Dean Baker's Blog, page 415

David Brooks Is Lost in Time

David Brooks told us again today that he doesn't like Social Security and Medicare. He does this frequently in his columns although usually while he ostensible makes some other point.

Today's other point is that the country is less forward thinking in the past. A main piece of evidence in this regard is the money that we are spending on Medicare and Social Security.

"The federal government is a machine that takes money from future earners and spends it on health care for retirees. Entitlement...

Robert Samuelson Is Worried the Justice Department is Persecuting S&P

Robert Samuelson is worried that S&P is being persecuted by the Justice Department which is suing the company for mis-rating tens of billions of dollars of mortgage backed securites. He argues that S&P was suckered by the housing bubble just like everyone else.

While the claim that they believed that house prices could only rise is probably true (most economists and policy types believed this in the years 2002-2006 -- you don't get fired in economic policy work for making huge mistakes) that...

How Does Greg Mankiw Know that Wage Inequality Is Due to Technology?

As opposed to alternatives like macroeconomists who lack skills in running the economy? Mankiw asserts as a fact that technology is responsible for the upward redistribution of income over the last three decades, but it is not clear that the evidence supports his story. After all technology had a much larger impact in increasing productivity in the decades from 1947 to 1973 yet workers shared in these gains more or less equally.

If technology explains the shift those who try to explain the ti...

The Housing Bubble Should Not Have Been Hard to See

Economists and other policy types are working hard to maintain the absurdity that the housing bubble was hard to see. Hence we have Federal Reserve Board Governor Jeremy Stein pontificating on how the Fed should deal with bubbles and the Post playing along with the gag.

Let's just run through the basic facts. Nationwide house prices had sharply departed from a 100 year long trend in which they had just kept pace with the overall rate of inflation. At the peak of the bubble in 2006 they were...

Young People Today Can't Even Conceive of Wage Growth

That is undoubtedly what readers of Matt Yglesias' blogpost on immigration and retirement income are saying. Matt correctly notes that an economy cannot collectively save for a generation's retirement in the sense of putting aside the goods and services that the generation will consume in retirement. His conclusion is that we need large numbers of new workers to support our current or soon to be retired population. This leads him to call for a much larger number of immigrants.

While we may wa...

Post Misses Opportunity to Ridicule Obama Administration on Trade Data

The trade deficit has been rising throughout the recovery. For arithmetic fans this is bad news. It means that the United States has net negative savings. That in turn means that either the government must run deficits or the private sector must have negative savings. There is no way around that fact, which means that people unhappy with the budget deficit should be unhappy about the direction of trade.

The December data showed a sharp drop in the trade deficit for the month. This was hailed...

The United States Hugely Lags in Leisure Time

The Post has an article implying that many more people are opting for leisure in the United States than in the past and that this fact could even explain income inequallity. Neither of these assertions is very plausible. The United States has seen a much smaller reduction in work time over the last three decades than any other wealthy countries. Furthermore, countries that have seen steeper reductions in work time have seen much smaller increases in inequality.

Neil Irwin Has a Faulty Econ Textbook

He presented a quote from Mario Draghi, the President of the European Central Bank:

"'The exchange rate is not a policy target, but it is important for growth and price stability. We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.'"

He then added:

"And with that, the euro fell more than half a percent against the dollar—even though Draghi was really more stating a fact from Economics 101 than signaling some major new policy plans...

Lessons on Economics for NYT: China's "Labor Shortage"

An article on Hewlitt-Packard's decision to require suppliers in China to not use involuntary labor from students told readers:

"Enforcing workplace rules in China has always been difficult, as even Chinese laws on labor practices are flagrantly ignored by some manufacturers as they struggle to keep up with production demand amid labor shortages. The Chinese government announced last month that the nation’s labor force had begun to shrink slowly because of the increasingly rigorous one-child...

When Did CBO Stop Being Wrong About the Economy: Robert Samuelson Edition

Robert Samuelson is looking at the latest projections for the budget and the economy from the Congressional Budget Office (CBO) and struggling with their implications for the defcit. He presents the three reasons that CBO gives for reducing the debt from the projected levels:

1) fear of financial crises;

2) crowding out of investment;

3) we may need to borrow more in the future to cover the costs of a war or natural disaster.

It's worth briefly addressing these concerns, but first we need to...