Dean Baker's Blog, page 470

Reporting on the Housing Market: Do We Need Drug Testing for Economists?

We all know that economists aren't very good when it comes to understanding the economy. This is exactly what economic theory predicts.

When economists completely mess up, for example by missing an $8 trillion housing bubble, they do not risk any sanction, such as being fired. This means that they have little incentive to get things right. If waiters had no incentive to get orders right and bring food to customers quickly, then people would have to wait a long time for their dinners and frequ...

Operation Twist Poses the Same Risk of Causing Inflation as Printing Money

That's basically zero right now (and higher inflation would be good -- reducing the debt of homeowners and lowering real interest rates), but if Operation Twist boosts growth and increases employment then it threatens inflation in the same way as printing money. Someone has to straighten out the Post.

The Regulation Monster and the Confidence Fairy

Paul Krugman introduced the world to the "confidence fairy," the creature that proponents of austerity think will cause investment and growth because governments cut budget deficit. Only people with the right eyes, and a well-respected perch in policy making, are able to see the confidence fairy.

In the same vein, we should also recognize the "regulation monster." The regulation monster is the creature that strangles businesses in bureaucratic paperwork and red tape so that they can't invest...

Microsoft and Apple: The History Casey Mulligan Doesn't Know

Casey Mulligan used his NYT blogpost this week to tell readers:

"there is no such thing as a monopoly in the computer industry."

The rest of the piece is devoted to criticizing the foolishness of the Justice Department in having brought an anti-trust suit against Microsoft. The rise of Apple is at the center of the story, with Apple having surged past Microsoft in profits and market value and Microsoft now struggling to maintain its position with a new tablet computer.

This is a great story o...

Context Lacking on PBS Newshour Discussion of Pensions

The PBS Newshour last night included a segment on state and local pension liabilities. While it included Josh Rauh, one of the people who has been most visible raising alarms about the condition of state pensions, it did not include the voice of anyone who was prepared to defend the financial situation of state pensions.

This meant, for example, that when Rauh told viewers that unfunded liabilities came to $9,000 for every U.S. household, there was no one to point out that this comes to less...

Operation Twist Threatens Inflation In the Same Way as "Printing Money"

The Post told readers that with the Federal Reserve Board's "Operation Twist"selling short-term debt to buy longer term debt:

"the Fed is able to bring down more stubborn long-term rates — from corporate loans to mortgages — without “printing more money” to do so. Increasing the money supply increases the chance of inflation, which invites political criticism."

This is not true. Anything the Fed does to boost demand in the economy increases the risk of inflation. As a practical matter, the id...

Europe's Growth Has a Limited Impact on the United States

The euro zone crisis is very bad news for the people of the region, especially in the peripheral countries where unemployment is soaring well into the double digits. However its impact on the economic situation in the United States has been hugely exaggerated, as in this NYT article that told readers:

"With his own re-election chances directly tied to the European economic crisis as it drags down growth in the United States, Mr. Obama desperately wants Ms. Merkel to loosen the reins on spendi...

Thomas Friedman Thinks a 3 Percentage Point Increase in the Income Tax Is No Big Deal

Well, he didn't say that exactly, but we can infer it from his column. In this piece he again called for President Obama to embrace the deficit reduction plan put forward by former Senator Alan Simpson and Morgan Stanley director Erskine Bowles.

One of the central features of the Bowles-Simpson plan is a reduction in the annual cost of living adjustment for Social Security by 0.3 percentage points. After ten years this implies a cut in benefits of 3 percent. After twenty years it implies a cu...

Creative Workers Need to Be Paid, the Question Is How

There is a lengthy and painful debate over at the Trichordist over whether young people are being immoral when they listen to music that they didn't pay for. The lead piece "letter to Emily" explains to a young woman how she has an obligation to pay for the music she listens to. The piece accurately documents the dismal economic plight of most musicians. It then throws in the statistics that are familiar to those of us who follow the issue closely:

"Recorded music revenue is down 64% since 1...

Nonsense on Job Openings: Preemptive Strike

The Bureau of Labor Statistics issued its April report for the Job Opening and Labor Turnover Survey (JOLTS) today. It shows a big drop in job openings.

While some folks will no doubt make a big deal out of this report, there are a few things to keep in mind. First, there is a considerable lag in the data. We already knew that employment growth was weak in April and May, so it should not be very surprising that job openings were down in April.

The second point to keep in mind is that most of...