Dean Baker's Blog, page 495

Thomas Friedman's Candidate for President: The Leader of the Economic Sleepwalk Tour

Thomas Friedman gave readers his pseudo endorsement of a candidate for president today. The person is David Walker, who headed up the Government Accountability Office from 1998 to 2008 before leaving to take the helm as president of the Peter G. Peterson Foundation. He later left that organization to head up another Peter Peterson funded venture.

Walker has been in the public over for more than a decade as a result of his crusade against the government budget deficit. In fact, he led a...

Should We Slow Efficiency Growth?

The NYT had a very good piece from Barry Schwartz, one of my former college professors, asking this question. The context is whether the Bain Capitals of the world should be allowed to downsize without any consideration for workers or the community.

The United States is the only wealthy country that allows companies to dump long-serving workers at will. It might be reasonable to require some amount of severance pay when they fire long-serving workers (e.g. 2 weeks per year of work). This...

Has Anyone at the Washington Post Heard of Exchange Rates?

It doesn't seem so from an article that it ran on export subsidies offered in the form of loan guarantees from the export-import bank. The article highlights the purchase of Boeing plans with government subsidized loans by an Indian airline. The Indian airline then drove Delta out of a key route.

While the article talked to several economists on the wisdom of using loans guarantees to subsidize exports, it never once mentioned reducing the value of the dollar as an alternative. In fact, a...

China's Pirates, Currency, and Class

David Leonhardt has an interesting piece that asks whether currency values should still be an important issue between the United States and China, suggesting that China's appropriation of U.S. technology and intellectual products should be a more important issue. There is an important class aspect to this question that the piece overlooks.

From the standpoint of manufacturing workers and those whose wages might be affected by an increased demand for manufacturing workers (e.g. those without c...

Argentina Collapsed Before Default

Ezra Klein's WonkBlog has an interesting piece asking whether Greece is going to have the dubious honor of having the largest economic downturn in modern history. The piece quotes Uri Dadush, a former World Bank official, who predicts a decline of 25-30 percent, which would beat both Argentina's 20 percent decline in 1998 to 2002 and Latvia's 24 percent decline in the current crisis.

The piece is a bit sloppy on one point, saying that Argentina's decline followed the default on its debt in...

Casey Mulligan Has Another Head Scratcher On Unemployment Insurance

In his Economix post today Casey Mulligan asks the question of whether unemployment benefits on net create jobs. He tells readers that:

"Even if unemployment insurance did not discourage a single person from working, the net effect of the program on hiring can be positive or negative, depending on the labor intensity of the goods and services that the unemployed buy, compared with the labor intensity of the goods and services that those who pay for unemployment do not buy."

There is a...

WAPO TARP Logic: If it Issues a Mortgage at 1 Percent Interest, and the Mortgage is Repaid, Then It Has Made a Profit

In an editorial on President Obama's proposed bank tax, the Washington Post claimed that the country made a profit on its TARP loans. This claim is only true if we consider the interest on a below market loan to be a profit.

The TARP involved loans of hundreds of billions of dollars to banks at interest rates that were far below what they would have been forced to make in the market at the time. The Fed lent far more money to the banks through its special lending facilities.

The access to...

It Matters That Countries Have Their Own Central Bank

A Washington Post article on the problems of restructuring of Greece's debt discussed factors that affect country's ability to carry debt. It neglected to mention the issue of whether it borrows in currency it issues. If a country is like the United States or Japan, and borrows almost entirely in its own currency, then it would only default on its debt as a political decision (e.g. it refuses to extend a debt ceiling, authorizing the debt to be paid).

Since it issues its own currency, it can ...

Big News: Japan Targets Higher Inflation

Japan's central bank took the extraordinary move of targeting a higher rate of inflation, setting a 1.0 percent inflation target. This should have been front page news.

The idea of a central bank setting an inflation target above its current level, in the hope of raising inflationary expectations, dates back to a paper by Paul Krugman in the late 90s. (Federal Reserve Board Chairman Ben Bernanke endorsed the same policy when he was still a professor at Princeton.) The logic is that if the...

The Clock on UK Austerity Policies

The NYT had an article on the response in the UK to warnings from Moody's that it may downgrade the country's debt because of the country's week economy. It is worth noting that it has been roughly 20 months since the Conservative-led UK government first began to implement its austerity program. President Obama saw a resounding electoral defeat in November of 2010, 20 months after Congress passed his stimulus program.