Dean Baker's Blog, page 503

Nameless Critics Attack the Fed at the NYT

In an article that told readers of the Fed's plans to keep its zero interest rate policy through 2014 the NYT commented:

"there is growing criticism that the Fed's policies are unfairly taking money from savers, including many seniors who planned their retirements around the interest rates that low-risk assets like bank deposits used to pay."

It would have been worth pointing out that one of the goals of this low interest rate policy is to get savers out of low risk assets and into something ...

Larry Summers' Con Job

Larry Summers told Post readers that lack of confidence by businesses and consumers are major factors holding back the recovery. There is little evidence for this position.

Investment in equipment and software is almost back to its pre-recession share of GDP. The savings rate is still much lower than its post-war average, meaning that consumption is unusually high relative to income. This is especially striking since the huge baby boom cohort is at the edge of retirement and most have very...

President Obama Did Not Talk About the Over-Valued Dollar

That is a point that would have been worth making in an analysis of President Obama's proposals to encourage job creation in the United States. The value of the dollar is by far the most important determinant of trade balance. If the dollar is over-valued by 20 percent this is equivalent to putting a 20 percent tariff on U.S. exports and giving ou a 20 percent subsidy for imports.

If President Obama were serious about increasing U.S. employment in manufactured then it would be expected that h...

Ross Douthat Doesn't Have Access to CBO Projections

If Ross Douthat had access to the Congressional Budget Office's (CBO) projections that show Social Security will be fully solvent for almost three decades, with no changes whatsoever, and that it could pay more than 80 percent of scheduled benefits after that date for the rest of the century (which is more than current retirees recieve), then he would not have attacked President Obama for not having a plan to overhaul Social Security. Therefore, we can conclude that he doesn't have access to ...

Thomas Friedman Shows Us Average Is Not Over

Thomas Friedman has a great sense of irony. In a column titled "Average Is Over" he shows readers that average is clearly not over. 

The column is a tidal wave of confusion about basic economics. The gist of the piece is that technology and globalization will displace all the average workers in the United States. Workers will have to be extraordinary to get decent paying jobs.

Both parts of this story are very poorly argued. Technology does replace many less-skilled jobs. Perhaps we should...

Unemployment Is Down Because People Have Given Up Looking for Work

The NYT mentioned the drop in the unemployment rate to 8.5 percent from a peak of 10.0 percent in 2009 as evidence of the economy's recovery. Most of this decline is the result of people leaving the labor force. (Workers are only counted as being unemployed if they are still looking for work.) The employment to population ratio, the percentage of people with jobs, is only 0.3 percentage points above its low-point for the downturn.

European Businesses Are Cutting Back as Governments Try to Solve the Debt Crisis

The NYT noted that factory orders across the European Union fell sharply in November. It told readers:

"businesses are cutting back as they wait for political leaders to resolve the debt crisis."

Actually, businesses are cutting back precisely because political leaders are making cuts in spending and raising taxes in order to resolve the debt crisis. The steps being taken by Europe's governments have the effect of reducing demand in the economy. The reduction in factory orders is the...

Spring Follows Winter, Economies Recover

While it didn't quite put it this way, the NYT told readers that President Obama plans to really lower the bar big-time on his economic record. It told readers:

"The president and his advisers are confident their course will lead to a full recovery, though not this year. That long-term prospect has stoked Mr. Obama's competitive juices, lest a Republican take the White House and with it the eventual credit for economic gains."

Economies generally recover over the long-term unless you do some ...

David Brooks' Ignorance Is Showing Again

In his column today David Brooks provided a brief discussion that purports to show that the growing inequality is attributable to a mix of globalization and technology and the moral failings of the working class. A little reflection would lead people to reject both parts of this explanation.

The first claim ignores the way in which deliberate policy shaped globalization. The reason that wages are much lower and the skills expected are much higher  for manufacturing workers than in the past...

Silliness About New Businesses

Folks in Washington policy circles are go really wild for silly fads: hula hoops, streaking, lava lamps, etc. Okay, I don't know if the policy wonks really got into any of these, but they do fall for silly intellectual fads.

The Washington Post showed this sort of infatuation by printing a column from Steve Case telling us that new businesses were responsible for all the new jobs created in the last three decades. Case concludes from this that we should have policies that foster the growth...