Dean Baker's Blog, page 377

"Savings Glut" Means Much of Economics Is WRONG

This exchange (here, here, and here) between my friend Jared Bernstein and Casey Mulligan is worth a brief comment. As I've told several people who followed it, Mulligan is absolutely presenting the mainstream position in the profession, but Jared is right.

The question, if we ignore silly semantics, is whether the economy typically faces a problem of insufficient demand. In other words, if companies, families, or the government went out spent $500 billion tomorrow would this boost growth or...

Brooks and Marcus on PBS News: Getting Just About Everything Wrong on the Economy (see correction)

The PBS Newshour won the gold medal for journalistic malpractice on Friday by having David Brooks and Ruth Marcus tell the country what the Friday jobs report means. Brooks and Marcus got just about everything they said completely wrong.

Starting at the beginning, Brooks noted the slower than projected job growth and told listeners:

"Yes, I think there's a consensus growing both on left and right that we -- the structural problems are becoming super obvious.

"So when the -- this recession sta...

Can We Blame Larry Summers for the Collapse of Russia?

Between 1990 and 1998, Russia’s economy suffered perhaps the worst downturn of any major country that was not the victim of either war or natural disaster. The proximate cause of course was the collapse of the Soviet Union and the replacement of its system of central planning with a market economy. Larry Summers played a large role in shaping this transition, first as chief economist for the World Bank, then as the undersecretary for international affairs at the Treasury Department and later...

The Employer Mandate and Incentives to Cheat

Many political figures opposed to the ACA have made a big point of complaining that the delay of employer sanctions and the lack of enforcement mechanisms will make it easy for individuals to cheat the system and take advantage of the subsidies in the health care exchanges. This was a big complaint previously made by speaker Boehner and repeated today by Michael Gerson. It's worth noting what this cheating would mean and the incentives provided to workers.

The deal is supposed to be that work...

Come on Folks, Take Notice of the Record Profit Share Reported on Wednesday

Amazingly, it seems that the media managed to completely ignore the sharp upward revision to profit shares reported on Wednesday. This one is pretty simple. By redefining many corporate expenses for research and creative work as investment, which depreciates through time rather than being a one-time cost, profits will be increased. As a result of this change the profit share in recent years was revised shaprly upward. The after-tax share of profits in net corporate income for each of the last...

Better Than Expected Second Quarter Growth? Is the Post Kidding

I somehow missed this Post article touting the 1.7 percent growth rate reported for the second quarter as better than expected. First it is incredible that the piece would leave readers with the impression that this strong growth, at one point telling readers:

"Some economists anticipated that the better-than-expected GDP report, if coupled with encouraging data in the job market, could encourage the Fed to pull back its support for the economy sooner."

The economy's rate of potential growth...

Bond Rating Agencies Lowering Their Standards to Attract Business! Why Doesn't Someone Do Something?

Sometimes it can be painful to read the newspaper. The NYT had a fascinating piece yesterday that implied S&P is lowering its standards for investment grade ratings in order to attract business.

According to the article, S&P had tightened its standards considerably following the financial crisis. This was causing it to lose market share. In order to regain market share it has recently lowered its standards so that banks can count on much better ratings from their new issues from S&P...

Larry Summers and Financial Crises: Is He Being Graded on Attendance?

According to Ezra Klein, a major plus in the case for Larry Summers as Fed chair is his experience dealing with financial crises. While it is true that he took a leadership role in dealing with far more crises than Janet Yellen, the other leading contender for the job, it is hard to believe that his record in this area would be a plus if he was being graded by the outcomes.

Starting with the Mexican peso crisis in 1994, Summers helped to negotiate a deal that protected big investors in Mexico...

George Will Has a Point on Detroit: Those Who Rely on Democracy in a Kleptocracy Will Be at a Serious Disadvantage

George Will had the obligatory union bashing piece, titled "Detroit's death by democracy," in the Post today. Will's story is that unions used their political power to get unaffordable contracts from the city government, thereby pushing it into bankruptcy.

For some reason he neglects to show the evidence of the union workers' bloated pay: wages that average $42,000 a year for non-uniform personnel and pensions of $18,500 a year. I suppose you might be able to get workers for less, but this pr...

NYT Tells Readers That Subsidies to Dead Farmers Account for Almost 0.0001 Percent of the Federal Budget

Now you know why your tax bill is so high. I'm not kidding, the NYT had a news article highlighting a study by the Government Accountability Office that found over the four and half years from October 2007 to April of 2012, $10.6 million was paid in subsidies to farmers who were dead. Using CEPR's really cool budget calculator it was possible to quickly determine that this number was less than 0.0001 percent of federal spending over this period. (Okay, I cheated. I treated the current year's...