Dean Baker's Blog, page 257

Deflation Due to Lower Commodity Prices Is Not a Problem (Except to Commodity Producers)

For some reason economics reporters and economists seem to have a really hard time understanding deflation. There are two lessons for today. First, we get the standard lesson: crossing zero means nothing, the problem is too low a rate of inflation.

As I've written a few thousand times, inflation is an aggregate measure that combines price changes of hundreds of thousands of goods and services. When the inflation rate gets near zero it means that than many of the price changes are already nega...

The Rationality of Continued Austerity in Greece

The NYT ran an a piece by Hugo Dixon that boldly proclaimed that if Alex Tsipras, the prime minister of Greece is rational, he will get tough with his left-wing supporters and impose more austerity measures. This is an interesting notion of rationality.

Greece's economy has shrunk by more than 25 percent since 2008. Its unemployment rate is close to 25 percent. The current projections from the I.M.F. and others show little improvement in these numbers by the end of the decade if it sticks to...

In Addition to the Union President, Economists Would Also Call an Increase in Worker Pension Contributions a Cut in Pay

The Washington Post likely misled many readers in an article on a Republican proposal to cut benefits for federal employees. It noted that the proposal calls for federal workers to increase the amount they pay for their pensions by 7 percent of their salary. It then quoted Richard Thissen, the president of the National Active and Retired Federal Employees Association, as saying that the higher contribution is,"nothing more than a pay cut for federal employees."

This is not just the view of a...

Stanley Fisher's Faulty Logic On Higher Fed Interest Rates

The Washington Post missed the opportunity to correct Stanley Fisher, the vice-chair of the Federal Reserve Board, on his arguments for raising interest rates. An article on the prospect of Fed rate hikes later this year quoted Fisher on the desirability of raising rates so that the Fed would have room to use normal monetary policy (i.e. lower interest rates) if there was a shock to the economy leading to a slowdown. There are two major flaws in this logic.

First, if the Fed delays raising in...

Contrary to What You Read in the NYT, Net Exports Have Been a Drag on Growth in the Recovery

Okay, for the 64,512th time, it is net exports that contribute to GDP, not exports. Apparently this distinction is difficult for people involved in economic policy to understand since they keep making the same mistake.

The point is straightforward. If the United States increases its exports because GM is exporting car parts to be assembled in Mexico and then imported back as a finished car to the United States, it will not be a net job creator. We used to have jobs at assembly plants in the U...

George Will Must Not Think Willie Mays Was a Great Baseball Player or that the Polio Vaccine Was a Big Deal

That is the implication of his column touting the virtues of inequality. Will seems to think that we could not get people to work hard to master skills or to be great innovators if they didn't have the prospect of earning billions or tens of billions of dollars. But if we look back through history we can identify an enormous number of tremendously talented and creative individuals who did not get fabulously wealthy or even have any plausible hope of getting fabulously wealthy.

Mays was of co...

NYT's Coverage of Japan Is Complicated by a Lack of Understanding of Economics

Just when you thought economics reporting could not get any worse, the NYT leads the way. The headline of a news article told readers that "Japan's recovery is complicated by a decline in household savings." The piece reports that consumption is now increasing (barely), but because real wages have not risen, it has led to a decline in household savings. The household saving rate in Japan is now negative. It then tells us that businesses are big savers, but that money is needed to finance the...

The Economy, Like Arithmetic, Is Not Complicated; Even If Robert Samuelson Does Not Understand It

Robert Samuelson (sorry, he's not going to take advantage of my vacation) gets it badly wrong about the economy again. He began his Monday column by telling readers:

"The Federal Reserve is at a crossroads, and it doesn’t know where it’s going."

Really? The Fed doesn't know where it's going? How about Robert Samuelson doesn't know where it's going? 

It gets worse:

"There was a time when we were more confident. We didn’t pay attention to details, because the experts had matters in hand. D...

It's March 16th, and I Am Out of Here

It's vacation time. I'm off until Wednesday March 25th. And remember, until then, don't believe anything you read in the newspaper.

Robert Samuelson Is Worried Robots Will Take People's Jobs

At least this is what he says in his column today. The data strongly disagree with him. In the last four years productivity growth has averaged less than 1.0 percent a year. Productivity growth measures the rate at which robots and other technology replace people. In the years from 1995-2005 productivity growth averaged over 2.5 percent annually. In the period from 1947 to 1973 it averaged close to 3.0 percent.

The data indicate that we are seeing a slowdown in technology replacing labor (whi...