Dean Baker's Blog, page 333

David Brooks Stumbles Over the Work Force in Attacking the Minimum Wage

David Brooks doesn't like the idea of raising the minimum wage. But the good news is that he thinks it's a good idea to increase the Earned Income Tax Credit (EITC), an alternative mechanism for helping low-paid workers.

In criticizing President Obama's proposal for raising the minimum wage, Brooks refers to the Congressional Budget Office's (CBO) projection that it would lead to 500,000 fewer jobs, but doesn't get the story quite right:

"Democrats embrace a raise in the minimum wage that cou...

Differences in Inequality by City Are Worse Than Brookings Says

The NYT reported on a Brookings study that examined inequality by city. The study showed that the largest and fastest growing cities tended to have the most inequality. In fact, the study understated the differences in inequality for two reasons.

First its focus was on the 95th percentile of the income distribution compared to the 20th percentile. While the 95th percentile had gotten at least an even share of the country's income growth over the last three decades, the big gains have been con...

Household Debt Rose Because Foreclosures Fell

The NYT had an article discussing a release of data on household debt by the NY Fed. The article noted that debt rose rapidly and highlighted the increase in mortgage debt in the fourth quarter, the first since before the downturn.

Actually, the main reason that mortgage debt increased in the fourth quarter, as compared to declines in prior quarters, was due to a lower rate of write-downs of bad debt. There was no surge in new mortgage debt in the fourth quarter.

The Differing Labor Market Experience of the UK and US: Explaining Things That Didn't Happen, #25,317

Today's target is the usually astute Ryan Avent. Writing in the Economist, Ryan tells readers:

"Two rich economies, relatively similar in structure, reacted very differently to the global financial shock of late 2008. In America output sank sharply but then rebounded to new highs. Employment, by contrast, fell dramatically and has recovered much more slowly; it has yet to regain the pre-crisis peak. In Britain the trends were reversed; employment is setting new highs while output suffered an...

CBO Projects Employment Loss from Minimum Wage Hike Would be Comparable to Impact of Iraq War Size Increase in Military Spending

The Congressional Budget Office (CBO) released a report today on the impact of an increase in the minimum wage, which projected that it would lead to a loss of 500,000 jobs. This was quickly seized on by opponents of the minimum wage hike as implying a disastrous loss of jobs. Unfortunately, some of the reporting on the issue was less clear than it could have been.

The CBO projections imply that 500,000 fewer people will be employed at low wage jobs. It did not say that 500,000 people would l...

Deflation Phobia on the NYT Editorial Page

It's baaaaaaaaaaaaack! Those silly warnings about the menace of deflation, this time in a NYT editorial. Come on folks, this one is really simple, the problem of deflation is an inflation rate that it is too low. Even an economist can figure this one out.

When you have near zero inflation many prices are already falling. What's the difference if the price of 55 percent of goods and services are declining instead of 45 percent. Besides these are all quality adjusted prices, so in many cases t...

Weak Wage Growth Is Bigger Problem for Housing Market Than Student Debt

The Washington Post had a somewhat confused front page piece claiming that student debt burdens are a major obstacle to the recovery of the housing market. First, it should be noted that by most measures the housing market has already recovered. Prices are above their trend levels. Sales are also at or above trend levels. Construction has not yet recovered, but this will not happen until the inventory of vacant housing units is further reduced.

However the piece is seriously misleading in imp...

Larry Summers Is Half Right in Saying That Growth Would be Affected If We Reduced the Incomes of the Very Rich

Unfortunately he is wrong about the direction of change. Apparently Summers has missed the downturn in the last six years and the weak growth since the turn of the century. In his post column today he warns readers:

"If total income were independent of efforts at redistribution, there would be a compelling case for reducing incomes at the top and transferring the proceeds to those in the middle and at the bottom. Unfortunately, this is not the case. It is easy to conceive of policies that wou...

Robert Samuelson Is In the Dark

It must be great to be a columnist for the Washington Post. You get to rewrite the same columns week after week. You never have to pay attention to facts and data or even make sure that you accurately present the arguments you criticize. Hence we have Robert Samuelson telling us this morning that "economists are in the dark."

Of course he is in large part right. Given its colossal failure in recognizing the risks of the housing bubble it would be reasonable for every university to shut down...

The Theory of Immaculate Trade Pact Conception

It's amazing what some folks will say to promote trade agreements. Today, John Harwood in the NYT gave us the theory of immaculate trade pact conception. In this view trade pacts are negotiated by members of the high priesthood who focus on promoting the overall national interest and economic growth. Unfortunately, these pacts must deal with the evils of everyday politics.

In this respect he tells of the urgent need for fast-track (a.k.a. "trade promotion") trade authority:

"Presidents value...