Dean Baker's Blog, page 566

Larry Summers and the Size of the Stimulus on Marketplace Radio

Marketplace radio had an interview with Larry Summers, formerly the head of President Obama's National Economic Council. At one point the interviewer questioned Summers about whether he viewed the size of the stimulus as too small. Summers responded that while he felt the economy needed a bigger stimulus, he thought the stimulus was the biggest package that it was possible to get through Congress at the time.

It would have been appropriate to ask, if Summers held this view, why neither he...

Sanctity of Contract Does not Apply to Public Pensions

The New York Times ran a piece on two court decisions that states were not obligated to maintain cost of living adjustments in pensions. It would have been appropriate to provide more background to these rulings.

In effect the courts were saying that contracts with workers do not have the same standing as other contracts. It is almost inconceivable that the courts would allow a state government to unilaterally cut its contracted payments to a supplier or other government contractor.

The...

Economists Who Know About the Housing Market Expect Prices to Continue to Fall

USA Today told readers that:

"economists say it could be several years before the nation's housing market recovers."

This is probably reviewing to the views of economists who did not see the housing bubble. Economists who saw the housing bubble know that house prices are still about 10 percent above their trend level. This means that they do not expect the housing market to recover in terms of prices rising back to prior levels. They expect further price declines until the market returns to t...

Would the FDA Decision on Avastian Be Easier If Genetech Didn't Have So Much Money at Stake?

The system of patent supported research gives drug companies like Genentech enormous incentive to mislead the public and government agencies, like the FDA, about the effectiveness of their drugs. Companies can lose billions of dollars if the FDA determines that a drug is not safe or effective and removes it from the market.

Therefore economic theory predicts that companies will make misleading claims to try to prevent removal. If the government did not grant patent monopolies that allow...

If Greek Debt Is Going to Be Restructured Then Current Lending to Greece Is Actually Handing Money to Creditors

The Washington Post should have made this point in an article that noted that Greece is likely to face further problems in meeting its debt obligations. If Greece ultimately has to restructure (i.e. partially default) on its debt, then it means that the new money being put in by the IMF and the EU is effectively allowing current debtors to be repaid. The public lenders will then be the victims of the partial default. Rather than being loans to the Greece, these loans are effectively a transfe...

Speaker Boehner Can't Remember the 90s

That would seem to be the implication of his quote in an NYT article:

"The American people know tax hikes destroy jobs,, .... They also know Washington has been on a spending binge for many years, and they will only tolerate a debt-limit increase if we stop it."

Actually, the economy was creating 3 million jobs a year in the late 90s, when the higher Clinton era tax rates were in effect. This means that unless the memory of the American people is as bad as Mr. Boehner's memory, they could...

What Does It Mean to Say That Investing in a 401(k) Is Safer Than Investing in Stocks?

The NYT reported the results of a telephone survey which found the 41 percent of respondents thought a 401(k) or IRA was a better long-term investment vehicle than investing in stock. It's not clear what question people thought they were answering. The vast majority of people who invest in stock do it through a retirement account. Therefore, it's not clear what it would mean to say that investing in a 401(k) or IRA is better than investing in stock.

Doctors' Lobby Stifles Study to Examine Access to Care

Doctors in the United States have enormous political power. They use it to limit the supply of doctors domestically both by restricting medical school enrollment and the number of foreign doctors who can enter the country. As a result of these protectionist measures, the United States pays more than twice as much for its doctors as other wealthy countries, costing it more than $90 billion a year.

The NYT reported on the successful effort by the doctors' lobby to stop the use of government...

Doctors' Lobby Stiffles Study to Examine Access to Care

Doctors in the United States have enormous political power. They use it to limit the supply of doctors domestically both by restricting medical school enrollment and the number of foreign doctors who can enter the country. As a result of these protectionist measures, the United States pays more than twice as much for its doctors as other wealthy countries, costing it more than $90 billion a year.

The NYT reported on the successful effort by the doctors' lobby to stop the use of government...

Will Legarde Do Anything About the IMF's Bloated Pensions?

Just asking, and asking why no one in the media is asking. The Washington Post, NYT and other major news outlets have been running wild yelling about excessive public sector pensions. The median pension for a public sector worker is a bit over $20,000. In many cases this is their sole retirement income, since they are not covered by Social Security. The pensions of public sector employees has been the topic of numerous front page stories in major newspapers.

This is why it is striking that...