Dean Baker's Blog, page 230

Mexico and NAFTA: Still Waiting for the Dividends

The NYT had a piece on how Mexico's economy remains weak and the government is again plagued by corruption. At one point it comments that:

"Growth has been slower under Mr. Peña Nieto’s presidency than the annual 2.3 percent average in the two decades before he took office."

It is worth noting that a 2.3 percent growth rate is extremely weak for a developing country. It means that Mexico was actually falling further behind the United States even before the slowdown under President Nieto. Furt...

Deflation Again: The Obsession With Zero

It is amazing how economic reporters and many economists continue to be obsessed with the topic of deflation. They seem to hold the view that when inflation crosses zero and turns negative, then something happens. This is in spite of the fact that there is zero (as in none) reason to believe this would be the case in theory and zero evidence that it is the case in reality.

Yet, we once again see the NYT tell readers in a piece on the current agenda of European Central Bank (ECB) President Mar...

Stephen Stromberg and the Logic of Barring Oil Drilling in the Arctic

Washington Post editorial writer Stephen Stromberg told Post readers that President Obama is not a climate hypocrite for talking about climate change even as he opens areas in the Arctic for drilling. Stromberg was responding to environmental groups who argued that if we are to prevent dangeorous levels of global warming, we will have to leave large amounts of the world's oil in the ground. They argue opening the Arctic for drilling is a serious step in the wrong direction.

Stromberg's respon...

Washington Post Ed Board: Federal Reserve Board Cultists

It’s always dangerous when followers of an insular cult gain positions of power. Unfortunately, that appears to be the case with the Washington Post editorial board and the Federal Reserve Board Cultists.

The Federal Reserve Board Cultists adhere to a bizarre belief that the 19 members (12 voting) of the Federal Reserve Board’s Open Market Committee (FOMC) live in a rarified space where the narrow economic concerns of specific interest groups don’t impinge on their thinking. According to the...

A Public Service Announcement: The Bureau of Labor Statistics Budget

The sequester put in place as part of the 2011 budget agreement is continuing to bite, as most areas of discretionary spending are seeing their budget cut in real terms. One of the areas slated for the biggest proportional cuts in the Bureau of Labor Statistics (BLS). Ready to head for the barricades?

Okay, I know that the data produced by the BLS doesn’t sound especially sexy. After all, we aren’t talking about children going hungry or pregnant women being denied medical care. But on a per...

Low Interest Rates in the Housing Bubble Years Were Due to China's QE Policy

Robert Samuelson has a column this morning on the impact of globalization on national economies. At one point the piece tells readers:

"Globalization has also punished the United States. From 2004 to 2006, the Federal Reserve raised short-term interest rates by 4.25 percentage points, believing that long-term rates on bonds and mortgages — which affect the economy more — would follow. They didn’t. If they had, would the 2008-2009 financial crisis have been avoided or softened? Then-Fed Chairm...

The Fed and Inequality: It Can Make a Huge Difference

The NYT had an interesting piece noting criticisms from the left and right directed at the Federal Reserve Board over its monetary policy decisions. It concludes with a comment from Princeton University professor and former Fed vice-chair Alan Blinder, saying that the Fed cannot do much to either reduce inequality or government indebtedness.

This is not accurate. From February of 1994 to March of 1995, the Fed made a decision to raise its short-term interest rate from 3.0 percent to 6.0 perce...

Hillary Clinton and the Capital Gains Tax Rate

The NYT had a piece on the proposals that various candidates have proposed to rein in Wall Street. The piece reports that former Secretary of State Hillary Clinton has proposed applying the normal income tax rate of 39.6 percent to capital gains on assets held less than six years rather than the 20 percent tax rate. (In both cases, capital gains for high income taxpayers are also subject to a 3.8 percent surtax connected with with Affordable Care Act.) It would have been helpful to point out...

Financial Transactions Tax Critics Point Out That the Industry Has Paid Almost the Entire Cost of the Tax

Well, that may not be what they intended to point out, but it is in fact what they pointed out, according to the International Business Times. According to the paper:

"Critics point to the results in France and Italy, which have their own financial tax regimes. In Italy, average daily trading in Italian stocks dropped 29.7 percent in January and February 2014, compared to the average for the same period in 2013, Credit Suisse trading strategy analysts said last year."

The tax rate on tra...

Robert Shiller's Case for a Stock Bubble

Robert Shiller rightly deserves his Nobel Prize as perhaps the world's leading expert on asset bubbles. (I beat him by a year on the housing bubble in the United States.) But I think he gets the story badly wrong in making the case that there is currently a serious bubble in the U.S. stock market.

Shiller's rationale is that the price-to-earnings ratio is well above its historic average. Furthermore, he points to the large stock plunges the last three times the price to earnings ratio approac...