Dean Baker's Blog, page 342

Quick Thoughts on Taylor Versus Summers et al

Stanford Professor and former Bush administration economist John Taylor is taking strong exception to the secular stagnation argument being put forward by Larry Summers, Paul Krugman, and right-thinking economists everywhere. His alternative explanation for an unusually weak recovery and a decade of poor growth is excessively expansionary monetary policy and policy uncertainty due to items like the Affordable Care Act and Dodd-Frank. Both of these lines of argument are a bit hard to follow.

O...

Larry Summers versus John Taylor Should Not Be a He Said, She Says

That's because Larry Summers is right and John Taylor is just obscuring reality. The NYT did a disservice when it reported on Larry Summers' concern for a period of secular stagnation that predated the downturn and then gave Taylor's response:

"If Mr. Summers’s theory is accurate, said John B. Taylor, a Stanford economist who served in Republican presidential administrations, 'You would have expected the economy to not have been working so well before the crisis. He says it wasn’t. I say it w...

Peter Wallison's Housing Bubble

Peter Wallison, who was White House Counsel under President Reagan and has long been a fellow at the American Enterprise Institute, told NYT readers today that the housing bubble is back. Wallison is right to be concerned about the return of a bubble, as I have pointed out elsewhere, but his account of the last bubble and the risks of a new one are strangely off the mark.

Wallison wants to blame the bubble on government policy of promoting homeownership. There certainly has been a problem of...

Summers on Secular Stagnation

It's good to see Larry Summers continue to press the case on secular stagnation. There are three points worth adding to his account.

First, dealing with bubbles really should not be that hard. The sort of bubbles that actually pose threats to the real economy (e.g. not the bubble in bitcoin prices) are easy to spot. Bubbles like the stock bubble in the 1990s and the housing bubble in the 2000s actually move the economy. It was easy to recognize this fact at the time and it would be easy to re...

Thomas Friedman Tells Readers that "Compromise" Is Not a 4-Letter Word, Readers Tell Thomas Friedman That "Homework" Is Not Either

Thomas Friedman once again pronounces a pox on both their houses, demanding that Republicans and Democrats compromise and embrace his agenda for moving the country forward. The big problem is that because Thomas Friedman apparently doesn't believe in doing homework, he doesn't actually have an agenda that would move the country forward.

Taking his items in turn, he calls for an investment agenda, with the qualification:

"But this near-term investment should be paired with long-term entitlemen...

Once Upon a Time We Were Winning the War on Poverty

The NYT had a retrospective on the 50th anniversary of the war on poverty. One item that is worth noting is that the poverty rate actually fell sharply through the sixties and into the early seventies. Then the economy was derailed by the oil price shocks and the recessions that followed in 1974-75 and then again at the end of the 1970s. Then President Reagan got elected and surrendered.

Since the poverty rate is ostensibly based on an absolute living standard, the failure to make any progre...

Greg Mankiw Battles the Minimum Wage

Greg Mankiw uses his column today to take on the minimum wage. He criticizes President Obama for citing studies showing that the minimum wage has little or no effect on employment and points to studies finding that a higher minimum wage will lead to modest declines in employment. (See John Schmitt's excellent paper for a quick review of the state of the research.) Mankiw says that we should think of the minimum wage as a hidden tax that hits low wage employers.

Mankiw argues that if we want t...

NYT Tells Readers About Shortage of Skilled Workers in Europe Without Ever Mentioning Wages

I can't find a doctor to work for me for $30 an hour. According to the NYT this would mean that the United States has a doctor shortage. That appears to be the logic of a major article asserting that Europe's economy is suffering from a shortage of skilled workers even as its unemployment rate is near 12 percent.

The piece never once mentions the trends in wages for workers with the skills that are allegedly in short supply. As a practical matter, there has been a shift from wages to profits...

The WSJ's Ideology Is That the Government Should Redistribute From Everyone Else to the Rich

Uwe Reinhardt has a useful blogpost taking issue with a Wall Street Journal editorial on the Affordable Care Act (ACA). The editorial had complained that the ACA steals $156 billion from the Medicare Advantage program, the portion of Medicare run by private insurers.

Reinhardt points out that this $156 billion in reduced payments is over a ten year period, a point missing from the editorial. That's around 2.0 percent of projected Medicare spending over this period. The other key point in Rei...

What Makes a Pay Increase "Inflation Busting?"

That's what readers of a Reuters article on complaints from a German business group must be asking themselves. At one point the article told readers:

"Major unions negotiated inflation-busting hikes in pay checks last year after years of wage restraint, although the Statistics Office said last month real wages across Germany were likely to have fallen in 2013."

It's not clear what the definition of "inflation-busting" is in this context, but it doesn't sound like it involved large pay increas...