Dean Baker's Blog, page 299

When Germany Spends Money It Helps Its Neighbors

NPR harshly criticized a change in Germany's social security system which allows workers to collect benefits at age 63, rather than the previous age of 65, if they had contributed to the retirement system for 45 years. The piece repeated claims that this expansion of the retirement system was hypocritical, since Germany is demanding austerity from other members of the euro zone. It also implied that it would be a large expense, telling listeners that 50,000 workers are taking advantage of the...

Japan's First Quarter Growth is Relevant to Its Second Quarter Contraction

The NYT ran an AP article on the contraction in Japan's economy in the 2nd quarter of 2014. The article noted the 6.8 percent annual rate of contraction and told readers that this posed a real problem for Abenomics.

While this rate of decline is undoubtedly a cause of concern, it would have been worth mentioning that its economy grew at a 6.7 percent annual rate in the first quarter. The big factor in this seesaw was a sharp rise in the consumption tax that went into effect in April. This ta...

Maybe the Housing Market in DC is Slow Because Prices Are Too High

The Washington Post had an article dedicated to uncovering the reason that the housing market in Washington has been slow in recent months. While it runs through several possible explanations it leaves off the most obvious one: prices are too high.

Inflation adjusted house prices are more than 50 percent above their pre-bubble levels. Back in good old econ 101 we always taught that if supply exceeded demand then the price should fall. The fact that prices in DC are so far above their pre-bubb...

The Fed's Vice Chair Still Doesn't Know About the Housing Bubble

News apparently travels slowly in the nation's capital. The New York Times reported on a speech by Stanley Ficsher, the vice chair of the Fed, in which he expressed confusion over the causes of the weak recovery.

It would have been helpful to express the views of economists who could have expressed surprise over Fischer's confusion. When the housing bubble collapsed, there was a massive loss of demand. Spending on residential construction fell back by more than 4.0 percentage points of GDP. W...

The Postal Service Would Have Broken Even Without Accounting Charges

The NYT reported that the Postal Service lost $2.0 billion in the third quarter of its 2014 fiscal year. While the piece did note that much of this loss was attributable to a requirement imposed by Congress that the system prefund its retiree health benefits, it would have been useful to also point out that a change in the accounting of liabilities in its workers' compensation fund added $0.6 billion to its losses this quarter. By contrast, in the third quarter of last year the accounting for...

Robert Samuelson Says Economics Is An Inexact Science, Except When He Wants to Cut Social Security and Medicare

Regular readers of the Washington Post have grown fond of Robert Samuelson's repeated calls for cuts to Social Security (e.g. here, here, here, here, here, here, here, here, here , and here). At the core of Samuelson's complaints are long-term projections from the Congressional Budget Office (CBO), and other sources, that the country will have large deficits 15 years, 25 years, or further in the future.

He likes to say that these deficits are due to Social Security and Medicare, although the...

In Connecticut, If Businesses Are Upset By Rising Wages, It Doesn't Matter What the Facts Are

That's pretty much what David Treadwell, the spokesperson for the state's Department of Economic and Community Development told an AP reporter. The article reports on a subsidized loan from the state to a German company to finance a training center for its workers. The piece then cites the views of several economists that there is no evidence that Connecticut has a shortage of trained workers. Among other things, a shortage would generally be associated with rapidly rising wages, which the st...

The Cost of Sovaldi Would Not Pose Problems If Elites in the United States Believed in Free Trade

The Washington Post treated us to another hand wringing piece on Sovaldi. The deal is that we could virtually eliminate a major disease in 10-20 years if only we were prepared to bite the bullet and pay Gilead Sciences $84k a head for Sovaldi. 

Those are not the only options. Gilead Sciences charges $84,000 for Sovaldi but it doesn't actually cost $84,000 to produce the drug. Generic manufacturers make the drug available in Egypt for less than $1,000 per person and Indian generic manufa...

WaPo Does Mind Reading on President Obama's Motive for Privatizing Fannie and Freddie

It's great that the folks at the Washington Post are capable of mind reading. If we just looked at the substance of the Johnson-Crapo bill for replacing Fannie Mae and Freddie Mac by a system in which private companies would be able to issue mortgage backed securities that carried a government guarantee, we might think that the motive was to increase the profits of the financial industry. After all, the industry would be able to earn tens of billions in additional profits each year by getting...

The Amount of Government Money Going to the Old, the Young, and the Rich

Catherine Rampell used her column to give readers a short quiz on government spending. There are a couple of questions that could use a bit further examination.

The first question asks readers:

"An elderly person receives about how much in federal spending for every $1 received by a child?"

The correct answer is $7 according to Rampell. There are two problems with this question. First, the most important government program for the young is education, which is prmarily a state and local expen...