Dean Baker's Blog, page 289

The Washington Post Is a Mess: Social Security Edition

The Washington Post brought its campaign against Social Security into the name-calling phase with a full page article headlined, "Social Security Is a Mess. How to Fix It." (That is the print edition headline, the web version is slightly different.) The piece includes a standard list of revenue and spending items that could close the shortfall that is first projected to arise in 19 years.

There are a few points worth making about this piece. The first is the obvious. Name-calling doesn't belo...

Don't Buy Gross Domestic Income

Justin Wolfers is trying to sell gross domestic income (GDI) as a more accurate measure of growth than GDP. He notes that gross domestic income grew at a 2.2 percent annual rate in the first half of 2014 and says that this "more accurate" measure of the economy should be taken over the 1.2 percent annual rate shown by the more widely used GDP measure.

In principle GDI and GDP should show the same growth. GDI measures the economy by measuring the incomes generated in production (e.g. wages, pr...

Including Capital Gains Exaggerate Income of the Rich

Neil Irwin has a useful piece reporting on a journal article by Pavlina Tcherneva documenting the increased share of income growth going to the top 10 percent and especially the top 1 percent. While there can be little doubt about the basic patterns, it is worth noting that the data include capital gains income. This is important because by this measure the change in income shown in any given year will be hugely influenced by the movement in stock prices in the recent past.

For example, if st...

Rising Dollar Costs Jobs

The NYT ran an article celebrating the recent run-up in the dollar. The headline is "buoyant dollar recovers its luster, underlines rebound in U.S. economy." The headline could have with at least as much accuracy substituted "undermines" for "underlines." While the piece attributes the rise in the dollar to all sorts of good things about the U.S. economy, there actually is a much simpler explanation. Interest rates are higher in the United States than elsewhere.

Relative interest rates determ...

That Two Percent Inflation Target and Silly Things Economists Say

I see Paul Krugman has picked up on my friend Jared Bernstein's post asking where the Fed's 2.0 percent inflation target came from. He argues that it is a pretty much arbitrary compromise between the idea that the target should be zero (the dollar keeps its value constant forever) and the idea that we need some inflation to keep the economy operating smoothly and avoid the zero lower bound for interest rates. This is far too generous.

I recall reading the literature justifying the 2.0 percent...

What Economists Call a "Balance Sheet" Recession Used to Be Called a "Wealth Effect" Recession

It's often said that the economy is far too simple for economists to understand. There is probably no better example of this problem that the invention of the "balance sheet" recession. The story is that because households have large amount of debt (generally mortgage debt), they cut back on consumption, thereby reducing demand and growth. In Wonkblog today, Matt O'Brien tells us that falling house prices in China may cause the country to face such a balance sheet recession.

The problem with...

The U.S. Could Pay India Not to Emit Greenhouse Gases

The NYT had a bizarre article on India's projected path of greenhouse gas emissions, noting that its emissions are likely to continue to rise at least through 2030. The piece notes that India is likely to pass both the United States and China as the world's leading emitter of greenhouse gases. The piece presents India's situation as providing a real moral dilemma since the country still has so many people living in poverty and it needs to increase energy production to sustain its growth and l...

More Lawlessness From Lenders

The NYT had a fascinating article on innovations in the financial sector. The piece reports on devices installed in cars purchased with subprime loans that will block a car from starting. According to the piece lenders often block a car from starting after borrowers are just a few days late on their payments. It also reports on cases where borrowers claim they were current on their loans when their cars were blocked from starting. Apparently state rules regulating repossessions, such as provi...

China's Per Capita Emissions are One Third Those of the U.S.

This point would have been worth including in a discussion of President Obama's effort to get China to agree to emission reductions. China remains much poorer than the United States, even though it has surpassed the United States in GDP, because it has four times the population.

Furthermore, many of its emissions are associated with goods that are produced for export to the United States and other countries. In that sense, the United States has effectively exported emissions connected to its...

Median Household Income Began to Stagnate in 1980, not 2000

Thomas Edsall has a good discussion of the shift of income from labor to capital in the years since 2000. His piece puts the blame largely on the way the United States has structured global trade to put downward pressure on the wages of ordinary workers.

While Edsall's discussion of the period since 2000 is largely on target (it does miss the impact of macroeconomic fluctuations and the fact that we have been well below full employment for most of this period), it errs in telling readers:

"Un...