Dean Baker's Blog, page 298

Stock Returns: Between Shiller and DeLong

Robert Shiller had a piece in the Sunday NYT noting that the S&P 500 was unusually high relative to his measure of trailing earnings. He calculated a ratio above 25, far above the historic average of 15. Shiller said that in the past, each time this ratio crossed 25 the market took a plunge shortly thereafter. He concludes his piece by seeing it as a mystery that the market remains as high as it does.

Brad DeLong picks up on Shiller's analysis and points out that in most cases in the past...

Job Polarization Was a Story of the 1990s, Not the 2000s

The Washington Post had an article reporting on the more rapid job growth in higher paying sectors of the economy in the last six years. At one point the piece tells readers:

"Even before the recession began, the economy was experiencing what academics call job polarization: growth at the high and low ends of the pay scale, but not much movement in the middle. Two major factors drove this shift: new technologies that replaced some skilled workers and increased competition from the internation...

Washington Post Reports Medicare Spent 0.14 Percent of Its Budget of Motorized Wheel Chairs, Much of Which Was Fraudulent

The Washington Post had a major front page story reporting on scammers pushing unneeded motorized wheelchairs to seniors. Medicare pays roughly $5,000 for each chair, which allows for a large profit to suppliers as well as payments to intermediaries who would push the chairs to people who did not need or want a motorized wheelchair.

The piece is a useful exposure of a major scam operation, however it never puts the cost of the scam in a perspective that would be meaningful to most readers. A...

The Skills Gap is Most Evident in Retail Trade and Restaurants

Floyd Norris has an interesting column comparing the numbers of job openings, hirings, and quits from 2007 with the most recent three months in 2014. The most striking part of the story is that reported openings are up by 2.1 percent from 2007, while hirings are still down by 7.5 percent. 

While Norris doesn't make this point, some readers may see this disparity as evidence of a skills gap, where workers simply don't have the skills for the jobs that are available. If this is really a sk...

Martin Feldstein and Robert Rubin Discover Bubbles

In one of the more remarkable shows of chutzpah in modern economic policy, Martin Feldstein and Robert Rubin penned a joint oped in the Wall Street Journal warning that the Fed needs to take seriously the risk of asset bubbles. The basis for the chutzpah is that this column is appearing in the summer of 2014 instead of the summer of 2004, when it could have saved the United States and the world from an enormous amount of suffering.

Had these men written a similar column in 2004 warning about...

A Rapidly Aging Population Is Not a Depression Problem

Matt O'Brien had a good piece in Wonkblog pointing out that the current downturn in the euro zone has been worse for these countries than the Great Depression. However it does get part of the story wrong.

At one point it outlines the troubles of the region:

"The combination of zombie banks, a rapidly aging population and, most importantly, too-tight money have pushed it into a "lowflationary" trap that makes it hard to grow, and is even harder to escape from. That's what happened to Japan in...

Consumers Aren't Being Cautious, They Are Spending As Much as We Can Reasonably Expect Them to Spend

In its report on retail sales in July, the Washington Post told readers that consumers are being "cautious," since there was little increase from June's levels. Actually, with the saving rate hovering between 4-5 percent of disposable income, consumers are spending about as much as we can reasonably expect them to spend.

The current saving rate is well below the level of the pre-bubble years, which averaged close to 8.0 percent. The ephemeral wealth of the stock and housing bubbles drove the...

Stocks, Flows, and Abenomics

Matt O'Brien had an interesting post in Wonkblog on the market reactions to Abenomics. O'Brien points out that the rise in Japan's stock market and the fall in the value of the yen since Abe took office are the result of market movements when Japan's markets were closed. This means that the movements in the stock market were driven by traders in Europe, the United States and elsewhere. O'Brien shows that Japan's stock market has actually declined slightly in the period when the Japanese marke...

Harold Meyerson Says Management Is Ripping Off Shareholders

Harold Meyerson had an interesting column about how the problem of inequality is not just about low wages at the bottom, but also about people at the top ripping us off. However part of his story is not exactly right.   

At one point the column tells readers:

"As a recent study in the Harvard Business Review concluded, a 'survey of chief financial officers showed that 78% would "give up economic value" and 55% would cancel a project with a positive net present value — that is, willi...

Robert Samuelson Reports on Incompetent Business Owners

Every now and then someone inadvertently says something that is truer than intended. Such is the case with a quote that appears in Robert Samuelson's column today.

The piece is devoted to bemoaning the reduction in entrepreneurship which Samuelson somehow thinks is tied to slower job creation. (This relationship is pretty damn weak, but no reason to waste time here.) At one point Samuelson list five possible reasons for the decline in entrepreneurship. Number one is:

"Schools — K-12 plus coll...