Dean Baker's Blog, page 387

A U.S.-EU Trade Deal Will Not Have a Measurable Impact on Growth

The NYT implied that politicians in the United States and Europe are pushing a trade deal because they want to boost growth in a prolonged period of stagnation. This is not plausible.

Even optimistic projections of the impact of a trade deal show that it would only increase GDP by around 1.0 percent. This increase would only be felt after the changes in the agreement are fully phased in which will almost certainly be more than a decade. The implication is that the impact on annual growth will...

Why Does Reform of Fannie and Freddie Have to Mean More Profits for the Banks?

The government gives direct student loans. This saves money by eliminating the financial intermediaries. Is there some reason that it can't do the same with mortgages, that is a reason other than banks need to rip off the public with the government's assistance?

Jesse Eisinger has a good piece pointing out that the most politically likely paths for reforming Fannie Mae and Freddie Mac are likely to mean big profits for banks and incorporate few of the lessons from the housing bubble.

Data Do Not Show a Shortage of Workers With College Degrees

A NYT piece on the growth in the percentage of young people getting college degrees included the assertion from Jamie P. Merisotis, the chief executive of the Lumina Foundation:

“There are worrisome signs that the demand for high-skilled talent is increasing more rapidly than we’re actually educating people ... We can’t expect our citizens to meet the demands of the 21st-century economy and society without a 21st-century education.”

It is not clear what this evidence would be. The unemploymen...

Post Continues Effort to Promote Generational Conflict

The Post ran an article highlighting new data from the Census Bureau showing that the number of white people who died last year exceeded the number who were born. It concludes the piece by citing William Frey, a demographer at Brookings:

"the natural decrease in whites suggests that aging whites will increasingly come to rely on the younger, mainly minority population to underwrite social programs that will sustain them."

While this is true of social programs like Social Security and Medicare...

Home Prices are Not Affordable

A NYT blogpost on the impact of the rise in interest rates on the economy commented:

"Many real estate analysts say that homes are so affordable that even a considerable rise in interest rates would not do much to undermine the housing recovery, especially if the economy is growing at a healthy rate."

Actually homes are not especially affordable. Inflation adjusted house prices nationwide are more than 15 percent higher than their long-term trend. They are still down considerably from their b...

Fighting Corruption in the Pharmaceutical Industry With a Water Pistol

The NYT ran a column that discussed the massive corruption in the pharmaceutical industry and using a water pistol to rein it in. The basic story is straightforward. As a result of government provided patent monopolies (i.e. not the free market), drug companies can sell drugs for hundreds or even thousands of dollars per prescription. In most cases these drugs would sell for a few dollars in a free market.

According to textbook economics, the enormous gap between the price and marginal cost o...

The Reason We Need a Financial Transactions Tax

Bruce Bartlett has a nice column showing both the explosion in the size of the financial sector and the evidence that it has become both a major drag on economic growth and generator of inequality over the last three decades. That would seem to be a pretty good argument for a financial transactions tax like the one they have had on stock trades in the UK for the last three centuries. Of course this sort of tax on the sector faces an uphill battle in Washington because, in addition to being a...

S&P Thought the Federal Government Would Forget How to Print Dollars

What other possible interpretation could anyone give to S&P's downgrade of U.S. government debt two years ago? The question that S&P is supposed to answer with its rating is whether bonds will be paid off as scheduled. The United States issues debt denominated in dollars, which it has the ability to print in whatever number it desires. Therefore the downgrade can only have been taken to mean an increased probability that the country would forget how to print dollars.

It would be good...

When Discussing Greenhouse Gas Emissions It is Important to Point Out that China Has Four Times as Many People as the United States

Not all readers would necessarily have this fact in their head when they see the Post telling them:

"China remains the largest contributor of carbon dioxide into the atmosphere, with about a quarter of global emissions."

On a per person basis, the United States swamps China in terms of emissions. If there is any country that people concerned about global warming should be angry at, the United States would top the list by a long shot.

If Japan Needs to Reduce Its Debt It Can Just Buy Back Bonds at a Discount When Interest Rates Rise

In an article on the recent pick up of growth in Japan the Post told readers that Japan's government plans a sales tax increase next year:

"The tax increases are needed to cope with a growing public debt that already is more than twice the size of Japan’s economy."

In spite of having a very high debt-to-GDP ratio, Japan's interest payments are less than 1.0 percent of GDP. This is due to the fact that interest rates are extraordinarily low. If there is some importance to having a lower debt t...