Dean Baker's Blog, page 263

Robert (not Paul) Waldman Takes the Stock Return Challenge

I see Robert Waldmann has taken up the old challenge from the Social Security privatization days of whether it was possible to get a 7.0 percent real return when price to earnings ratios in the stock market were over 20 to 1 (2005 days) or 30 to 1 (late 1990s privatization craze). He claims to have done the trick by assuming that stock prices grow at a 3.0 percent real rate (the same as the growth rate for the economy), stocks pay out 1.9 percent in dividends, and effectively pay out 3.3 perc...

Erskine Bowles Is Back and Still Pushing Austerity

Erskine Bowles, the superhero of the fiscal austerity crowd, took time off from his duties on corporate boards to once again argue the need to "put our fiscal house in order." He apparently hasn't been following the numbers lately. If he had, he would have noticed that growth rate of Medicare and other government health care programs is now on a path that is lower than the proposals that he and Alan Simpson put forward in their report. (He refers to their report as a report of the National Co...

Robert Samuelson Is Unhappy that Seniors Get Social Security and Medicare

Yes, it's Monday morning at the Washington Post and Robert Samuelson wants to raise the retirement age and cut Social Security and Medicare benefits. How else would one begin the week?

He apparently thinks he is being clever by claiming that because the government is meeting these obligations to its seniors, it is failing elsewhere. Somehow, it doesn't occur to Samuelson that if we want to get extra money for other areas of government spending we could

1) raise taxes,

2) cut government paymen...

Actually the Personal Saving Rate Is Very Low

Robert Schiller had an interesting piece in the NYT on how uncertainty about the economy may be leading to extraordinary low long interest rates. However, he adds in the strange comment that savings is not low, in spite of the very low return available to savers:

"Yet according to the Bureau of Economic Analysis, personal saving as a fraction of disposable personal income stood at 4.9 percent for the United States in December. That may not be an impressive level, but it’s not particularly low...

Why the Monthly Change in the Hourly Wage Tells Us Nothing

Okay, we'll try it with pictures this time. I have been trying to explain that the monthly wage data are erratic. If we accept the numbers at face value then we would have to believe that workers go from getting healthy pay gains one month to pay cuts the next. To me that seems pretty implausible, but apparently many reporters and some economists think this is the way the economy works.

So today we do it with pictures. The folks who believe that the monthly wage data released by the Labor Dep...

257,000 Jobs Are Great, but Those Wall Street Boys Are Really Smart

The celebrations over the economy's strong performance are really getting out of hand. That makes it incumbent on those of us who have access to government data and know arithmetic to work harder to set the record straight.

The basic point is a simple one. The economy is recovering, and at least recently, at a relatively rapid pace. I say "relatively" because if we saw the same job growth rates as we did after steep recessions in prior decades we would be seeing 500,000 to 600,000 jobs a mont...

The Unfairness of a $3.4 Million Cap on IRAs

Allan Sloan is a reasonable conservative, which means that he usually makes reasonable arguments, even if some of us to his left may disagree with them. Today's piece criticizing President Obama's proposal to cap the amount in a tax sheltered IRA at $3.4 million isn't up to the usual standards.

The gist of Sloan's argument is that $3.4 million would not be enough to generate the same retirement income in annuity as President Obama will get in his pension when he retirees. By Sloan's calculati...

Higher Interest Rates Will Quickly Alleviate That Debt Burden

There has been concern expressed in some circles about the growing ratio of debt to GDP in countries around the world. Neil Irwin has a piece on this issue in today's Upshot section of the NYT.

Such concerns are seriously misplaced for a simple reason: the market value of debt is inversely related to the interest rate. The point here is a simple one. Imagine an infinitely lived bond that pays $50 a year in interest. If the prevailing interest in the market for long-term debt is 5 percent, the...

Higher Interest Rates Will Quickly Alleviate That Debt Budren

There has been concern expressed in some circles about the growing ratio of debt to GDP in countries around the world. Neil Irwin has a piece on this issue in today's Upshot section of the NYT.

Such concerns are seriously misplaced for a simple reason: the market value of debt is inversely related to the interest rate. The point here is a simple one. Imagine an infinitely lived bond that pays $50 a year in interest. If the prevailing interest in the market for long-term debt is 5 percent, th...

Quick, Another Story on the U.S. Economic Boom, Before December Trade Data Gets Around

Economists and economic reporters are fortunate they don't work in an occupation like dishwashing or truck driving where job security and promotion depend on performance. If they did, most of the folks currently employed would be on the street after missing little things like an $8 trillion housing bubble.

But no reason to recount old history. Remember all those stories of the booming U.S. economy? Well, they are likely to be just memories. The December trade data was released today. It showe...