Dean Baker's Blog, page 217

Paul Krugman, Larry Summers, and the Fed's Unused Ammunition

Paul Krugman and Larry Summers both have very good columns this morning noting the economy's continuing weakness and warning against excessive rate hikes by the Fed. While I fully agree with their assessment of the state of the economy and the dangers of Fed rate hikes, I think they are overly pessimistic about the Fed's scope for action if the economy weakens.

While the Fed did adopt unorthodox monetary policy in this recession in the form of quantitative easing, the buying of long-term debt...

The NYT Doesn't Explain How Denmark's Cuts to Clean Energy Subsidies Boost Economic Growth

A NYT article on cuts to government subsidies for solar and wind energy were put in place by a conservative government, "determined to tighten spending and balance the budget in a program to grow the economy." The piece does not indicate how budget cuts in the current economic situation are supposed to "grow the economy."

As the article points out, Denmark's economy is suffering from a lack of demand.

"Shortly after taking over in June, the new government was forced to cut its forecast for e...

The New York Times Comes Out Against Free Trade in Nigeria

The context is Nigeria's economic relationship with China. The NYT complains to readers that China is providing goods at a lower cost than other other countries or the country's domestic industry.

"Chinese goods are so dominant that consumer have few other choices."

The article points out that the goods are of varying quality and some, in the case of electronic items, may pose safety problems. Of course the reason that consumers have few other choices is that the Chinese products sell for mu...

The Fed's Conservative Critics Have Been Wrong

The Post has an interesting piece discussing Janet Yellen's tenure as Fed chair as she prepares to possibly raise interest rates for the first time since the onset of the recession. The piece discusses Yellen's Republican critics in Congress who want to rein in the power of the Fed to conduct monetary policy. These critics complain that the Fed has been too loose with the money supply and that this will result in runaway inflation.

It would have been worth noting that these critics have been...

China's Aid to Africa: More of the Which Way Is Up Problem

The state of economics is pretty dismal these days, which is demonstrated constantly in the reporting on major issues. The NYT gave us a beautiful example this morning in a piece on a pledge by China's government of $60 billion in aid to Africa.

The third paragraph told readers:

"Against longstanding accusations that China benefits from a lopsided relationship with Africa, contentions that have recently gained traction as China’s trade deficits with many African nations have widened, Mr. Xi s...

How Much Is Hillary Clinton's $275 Billion Infrastructure Spending?

It has become a common practice for reporters to refer to former Secretary of State Hillary Clinton's proposal to spend $275 billion on infrastructure. Is this a lot of money? My guess is that almost no one reading the number has a clue. Certainly Secretary Clinton wants people to think it is a major commitment.

While there is no obvious yes or no answer, it would help first of all if reporters started by giving a time frame. Spending $275 billion over one year is a much larger commitment tha...

The Problem with Negative Fed Interest Rates

Neil Irwin had a piece in the Upshot section of the NYT raising the possibility that the Fed could have negative interest rates on reserves, rather than its current near zero rate, as a way to provide an additional boost to the economy. The argument is that it is very inconvenient to carry cash, so deposits would not flee banks even if the interest rate were a small negative number.

The problem is that this analysis does not consider the realities of the banked population. Banks have millions...

Asset Bubbles that Move the Economy Are Easy to Spot

Matt Yglesias is trying to convince people that we should not be mad at Alan Greenspan, the Bush administration economic policy team, and the economics profession for missing the housing bubble that sank the economy. He says that "financial bubbles are much harder to spot than people realize" and argues that the subsequent history shows that I actually was wrong in identifying a housing bubble in 2002.

There are two important points that need to be made here. First, my claim has always been t...

Charles Lane and the Washington Post Don't Like Unions

The Washington Post has long expressed outrage over the fact that unionized auto workers can get $28 an hour. Therefore it is hardly surprising to see editorial page writer Charles Lane with a complaining that "the United Auto Workers sell out nonunion auto workers."

The piece starts out by acknowledging that the AFL-CIO opposes tax provisions and trade agreements (wrongly called free trade agreements — apparently Lane has not heard about the increases in patent and copyright protectio...

Growth and Global Warming

Eduardo Porter discusses whether a no growth economy is feasible as a solution to addressing global warming. While he is largely right about the practicality of no growth economy, there are a couple of points worth adding.

As a practical matter, it is just simple arithmetic that a larger world population will require fewer greenhouse gas (GHG) emissions per person. For this reason, a shrinking world population, or least more slowly growing one, would make it easier to hit emissions targets.

T...