toward their 2 percent target, which would signal a stronger economy.

The Fed will meet for two days starting July 28 to consider interest rates. Still, most private economists believe that September will be the earliest that they will hike rates.

Analysts say the Fed wants assurance that the economy is strong enough to raise rates without disrupting growth. But even once the Fed starts raising rates, Fed Chair Janet Yellen and other officials have said that any increases will be gradual.

TIME Economy

Fed’s Yellen: Brace Yourselves, a Rate Hike Is Coming

Mandel Ngan—AFP/Getty Images Janet Yellen smiles after taking the oath of office as Chairman of the Board of Governors of the Federal Reserve System February 3, 2014 at the Eccles Building in Washington, D.C.

"The economy has made further progress"

You heard it from the Federal Reserve Chair herself: interest rates will soon go up.

In prepared testimony to the House Financial Services Committee on Wednesday, Federal Reserve Chair Janet Yellen will say that as the U.S. economy continues to improve, “conditions likely would make it appropriate at some point this year to raise the federal funds rate target.”

Appropriate or not, there is no guarantee rates will rise this year, and it may take until 2016 for it to happen. If and when rates go up, it will be their first rise in nearly 10 years.

The increases would be gradual, coming as a result of overall economic improvement and the falling unemployment rate.

“The economy has made further progress toward the Federal Reserve’s objective of maximum employment,” Yellen will say, adding that the unemployment rate of 5.3% is “slightly below its level at the end of last year.” And there’s more good news from Yellen: “Other measures of job market health are also trending in the right direction, with noticeable declines over the past year in the number of people suffering long-term unemployment and in the numbers working part time who would prefer full-time employment.”

Yellen’s outlook won’t be all roses. Separate from her prediction of a federal rate hike, Yellen will say there are still “uncertainties in the economic outlook. Foreign developments, in particular, pose some risks to U.S. growth.” She will call out the current situations in Greece and China as examples of such uncertainties.

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