Dean Baker's Blog, page 410

Martin Feldstein Versus Accounting Identities

It is always painful to see an economist do battle with an accounting identity. Martin Feldstein takes on the task in a piece that explains that the dollar could fall sharply in the future, if investors come to expect its decline.

Most of what Feldstein says in this piece is exactly right. Investors do not need to hold dollars as a safe haven and in fact it is not a safe haven if it is falling in value against other currencies. Also, the vast majority of foreign dollar holdings are not necess...

The Philosopher Politicians Reappear at the New York Times

It seems pretty obvious to most of us that politicians get elected by appealing to powerful interest groups. They spend enormous amounts of time calling up rich people to ask for campaign donations and speaking to individuals who can help to deliver large numbers of votes. This is hardly a secret.

Yet, the New York Times again tries to tell us that these people are really philosophers, telling readers in a headline:

"Deep philosophical divide underlies the impasse"

in reference to the budget...

NYT Does He Said, She Said on the Czech Republic and the Euro

The NYT had a piece discussing views in the Czech Republic on joining the euro. It left the issue very much as a he said, she said, providing little information that could provide readers with a basis for assessing the merits of the policy. While the piece did report the Czech Republic's unemployment rate as 7.5 percent, indicating it has not escaped the effects of the euro crisis, it would have been a simple matter to compare the change in unemployment from the pre-crisis years.

In the Czech...

Simon Johnson's Latest on Bernanke and Too Big to Fail

This is worth reading (that's true of almost all of Johnson's posts). It highlights growing recognition of the too big to fail subsidy enjoyed by large banks and evidence of bipartisan efforts to end it. Just to remind folks that may have forgotten, a bloated financial sector is a drain on the economy in the same way as that huge government department of waste fraud and abuse that everyone in Washington is looking for. It also is a source of instability and a major generator of inequality. An...

Cleaning Michael Gerson's Clock

Michael Gerson is upset that Democrats didn't want to have a debt clock shown at a hearing of the Senate Finance Committee. He huffs:

"numbers, it turns out, have an offensive ideological bias."

I'm sympathetic. Right alongside the debt clock we could have the lost output clock. If we use the Congressional Budget Office's (CBO) measure of potential GDP this would be rising at the rate of about $3 billion a day or $1 trillion a year. If we used CBO's 2008 economic projections as the basis for...

Thoughts on Immigration Policy

Noah Smith of Noapinion takes me to task (after some very nice comments) for being anti-immigration. I’m not sure I fit that description, but let me put together a few things that I have said in different places.

First of all, there is the immediate issue of what we do with the undocumented workers who are already here. I don’t see much ambiguity on this one; they should be allowed to normalize their status and become citizens. These people are here as a matter of government policy even if th...

Fun With Numbers: Looking for that Run Away Government Spending

I know it's rude to bring numbers to DC policy debates, but some of us uncouth types just can't control themselves. Just for fun, I thought I would see what government spending measured as a share of GDP would like if the economy had grown as had been projected before the 2008 collapse.

This is similar to taking the deficits as a share of potential GDP, but not exactly the same. Potential GDP is based on the Congressional Budget Office's (CBO) estimate of the economy's potential level of outp...

Correcting Robert Solow: Debt Owed to Foreigners Is Determined by the Trade Deficit, not the Budget Deficit

I hate to have to correct Nobel prize winners (okay, that's not true), but Robert Solow does get one item somewhat wrong in an otherwise useful column on the government's debt. Solow notes that close to half of the publicly held debt is owned by foreigners. He then tells readers:

"This part of the debt is a direct burden on ourselves and future generations. Foreigners are entitled to receive interest and principal and can use those dollars to acquire goods and services produced here. If our g...

Paul Krugman and the 90 Percent Zombie

Paul Krugman is engaged in battle with the 90 percent zombie: the claim that economies go to hell when their ratio of debt to GDP exceeds 90 percent. He makes the obvious point that it is really impossible to untangle cause and effect with such a small sample. The countries that had debt to GDP ratios above 90 percent all had other major problems that likely would have impeded growth even if they had no debt.

I have written numerous times as to why this claim is beyond silly. Among other thin...

Many Experts Who Say Housing is the Best Way to Build Wealth Also Said That During the Housing Bubble

The Post had a useful article on the growing wealth gap between whites and African Americans. It notes various factors such as higher unemployment rates and smaller inheritances that prevent African Americans from accumulating wealth. However the piece concludes by saying:

"Many experts say housing is still the best way for Americans of all races to build wealth. But it is critical for families to have low-cost financing so they can have predictable housing costs going forward and build wealt...