Dean Baker's Blog, page 427

Capital Biased Technological Progress; It Doesn't Just Happen

Paul Krugman has been rightly troubled by the continuing shift of income shares from labor to capital. However the explanation he considers in the form of capital-biased technological progress requires a little more careful examination.

Krugman discusses the case where there is an exogenous change in the nature of technology that makes capital relatively more productive than labor. This leads to more capital being used, driving up its price, and less labor being used, driving down its price (...

The Deficit Was Not Ballooning Until the Economy Collapsed

A Washington Post article on how most Democrats have come to support the Bush tax cuts for the bottom 98 percent of the population, after originally opposing them, told readers:

"The Democrats were also correct in warning about the effect on the government’s debt. The tax cuts did more to fuel ballooning federal deficits over the past decade than any other Bush administration action — including the wars in Afghanistan and Iraq and the creation of a prescription drug benefit for seniors, accor...

Ruth Marcus Is Outraged by Overly Generous Social Security Checks

Well, who can blame her? After all, we have tens of millions of seniors living high on Social Security checks averaging a bit over $1,200 a month at a time when folks like the CEOs in the Campaign to Fix the Debt are supposed to subsist on paychecks that typically come to $10 million to $20 million a year.

Anyhow, her main trick for cutting benefits is to adopt the chained consumer price index as the basis for the annual cost of living adjustment. This would have the effect of reducing benefi...

Mr. Incompetent, the Economy Wrecker Alan Greenspan, Was Central to the Formation of the Campaign to Fix the Debt

Alan Greenspan will go down in history as the person who has done more damage to the U.S. economy and society that anyone who was not a foreign enemy. In fact the destruction he wreaked through his incompetence would also exceed the damage caused by almost all would-be enemies as well.

Greenspan accomplished the remarkable feat as Fed chair of ignoring the growth of the $8 trillion housing bubble. This bubble could not have been easier to see if it had been 500 feet high and lit up with huge...

Washington Post Continues Deficit Reduction Jihad

The Washington Post continued its practice of ignoring journalistic standards in trying to push its line on the necessity of a budget deal. An article referred to the end of the year deadline before higher tax rates and spending cuts kick in, then told readers:

"That deadline, now called the fiscal cliff, is widely believed capable of causing another recession."

It's actually not clear that any economists think that missing the deadline will cause the economy to fall into a recession. The Con...

Washington Post Continue Deficit Reduction Jihad

The Washington Post continued its practice of ignoring journalistic standards in trying to push its line on the necessity of a budget deal. An article referred to the end of the year deadline before higher tax rates and spending cuts kick in, then told readers:

"That deadline, now called the fiscal cliff, is widely believed capable of causing another recession."

It's actually not clear that any economists think that missing the deadline will cause the economy to fall into a recession. The Con...

Fareed Zakaria is Unhappy That "The American Left" Chooses Arithmetic Over Peter Peterson

Fareed Zakaria is very unhappy that "THe American Left," by whom he means the vast majority of people across the political spectrum who oppose cuts to Social Security and Medicare, insist on taking arithmetic seriously. They are refusing to join Peter Peterson and his wealthy friends in the Campaign to Fix the Debt in their crusade to cut these key social insurance programs.

Zakaria tells readers:

"The American left has trained its sights on a new enemy: Pete Peterson. The banker and private-...

The Y2K Disaster: How News Outlets Not Working for the Campiagn to Fix the Debt Report on the Fiscal Cliff

Many news outlets, most notably the Washington Post, have been busy creating disaster stories associated with the failure to reach an agreement on the budget by January 1, 2013. Ryan Grim at the Huffington Post approached the issue as a news reporter would, by asking what is likely to happen if there is no deal by that date.

The answer is essentially nothing. No one disputes that if we drag on several months into 2013 without a deal that higher taxes and lower government spending will be a se...

Wall Street Journal Claims President Obama is Delusional About Economy

One should always take second hand accounts from secret meetings with more than a grain of salt, but the Wall Street Journal's account of President Obama's position in his negotiations with Speaker Boehner should raise some concern. The WSJ told readers:

"The president told him [Boehner] he could choose one of two doors. The first represented a big deal. If Mr. Boehner chose it, the president said, the country and financial markets would cheer. Door No. 2 represented a spike in interest rates...

Countries Only Accumulate Foreign Reserves Because They Decide To

A Washington Post article on a report by the IMF's Independent Evaluation Office criticizing political influence by the United States on the Fund's policy may have misled readers on how countries accumulate foreign exchange reserves. The article told readers:

"A steady rise in foreign reserves — a country’s holdings of dollars, yen or other major world currencies — can be the result of large trade surpluses. But it can also stem from an undervalued exchange rate, something that the United Sta...