Dean Baker's Blog, page 309

Tax Cuts Didn't Starve Discretionary Spending, Votes to Cut Discretionary Spending Starved Discretionary Spending

A NYT editorial on Senator Thad Cochrane's narrow victory in a Republican primary criticized his record:

"He has consistently voted for the kinds of tax cuts that have starved discretionary spending and held down the economic recovery."

This is incorrect. There is no direct relationship between the tax cuts Mr. Cochrane has supported and the cuts in discretionary spending that Congress and President Obama agreed to. The cuts came about because of a commitment to hit arbitrary deficit targets....

Barro on Pension Fund Investments

Josh Barro has a thoughtful piece on public pensions and risk in the NYT's Upshot section. He makes many points with which I agree, most notably raising cautions about pension fund investments in "alternative investments." These are mostly private equity funds, but can also include venture capital and hedge funds. The problem with these alternative investments is that they come with unknown return distributions (essentially the pension funds have a promise that a smart investor will beat mark...

Can We Talk About Drug Patents?

The NYT had a short editorial discussing the issues raised by the refusal of insurance companies to pay for many expensive drugs of questionable usefulness. It would have been useful to point out the reason that drug prices are high and that drug companies mislead the public about the degree of their effectiveness. 

If the government did not grant patent monopolies, most of these drugs would sell for less than 10 percent of their patent protected prices and possibly less than one percent...

Bankers Could Go To Jail

Morning Edition had a strange piece discussing how regulators can punish banks for breaking the law. The piece focused on the various fines and regulatory measures that can be imposed as penalties when banks are found to have broken the law. Remarkably it never considered the underlying logic of the punishment and the likely deterrent effect on criminal activity.

While banks are legal institutions, ultimately it is individuals that break the law. The question that any regulator should be aski...

The Inner Protectionist Comes Out for the Export-Import Bank

Suppose we proposed giving President Obama the option to put modest tariffs, say 2-3 percent, on imports of various categories of goods and services, if he felt it was important for the economy. Every right-thinking person would denounce this as crude protectionism. The argument for the export-import bank is essentially the same as the argument for selective tariffs.

The big difference is that all sorts of people who would be among the protectionist denouncers are making the case for the Ex-I...

Greg Mankiw Says We Need Rich People Because They Won't Spend Their Money

That's basically the punch line in a column telling us Thomas Piketty is wrong to worry about rising inequality. After a long digression on motivations for saving among the very rich, Mankiw tells readers:

"When a family saves for future generations, it provides resources to finance capital investments, like the start-up of new businesses and the expansion of old ones. Greater capital, in turn, affects the earnings of both existing capital and workers.

"Because capital is subject to diminishi...

Insurance Policies for Profit: Will Wall Street Boys Ever Be Able to Survive Without Taxpayer Handouts

We all know how hard it is for Wall Streeters to get by in a market economy, but can't we try a little bit of tough love to see if we can't wean them away from the public trough. The newest absurdity is the insurance policies that many large companies take out on their employees in order to game the tax system.

Many of us might have been led to believe that these "dead peasant" policies had been eliminated with a 2006 change in the tax law. But no, the NYT tells us that they are still there....

News for the Wall Street Journal, Countries Tend to Grow Faster When Coming Out of Recessions!

When economies have lots of excess capacity and idle workers, as is the case following a recession, they tend to grow very rapidly. When they are near their potential level of output growth tends to be slower.

This is why the United States economy was able to grow at a 5.6 percent rate in 1978 or a 7.3 percent rate in 1984. In both cases the economy was operating far below its potential so it had lots of room to grow simply to get back to potential. Once it reaches potential, an economy can o...

Putting Big Numbers in Context: It's Not Hard

The Washington Post had a piece discussing a proposal to increase access to child care. The piece told readers the proposal would cost $20 billion a year. It then added this could:

"be financed through a 0.2 percentage-point increase in payroll taxes, which advocates say equals $72.04 a year for the average female worker."

While the $20 billion figure likely would mean little to most Post readers since few have much sense of how large this is relative to the budget or their tax bill, most rea...

Patent Monopolies Cause Corruption: #56,897

Every economist knows that when you put a 20 percent tariff on imported clothes it leads to inefficiency and corruption. For some reason they don't seem to know that when you give out patent monopolies that can raise prices by 2000 percent or more above the free market price that it leads to big-time inefficiency and corruption.

Reality is working hard to teach economists. Today the Washington Post had an article reporting on how many hospitals appear to be profiting from a program that allow...