Dean Baker's Blog, page 206

Bankers’ Bailout: Quick Thoughts on the Tarp

Since the TARP has come up repeatedly in the debates between Secretary Hillary Clinton and Senator Bernie Sanders, it is worth briefly correcting a couple of major misconceptions. The first one is that we would have had a second Great Depression without the bailout. This assertion requires rejecting everything we know about the first Great Depression.

The first Great Depression was caused by a series of bank collapses as runs spread from bank to bank. The country was much better positioned t...

Tell Morning Edition: It's Not "Free Trade" Folks

Hey, can an experienced doctor from Germany show up and start practicing in New York next week? Since the answer is no, we can say that we don't have free trade. It's not an immigration issue, if the doctor wants to work in a restaurant kitchen, she would probably get away with it. We have protectionist measures that limit the number of foreign doctors in order to keep their pay high. These protectionist measures have actually been strengthened in the last two decades.

We also have strengthen...

More on Trans-Pacific Partnership Models: Response to Petri and Plummer

I see that Peter Petri and Michael Plummer (PP) have responded to my blog post on their models projections for the TPP. In essence, they minimize the concern that the TPP or even trade deficits more generally can lead to a prolonged period of high unemployment or secular stagnation to use the currently fashionable term.

Dealing with the second issue first, they argue:

“While trade agreements include many provisions on exports and imports, they typically contain no provisions to affect savings...

Raising Wages: What’s Wrong With Ending Protection for Those on Top?

Eduardo Porter noted the rise in income inequality over the last three decades. He then suggests a few policies that could raise incomes for those at the middle and bottom, such as the wage insurance policy recently proposed by President Obama and the Earned Income Tax Credit. While these are reasonable proposals, it is also reasonable to suggest ending the protections that act to raise incomes for those at the top.

For example, we can use trade policy to provide more competition for doctors,...

Krugman on China, Trump, and Romney

I see Paul Krugman was taking cheap shots at my heroes while I was on vacation. Krugman argues that Trump is wrong to claim that China is acting to keep down the value of its currency against the dollar. He points to recent efforts to prop up the value of the yuan by selling foreign exchange as evidence that China is actually doing the opposite of what Trump claims. Krugman should know better.

This is a story of stocks and flows. It’s true that China’s central bank is now selling reserves rat...

I Am Out of Here!

Folks,

I'm off on vacation, so I won't be beating the press for the next week. I'll be back Wednesday, March 9th. Just remember, in the meantime, don't believe anything you read in the paper.

Can We Stop with the Fear of Deflation Stuff Already?

Paul Krugman, who certainly knows better, referred to the "risk of deflation" receding in the euro zone in his blog today. The point is that it doesn't matter if the inflation rate crosses zero and turns negative, the problem is that the inflation rate is too low. It's more too low if we have -0.5 percent inflation rather than 0.5 percent inflation, but this is no worse than having the inflation rate fall from 1.5 percent to 0.5 percent.

As I pointed in my prior post: "The inflation rate is a...

The Fact Checker’s Judgment on Clinton’s Claim That Republicans Want to Turn Social Security Over to Wall Street

Glenn Kessler, the Washington Post’s Fact Checker, gave former Secretary of State Hillary Clinton three Pinocchios for saying that the Republicans wanted to turn Social Security money over to Wall Street. I am afraid that I see this one a bit differently.

First, as a small point, the piece comments:

“We have explained before that “privatization” is one of those pejorative political labels used by opponents of the Bush plan…”

That’s not how I remember the story. In the 1990s many conservativ...

The Fed’s Bubble Promotion Strategy and Current Fed Policy

Neil Irwin had an interesting piece on the Federal Reserve Board’s interest rate policy and its relationship to the stock market. The piece essentially argues that if the Fed were to make its interest rate decision based on economic data that it would hike rates at its next meeting. By contrast if it bases its decision on the stock market, it will leave rates where they are. It also argues that the Fed had acted to prop up the stock market in the 1997 following the East Asian financial crisis...

Accelerating Inflation: The Attack of the Job Killers

The job killers (proponents of Fed rate hikes) seized on some modest upticks in the January inflation data to argue that the economy is near capacity and the Fed should be pushing up interest rates. After all, the core (excluding food and energy) consumer price index (CPI) rose by 2.2 percent over the last year, somewhat over the Fed’s 2.0 percent target. That’s pretty scary stuff.

I’ll make a few quick points here. First, the Fed officially targets the core personal consumption expenditure...