Dean Baker's Blog, page 399

Weird Things With Economic Numbers at the Washington Post

There are some things that we can learn from economics, just as there are things we learn from astronomy. The vast majority of people in the United States believe that the earth goes around the sun because of what astronomers tell us. After all, we all see the opposite every day in the sky.

For this reason, when a major newspaper tells us that when it comes to economics it is all just so confusing (except for what they insist you believe), it is doing a serious disservice. While some aspects...

Few Seniors Have Large Amounts of Money Invested Exclusively in Short-term Accounts

The Post had a lengthy piece about seniors being ripped off on their savings by scam artists promising high returns. While this is a serious problem, the article implies that the low interest rate policy by the Fed is a major factor pushing seniors in this direction.

Actually, very few seniors have large amounts of money in short-term accounts that would be hurt by the Fed's low interest rate policy. According to Federal Reserve Board's latest Survey of Consumer Finance, around 15 percent of...

Naive Investors Understand Apple's Stock Price Better Than the NYT's Reporters

The NYT had a piece on the precipitous fall in the price of Apple's stock since last September. It explained the decline in part by the fact that an unusually large portion of its stockholders are individual investors. These investors were overly enthusiastic about the stock last year and now, according to the piece, excessively pessimistic. It tells readers;

"At its current price, investors are betting that Apple will grow more slowly than the average American company. And they are ignoring...

The Disappearing Middle is a Cover-up for Bad Economic Policy Coming from the Top

Thomas Edsall relies on some research which unfortunately in many cases is a bit dated to discuss the idea that middle wage jobs in the United States are disappearing due to technology. While there was some evidence that middle wage occupations were dwindling in the 1990s, this was reversed in the last decade. In that decade there were declines in employment shares for all but the lowest paying occupations. Since we saw the same pattern of wage polarization, with more income going to the top,...

In History of Economic Errors, Martin Feldstein Deserves Mention

Former students and admirers of Harvard professor Martin Feldstein, who was also the chief economist in the Reagan administration, were undoubtedly outraged to see him excluded from the list of top blunderers in economics compiled by Catherine Rampell in the NYT's Economix blog. Professor Feldstein's claim to fame in this category stems in large part  from a 1974 article which purports to show that Social Security led to a reduction in private savings.

This article received considerable...

Quick Thoughts on Reinhart and Rogoff's Response

Carmen Reinhart and Ken Rogoff (R&R) responded to the paper I noted earlier by Thomas Herndon, Michael Ash, and Robert Pollin (HAP), which showed that their famous result associating high debt levels with slow growth was driven by spreadsheet errors. The gist of the response is that HAP also find that high debt is associated with slower growth, and that other studies (including one of theirs) found the same result anyhow.

The first point is highly misleading. It is true that in most of th...

How Much Unemployment Was Caused by Reinhart and Rogoff's Arithmetic Mistake?

That's the question millions will be asking when they see the new paper by my friends at the University of Massachusetts, Thomas Herndon, Michael Ash, and Robert Pollin. Herndon, Ash, and Pollin (HAP) corrected the spreadsheets of Carmen Reinhart and Ken Rogoff. They show the correct numbers tell a very different story about the relationship between debt and GDP growth than the one that Reinhart and Rogoff have been hawking.

Just to remind folks, Reinhart and Rogoff (R&R) are the authors of t...

The Obama Administration Is Scared of an Accurate Consumer Price Index

It would have been helpful to note this fact in an article discussing the Obama administration's proposal to cut Social Security benefits by adopting a chained consumer price index as the basis for Social Security cost of living adjustments (COLA). The piece notes claims that the chained CPI provides a more accurate measure of the rate of inflation, then tells readers:

"Some argue that the chained CPI would cheat seniors by understating inflation for the elderly, who spend more on health care...

Optimistic Economists Have Incredibly Low Expectations

Nelson Schwartz struggled to make sense of the economy in a NYT column today. After all, we see signs of economic weakness everywhere, yet the stock market is soaring. (This may be less of a mystery to folks who know that stock prices are ostensibly a measure of corporate profits, not the health of the economy.)

After going through the bad news, Schwartz gives us the case for optimism about the economy:

"'The current slowdown will be the last for a while,' said Ethan Harris, co-head of global...

Robert Samuelson Picks Up Misrepresented Claims on Single Parents from "Liberal" Third Way

The Washington think tank Third Way has managed to make a lot of news lately by misrepresenting its research. It put out a paper by David Autor and Melanie Wasserman with some tentative results concerning the impact on children of growing up without a father present in the household. The paper found weak evidence that boys were less likely to graduate college under such circumstances, while girls were less affected. While the piece itself notes the tentative nature of this finding (the impact...