Dean Baker's Blog, page 393

Did You See the "Air of Crisis" Hovering Around the Budget Deficit?

In the wake of the new CBO numbers showing projecting that the debt-to-GDP ratio is actually projected to fall over the next decade, the Washington Post decided to give us one of its classic deficit/debt fear-mongering stories. The piece could avoid noting the obvious fact that there is nothing that could remotely pass as a deficit crisis in the immediate future, but it did tell us;

"Policymakers have capped spending on agency budgets, permitted across-the-board spend­ing cuts known as the se...

How We Know that the Investment Industry Has No Argument Against Caps on 401(k)s

We know this because they are spouting utterly absurd lines which Paul Sullivan unfortunately felt he had to repeat in his NYT column. Sullivan discusses the number of people who could be hit by President Obama's proposal to cap tax sheltered savings at $3.5 million.

The discussion is ridiculous throughout. It makes a point of saying that under optimistic assumptions we could get 10-20 million rubbing up against the proposed limits. (Yes, 10 percent of the population will have millions of dol...

Steven Pearlstein Tries to Rescue His Austerity Pushing Friends

Steven Pearlstein is upset that the austerity pushers, like the Post's editors, are looking rather foolish these days. After all, it seems they not only have problems with basic economic logic, they also have trouble with Excel spreadsheets. He notes the serious structural problems in Greece and some of the other crisis countries, then tells readers:

"Unfortunately, this is not how the anti-austerity crusaders talk about Greece or Italy or Portugal. They offer no reasonable alternative other...

How Sick Is France's Labor Market?

The NYT had a piece on changes to French labor market regulation that will make it easier for employers to cut wages. The piece implies that France has a seriously dysfunctional labor market:

"There is wide agreement that the country has to bring down its relatively high labor costs if it is to compete with lower-wage destinations overseas and even with Germany, which underwent its own painful labor-market restructuring over the last decade and currently has a jobless rate of just 5.4 percent...

Netflix Overcomes the Shortage of STEM Workers

Undoubtedly everyone has seen stories in the media about how we need to expand high-skilled immigration because we have a shortage of workers with degrees in science, technology, engineering, and math (STEM). Claims of a shortage of STEM workers have been disconcerting to those of us who believe in economics since shortages are supposed to result in rising prices, or in this case, higher wages. We don't seem to be seeing rapidly rising wages in most areas, which makes the claims of shortages...

NYT Runs Editorial Demanding Cuts in Social Security and Medicare in News Section

The Washington Post long ago abandoned the separation between news and editorials, routinely running pieces advocating cuts in Social Security and Medicare in its news section. It now appears as though the New York Times is following the Post's lead.

A news story on the budget made repeated assertions that Social Security and Medicare must be cut. At one point it referred to the:

"the inevitable pain that comes from curbing those huge and popular programs [Social Security and Medicare]."

Of c...

Trade Deficits and the Dollar

In prior posts I have often referred to the run-up in the dollar engineered by the Clinton-Rubin-Summers team in the 1990s as being the root of all evils. The point is that their over-valued dollar policy led to a large trade deficit. The only way the demand lost as a result of the trade deficit (people spending their money overseas rather than here) could be offset was with asset bubbles.

To fill this demand gap, the Clinton crew gave us the stock bubble in the 1990s and the Bush team gave u...

Credit Rating Agencies Likely to Evade Dodd-Frank Provision to End Conflict of Interest

One of the key issues in the financial crisis was the fact that mortgage backed securities (MBS), filled with subprime mortgages of questionable quality, managed to get Aaa ratings from the bond-rating agencies. While ignorance and stupidity may explain much of what happens on Wall Street, there were people at the rating agencies who did raise questions about the quality of these securities. In one e-mail at S&P an analyst complained that it would rate an MBS as investment grade if it wer...

Corporate Boards Are Still Failing

The median pay for a member of the board of a Fortune 500 company is almost $240,000 a year. This typically involves 4-8 meetings a year. One of the top priorities of the board is supposed to be ensuring that top management doesn't rip off the company. They have not been doing a very good job as Gretchen Morgenson points out in her column today.

That raises the question of what exactly they get all this money for? Director Watch will be coming soon to a website near you.

Reinhart-Rogoff One More Time: Why the 90 Percent Never Should Have Been Taken Seriously

As a general rule economists are not very good at economics. This is why almost none of them were able to recognize the $8 trillion housing bubble that sank the economy. (No, this isn't bragging, it only took simple arithmetic and basic logic.) Most economists are unable to conceptualize anything that someone with more standing in the profession did not already write about.

This is the only reason that the Reinhart-Rogoff 90 percent debt-to-GDP threshold was ever taken seriously to begin with...