Dean Baker's Blog, page 292

It Really Wasn't Hard to See the Dangers Posed by the Housing Bubble

At its peak in 2006, the housing bubble had caused nationwide house prices to rise more than 70 percent above their trend level. This run-up occurred in spite of the fact that rents had not outpaced inflation and there was a record nationwide vacancy rate.

The dangers of the bubble also should have been clear. Residential construction peaked at almost 6.5 percent of GDP compared to long period average of close to 4.0 percent. The housing wealth effect had led to a consumption boom that pushe...

Manufacturing Employment Is Down Everywhere, Not Just Michigan

A NYT article reporting on the economic and political situation in Michigan noted that in spite of the improvement in its economy since the recession, manufacturing employment is still far below prior peaks. It old readers:

"Manufacturing has come back, with payrolls rising to 567,900 this June from 440,600 in June 2009, bringing manufacturing payrolls back to July 2008 levels, but short of the peak of 906,900 in September 1999."

Actually Michigan's experience is not very different from the s...

Skills Gap In Manufacturing Seems to Be Primarily at the Top

The Wall Street Journal devoted a major article to the efforts by President Obama and several governors to address the skills gap. According to the piece, employers in manufacturing can't hire workers with the right skills. If employers can't get enough workers then we would expect to see wages rising in manufacturing.

They aren't. Over the last year the average hourly wage rose by just 2.1 percent, only a little higher than the inflation rate and slightly less than the average for all worker...

State and Local Pension Funds Face a Shortfall Equal to 0.3 Percent of GDP

Are you scared? How will we pay for that? This is the context that was missing from the discussion of a bill from Utah Senator Orin Hatch which would encourage state and local governments to replace traditional defined benefit pension plans with cash balance type plans tied to an annuity which would be run by the insurance industry.

The piece told readers:

"For local governments and states, the unfunded liabilities are huge, ranging anywhere from $1.4 trillion to more than $4 trillion, depen...

Are Corporate Inversions Shareholder Capitalism or Wall Street Capitalism?

Allan Sloan raises an important point about winners and losers from corporate inversions, the process through which a U.S. company arranges to be taken over by a foreign company to lower its tax bill. He points out that many shareholders will be hit with a large individual tax bill because as an accounting matter they will have sold their stock and thereby realized a capital gain.

This isn't a question of shedding tears for these shareholders, who will mostly be in the top tenth or even the t...

Fiery Comebacks Ain't Want They Used to Be

When countries went into recessions in the past they usually came out with a year or two of rapid growth that more than made up the ground lost in the recession and then resumed a normal growth path until the next recession. That hasn't been the case in any major wealthy country following the 2008 downturn, although some countries, notably those in the euro zone, have done markedly worse than others.

Perhaps it is this comparison to the weak performance of the euro zone countries that led a p...

Washington Post on Public Pensions: People Should Refuse to Pay for Their Washington Post Ads

The Washington Post thinks its fantastic that Rhode Island broke its contract with its workers. It applauded State Treasurer and now Democratic gubernatorial nominee Gina Raimondo for not only cutting pension benefits for new hires and younger workers, but also:

"suspending annual cost-of-living increases for retirees and shifting workers to a hybrid system combining traditional pensions with 401(k)-style accounts."

In other words, Ms. Raimondo pushed legislation that broke the state's contra...

Japan's Economy Grew at a 6.0 Percent Annual Rate in the First Quarter

A NYT editorial on Japan's economy may have created false alarms by noting that its economy shrank at a 7.2 percent annual rate in the second quarter. This is true, but it is important to point out this plunge followed a first quarter in which it grew at a 6.0 percent annual rate. The net for the first two quarters is still negative, and the editorial is correct to raise warnings about the impact of sales tax increases on growth, but the picture is not nearly as dire as the second quarter fig...

Robert Samuelson Wants to Cut Social Security and Medicare Spending Because Medicare Costs Could Start Rising Rapidly Again

Nope, I'm not kidding. We've seen a sharp slowdown in health care costs across the board over the last seven years. This has led the Congressional Budget Office to lower its deficit projections. In fact, the reductions in projected deficits due to this slowdown has been sharper than the reductions that we might have seen as a result of almost any politically plausible cut in benefits. But Robert Samuelson is not happy. He tells readers:

"No one truly grasps why Medicare spending has slowed so...

Poor Logic on Missing Mortgages

The NYT Magazine had a piece asking whether subprime mortgages are coming back. The gist of the argument is taken from an Urban Institute study arguing that if we had the same lending standards in place as in 2001, there would have been 1.2 million more purchase mortgages issued in 2012. It goes on to tell readers that reduced sales are holding back the housing market and the recovery. All of these claims are questionable.

First, asserting that 2001 is an appropriate base of comparison is rat...