Dean Baker's Blog, page 368

Why the Wall Street Perps Walked

Neil Irwin had a discussion of the failure to prosecute any of the Wall Street honchos for the conduct that led up to the financial crisis. He concludes that:

"America doesn’t criminalize bad business decisions, even when they lead to business failure."

That is obviously true, but this is not the issue. The Financial Crisis Inquiry Commission (FCIC) found:

"Lenders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities. As...

Selective Use of Trends in Examining Labor Force Participation Rates

There has been a huge drop in employment in this downturn with the employment to population ratio (EPOP) still only 0.4 percentage points above its low for the downturn. It is still more than four full percentage points below its pre-recession level. Clearly part of this is due to the weakness of the economy, but part can be due to people voluntarily opting out of the labor force.

One reason to think the latter could be important is the aging of the baby boomers. The oldest baby boomers are...

The Minimum Wage Would be Almost $18 an Hour If It Had Kept Pace With Productivity Growth

This is a fact that would have been worth mentioning in a piece discussing a plan to raise the minimum wage in California to $10 an hour by 2016. The federal minimum wage had risen in step with productivity growth over the years from 1938-1968. Since then it has not even kept pace with the rate of inflation. The unemployment rate in 1968 was less than 4.0 percent.

Government Policy Gave Us Inequality, not the Market

Tom Edsall is usually a thoughtful commentator on the politics and the economy, but his piece on inequality today really misses the mark. It repeatedly asserts that the huge rise in inequality over the last three decades is a market story. This is very hard to accept when you look at the big winners.

At the top of the list of winners are the Wall Street money boys. Does anyone think they would be as rich if the government taxed the financial sector the same way it taxes every other sector in...

Good Help Isn't Hard to Find

Arin Dube has an interesting post on how people with college educations are increasingly turning to fast food restaurants for employment. This is highly correlated with state unemployment rates.

The story is that after going long enough being unable to find better jobs, these workers turn to fast food restaurants as a last resort. This means the fast food industry is getting an unusually skilled workforce. These college educated workers are probably for the most part displacing less educated...

Andrew Ross Sorkin's Limited Imagination

Andrew Ross Sorkin shows his range of thought goes from one 40 yard line to the other when he contemplates a world where the government decided to rescue Lehman rather than allow it to fail. He considers various bailout scenarios, all of which leave the welfare dependents on Wall Street intact.

There was an alternative. It was possible to allow the market to work its magic, which would have certainly destroyed the other three remaining independent investment banks (Goldman Sachs, Morgan Stanl...

The Failure of the Self-Correcting Economy in Times Past

Paul Krugman corrected my earlier comment to note that he in fact did say that the 1990-91 and 2001 recessions were qualitatively different than prior ones in that the recoveries did not have the same sort of strong bounce back that followed prior recessions. These recessions were also attributable at least in part to the collapse of asset bubbles. In this sense, the 2007-2009 downturn is not unique.

This is certainly fair, but at the risk of picking nits, there is another important point. Gi...

Italy Has Not Seen a Recovery

A NYT article discussing the possibility that Silvio Berlusconi may have his seat in the Italian Senate taken away following a criminal conviction for tax fraud, noted that this could lead to a collapse of the coalition government ruling Italy, which it tells readers could pose risks:

"to the tentative economic recovery under way in Europe."

It is worth noting that Italy has not shared in this recovery having seen its economy contract for 8 consecutive quarters. In the most recent quarter it...

Fred Hiatt Just Makes It Up to Push Cuts to Medicare and Social Security

Remember President Obama's 2008 campaign where he promised to cut Social Security, Medicare, and Medicaid? Yeah, that was where he said, "yes we can."

Okay you probably don't remember it because if he ever said he wanted to cut Social Security, Medicare, and Medicaid, the media strangely did not bother to report it. But that does not stop Fred Hiatt from claiming in his Washington Post column:

"President Obama came into office five years ago promising to make hard decisions, not to kick the c...

Cheap Thoughts on the Self-Correcting Economy: Konczal vs. Krugman

My friends Mike Konczal and Paul Krugman are duking it out over views about a self-correcting economy in blogposts today. It's actually not much of a fight, but there are a couple of points worth adding.

First, Krugman repeats his often stated view that this time is different, that the downturn in 2007-2009 is not self-correcting because the Fed was up against the zero lower bound. The story is that other central banks also faced the same situation. This meant there was no choice but to turn...