Dean Baker's Blog, page 414

Stanley Fischer for Fed Chair?

Dylan Matthews has an interesting column discussing former M.I.T. professor Stanley Fischer's career in the context of the possibility of him replacing Ben Bernanke as Fed chair in the fall. There are a couple of important items that are not mentioned in this discussion.

First, Matthews notes the central role that Fischer played in the I.M.F.'s resolution of the East Asian financial crisis. While this discussion might lead readers to believe the resolution was a success, this crisis actually...

Germany's Unemployment Rate is 5.3 Percent not 7.4 Percent

For some reason the NYT keeps using the official German unemployment rate in its coverage of Germany's economy rather than the OECD harmonized rate. The official German rate includes workers who are involuntarily working part-time. By contrast, the OECD essentially uses the same methodology as the United States.

Therefore the NYT badly misled readers when it reported that Germany's unemployment rate is 7.4 percent. The OECD harmonized unemployment rate in Germany is 5.3 percent.

Allan Sloan Explains the Relationship Between Interest Rates and Bond Prices and How the Government Can Costlessly Eliminate Large Amounts of Debt

Allan Sloan used his column today to explain a simple but often overlooked point, when interest rates rise, bond prices fall. This means that if long-term interest rates rise substantially in a few years, as the Congressional Budget Office predicts, then the bonds issued at very low interest rates today will be selling at large discounts.

The implication of this fact is that in 2015 or 2016, the Treasury would be able to purchase back much of the debt issued today at substantial discounts. T...

If Drug Companies Could Charge Higher Prices, Why Aren't They?

Economists usually believe that companies try to make as much money as possible. This is why readers of an NYT article on plans to reduce Medicare payments for drugs might have been surprised to see the comment:

"Some have speculated that other consumers could end up paying for the cost savings if drug makers raise their prices to account for the lost revenue. 'That money has to come from somewhere,' said Douglas Holtz-Eakin."

This statement implies that drug companies have a group of custom...

Why Does the NYT Abandon Journalistic Standards to Promote the Obama Administration's Trade Agenda?

That's what readers of this NYT piece hyping a European-U.S. trade agreement should be asking. It begins by telling readers:

"President Obama’s call for a free-trade agreement between the United States and the European Union has unleashed a wave of optimism on both sides that a breakthrough can be achieved that would lift trans-Atlantic fortunes, not just economically but politically.'

Really? How much of an economic boost should be anticipated from this deal? Will it make up for the impact o...

Why Aren't They Talking About Immigrant Doctors?

The NYT had an article that focused on efforts to get more immigrants with skills in science, technology, engineering, and mathematics (STEM). This effort would have the effect of lowering the wages of workers in these fields, thereby saving companies money. However the piece does not mention immigrant doctors, the area where the country could most obviously benefit from increased immigration.

Pay for doctors in the United States averages more than $250,000 a year, roughly twice the pay of ph...

The Bowles-Simpson Commission Did Not Issue a Report #54,302

Just as little kids like to believe in Santa Claus and the Tooth Fairy, Washington insiders like to believe that the Bowles Simpson commission issued a report. Of course the commission did not issue a report.

The commission's by-laws state that a report would need the support of 14 of the 18 members of the commission. There was no report that met threshold and in fact no formal vote was ever taken on any report. The document in question should properly be referred to as the report of the co-c...

Economists Who Could not See an $8 Trillion Housing Bubble Say that We Need $4 Trillion in Deficit Reduction

In his State of the Union Address last night President Obama told the country that unspecified economists say that we need to reduce the deficit over the next decade by $4 trillion from the levels projected in 2010. It would have been worth noting that almost all of the economists who say this completely missed the $8 trillion housing bubble whose collapse sank the economy. There is no reason to believe that their understanding of the economy has improved in the last 5 or 6 years.

It would b...

Millions of Children are Growing Up With Unemployed Parents Because of Fix the Debt and Other Deficit Hawks

While a Washington Post piece gave extensive coverage to the Post's favorite deficit hawks in a piece on the budget deficit, it did not include anyone who could present the basic economic facts to readers. The reason the deficit expanded from just a bit more than 1.0 percent of GDP in 2007 to more than 10 percent of GDP in 2009 and 2010 was that the economy plunged following the collapse of the housing bubble. The deficit was and is filling in a demand gap in the private sector as a result of...

Currency Values Are Not Determined by the Market When Central Banks Buy Currencies

A NYT piece reported on concerns by the French government and others over the rising value of the euro. They were concerned that a higher valued euro would make French and other euro zone goods less competitive in world markets. In response the piece included two statements that are at best misleading.

It presented the views of Jens Weidmann, the head of Germany's central bank, who said, "warned that an exchange rate policy aimed at weakening the euro would 'in the end result in higher inflat...