Dean Baker's Blog, page 70

Pausing at the Fed

My friend, Jared Bernstein, laid out the case for a pause in the Fed's interest rate hikes at its meeting this month. I agree with pretty much everything Jared said, but want to push one point a bit further.

Jared raises the argument made by the more hawkish types that we have well-anchored inflationary expectations that we don't want to risk losing by allowing inflation to accelerate. This line is given as a rationale for hiking interest rates in a context where inflation even now is under t...

Our Elites Refuse to Accept Responsibility for Leaving Behind the Left Behind

There have been several analyses of the 2018 election results showing that the Republican regions are disproportionately areas that lag in income and growth. In response, we are seeing a minor industry develop on what we can do to help the left behinds. 

The assumption in this analysis is that being left behind is the result of the natural workings of the market -- developments in technology and trade -- not any conscious policy decisions implemented in Washington. This is quite obviousl...

The Budget Deficit Does Not Require Foreign Financing

In the middle of a useful article on the trade deficit the Post told readers:

"Last year’s $1.5 trillion Republican cut in corporate and personal income taxes, along with the decision to eliminate congressional limits on government spending, has revved up the economy and created nearly $1 trillion budget deficits for the coming years that require financing from abroad."

This is not exactly true.

When the government borrows more money, it pushes upward pressure on interest rates, other th...

Why Would Markets Be Unnerved by Deficits in Line with Projections?

The Washington Post told readers that when the deficit figures for 2018 were released last month:

"The announcement unnerved Republicans and investors, helping fuel a big sell-off in the stock market."

The claimed impact on the market seems implausible. In April, after analyzing the effect of the tax cuts, the Congressional Budget Office (CBO) projected the deficit for the 2018 fiscal year would be $804 billion. The figure for the deficit that was reported last month was $779 billion, $25 b...

Saving the Environment: Is Degrowthing the Answer?

(This piece originally appeared on my Patreon page.)

A friend recently sent me a piece by Jason Hickel, arguing that growth can’t be green and that we need to move away from growth oriented economics. I am not convinced. It strikes me both that the piece misrepresents what growth means and also confuses political obstacles with logical ones. The result is an attack on a concept that makes neither logical nor political sense.

In the piece, Hickel points out the enormous leaps that will be requ...

US Foreign Aid and Chinese Foreign Aid: For Those Who Care About Numbers

The media have been touting a new foreign aid initiative by the Trump administration which will create an agency that will provide $60 billion worth of loans, loan guarantees, and insurance for investments in developing countries. This is portrayed as an effort to counter China's growing influence in the developing world.

It would have been helpful to put this number in some context. First, if this is an effort to counter China, it is likely to come up short. China has already paid out more t...

U.S. Foreign Aid and Chinese Foreign Aid: For Those Who Care About Numbers

The media have been touting a new foreign aid initiative by the Trump administration which will create an agency that will provide $60 billion worth of loans, loan guarantees, and insurance for investments in developing countries. This is portrayed as an effort to counter China's growing influence in the developing world.

It would have been helpful to put this number in some context. First, if this is an effort to counter China, it is likely to come up short. China has already paid out more t...

The Distortions from Tariffs and the Distortions from Patent Monopolies

Jim Tankersley had a very interesting piece in the NYT on how clothing manufacturers manage to minimize the impact of tariffs. The gist of the piece is that the tariffs led to very few jobs in the United States, but instead cause companies to spend lots of time gaming the system. We would presumably rather see them spend their time trying to design better products and production techniques.

While this a very interesting piece, that is written in reference to Donald Trump's latest and future r...

Tariffs and Quotas: Who Gets the Money

The NYT reported that the Trump administration is considering replacing the tariffs it imposed on aluminum and steel imports from Mexico and Canada with a system of quotas. There is an important economic dimension to such a shift that was left out of the piece.

If the U.S. imposes a tariff on an import then it is effectively imposing a tax on U.S. consumers. The government gets to keep the revenue. For example, if steel is imported at a price of $700 a ton and we impose a 10 percent tariff, t...

What Makes the NYT Say That Trump's Forgiveness of Saudi Arabia Is About Jobs and Not His Business Profits?

The NYT featured a news analysis by Mark Mazzetta and Ben Hubbard, that discussed Trump's willingness to ignore the Saudi murder of reporter Jamal Khashoggi in their embassy in Turkey. The piece begins by telling readers that this decision:

"showed the extent to which he believes that raw, mercantilist calculations should guide the United States’ decisions about the Middle East and the wider world."

It later adds, "American jobs outweigh American values."

The piece presents no evidence a...