Dean Baker's Blog, page 545

The Post Still Gets It Wrong on Consumption and the Housing Bubble

Students in introductory economics classes learn about the housing wealth effect. The basic story is that consumption depends in part on housing wealth. The size of the effect is usually estimated at between 5 to 7 percent, meaning that for every additional dollar of housing wealth annual consumption will increase by between 5-7 cents.

This effect was very important during the years of the housing bubble. The $8 trillion of housing bubble wealth led to a consumption boom that pushed the...

Does America Need Manufacturing? What Does Mr. Arithmetic Tell Us?

The NYT devoted a major Sunday magazine piece to this question. It never raised the most fundamental question, if we buy all our manufactured goods from someone else, how are we going to pay for them?

Our goods deficit is currently running at annual rate of around $800 billion or 5.3 percent of GDP. We have a surplus on services of around $170 billion a year, less than 1.2 percent of GDP. If we lost all our manufacturing, then the deficit on goods would increase by about $1.2 trillion to...

Thomas Freidman Spews Nonsense with Hurricane Force

Yes, it's Sunday and Thomas Friedman has another of his whacky big picture columns:

"Now let me say that in English: the European Union is cracking up. The Arab world is cracking up. China's growth model is under pressure and America's credit-driven capitalist model has suffered a warning heart attack and needs a total rethink. Recasting any one of these alone would be huge. Doing all four at once — when the world has never been more interconnected — is mind-boggling. We are again 'present...

Leonhardt Nails It on the Fed

David Leonhardt has a great piece outlining the battle over Fed action and the way it is affected by outside pressures. It is well worth reading.

NYT Misleads on Federal Spending with a Seriously Bad Headline

The headline of an NYT story told readers: "out of debt ceiling fight, some see a bit of stability on federal spending." While the headline might lead readers to believe something like the deal restrained out of control spending, the article says nothing like this. The article is referring to the budget process which has become chaotic since the Republicans took control of the House. It does not focus on the levels of spending, which were projected to fall relative to the size of the economy ...

Obama Says He Just Found Out How Bad the Economy Was in 2008, Where Is the Ridicule?

The media love to jump on politicians when they say something stupid or inaccurate about their personal lives.They will fill pages and pages of print, and take up hours on radio and TV, talking about the comment. They will bring on experts (i.e. political reporters and gossip columnists) to tell the public what the gaffe means and why it makes that person inappropriate for elected office.

However they somehow don't get the same urge when a political figure makes an incredibly foolish remark a...

NPR Justifies Its $211 Trillion Debt Scare

It is the media's responsibility to inform the public about the key issues affecting their lives. One of the key issues is the economy. At the moment more than 25 million people are either unemployed, involuntary working part-time, or have given up looking for work altogether. The reason is that the folks running the economy somehow could not see the $8 trillion housing bubble that eventually collapsed and took the economy down with it.

One way to get people back to work is government...

Economists Who Missed the $8 Trillion Housing Bubble that Sank the Economy Prefer Spending Cuts to Tax Increases

CNBC told its audience that 56 percent of the economists who responded to a National Association of Business Economists Survey thought that spending cuts were better than tax increases for reducing the deficit. It would have been worth reminding people that almost all of these people were too incompetent to see the $8 trillion housing bubble that crashed and wrecked the economy.

This is an important piece of information since there is no reason to assume that these economists know any more...

Why Doesn't Biden Tell China That U.S. Bonds Are a Bad Investment?

It happens to be true, since the dollar will almost certainly fall if they ever choose to unload their bonds. However more importantly, buying up government bonds is the way that China props up the value of the dollar against the yuan. Ostensibly the Obama administration's policy is that it wants the dollar to fall against the yuan. So why isn't Biden encouraging China not to buy up so many government bonds, and why isn't the Post asking this question?

Fun With Eric Cantor

The Post have Eric Cantor the opportunity to lay out his economic vision today. Let's have a little fun seeing how many things he got wrong.

Cantor begins by telling us:

"Our country is facing two related but separate crises. The first is the federal government's debt crisis, the result of decades of fiscal mismanagement by both political parties as well as unsustainable entitlement commitments."

Debt crisis? Does Cantor mean the fact that we have to pay just over 2.0 percent interest on 1...