Dean Baker's Blog, page 531

The New York Times Discovers the Housing Wealth Effect

In a bizarre article, the NYT told readers that, "economists have only recently devoted serious study to how a decline in housing prices affects consumer spending." Actually economists have studied the effect of house prices on consumption for close to a century.

The housing wealth effect is a well-known concept in economics, not something that economists have just stumbled upon. It is usually estimated as being between 5-7 cents on the dollar. This implies the loss of roughly $7 trillion in ...

Accounting Identities for Thomas Friedman

Thomas Friedman tells readers that we should want China to riase the value of its currency, but the real problem for the United States is that we are not building up our infrastructure and we don't save. While the first point is right, the second suffers from ignorance of national income accounting.

If we have a trade deficit then we must have negative national savings. At full employment, we will have a large trade deficit, unless our currency declines in value. This means that we will...

The Post Wrongly Tells Readers That Central Banks Can't Do More to Boost Growth

In an article about the IMF reversing its pro-austerity stance, the Post told readers:

"Central banks, which have already reduced interest rates to extremely low levels, have little remaining ability to boost economic activity."

This is not true. Central banks could explicitly target higher rates of inflation. This would lower real interest rates and reduce debt burdens. This policy has been advocated by many prominent economists, including Paul Krugman, Ken Rogoff, the former chief...

David Brooks: People Prefer Values to Jobs

David Brooks is so cute when he tries to talk about economics. He apparently never heard of the "wealth effect," one of the most basic concepts in economics. Brooks tells readers that we are seeing a change in American values with people turning away from debt.

Actually, people have simply seen much of their wealth disappear with the collapse of the housing bubble. Close to $7 trillion of housing wealth has disappeared since the peak of the bubble. In the bubble years, people went into debt b...

Argentina Suffering From Default: Not on This Planet

NPR's Planet Money made its entry in the Stake Your Claim game show with a segment on Friday that claimed that Argentina is suffering horribly as a result of its decision to default at the end of 2001. It turns out that Argentina has actually been doing quite well since its 2001 default as the most recent data from the IMF show.

Click to Enlarge

Source: International Monetary Fund.

As can be seen, Argentina was already in a severe recession prior to default. It had tied its currency to the d...

If Our Children Don't Do Better Than Us, It Will Be Because the Top 1 Percent Took It All

Robert Samuelson warns that our children may not do better than us. His warning is based on rising health care costs, aging of the population and the resulting rise in Social Security and Medicare expenses, and the risk of an end to productivity growth. Remarkably the upward redistribution of income doesn't feature in his story.

This is striking since upward redistribution is such a huge part of the picture. His example of workers not gaining is taken from a Health Affairs article that...

Republican Presidential Candidates Want to Build Keystone Pipeline to Reduce Unemployment by 0.01 Percentage Points

The Washington Post told readers that jobs have become a big factor in the Obama administration's decision on building the Keystone pipeline, which would allow tar sands oil from Canada to be shipped across the United States. According to the article the pipeline has become a big cause among the Republican presidential candidates because it would generate 20,000 short term jobs in an economy with 9 percent unemployment.

The labor force is slightly over 150 million people. This means that the ...

Steve Rattner Gets It Wrong on Globalization in the NYT

Wall Street financier Steve Rattner gets just about everything wrong on globalization in a column in the NYT yesterday. He argues that the country will continue to lose manufacturing jobs, since we can't compete with low paid workers in the developing world. He argues that instead we should focus on highly-paid service sectors like software, entertainment and finance. Remarkably, he never once mentions either the trade deficit or the value of the dollar.

The reason why the United States has l...

Thomas Friedman, Bard of the 1 Percent, Reports on the Problem of Incompetent CEOs

After referring to David Brooks as the "Bard of the 1 Percent," I was assaulted with a barrage of threatening letters and phone calls from representatives of Thomas Friedman who insisted that he holds this title. I will let the two NYT columnists slug it out between themselves and deal with the substance. 

In Sunday's column Mr. Friedman inadvertently warns us about the potential economic risks this country suffers from being run by incompetent CEOs. Friedman recounted a conversation he had w...

Post Does the Old He Said/She Said on Perry Energy Plan

Texas Governor Rick Perry announced an energy program yesterday that involved drilling everywhere in sight. According to the Post article on the plan, Perry claimed that his plan would create 1 million jobs. In classic he said/she said style the Post told readers:

"Perry predicted his energy plan would create more than 1 million new jobs. Weiss [a researcher at the Center for American Progress] sharply disagrees."

This is utterly useless information for readers. A Washington Post reporter...