Dean Baker's Blog, page 76

Real Wages Rose in 2015: The Other Side of the Oil/Agriculture Mini-Recession

Neil Irwin had a nice piece picking up an issue that I have raised repeatedly (e.g. here, here, and here). The slowdown in investment in 2015 and 2016 was primarily driven by a plunge in world energy prices. The more recent pick-up is mostly a result of the partial reversal of this plunge, not excitement over Donald Trump's election.

The aspect of the issue that Irwin neglects to mention in this piece is that the plunge in energy prices in 2015, and its partial reversal the last two years exp...

Getting Serious About Debt and Deficits: The Deficit Hawks Did Enormous Harm to Our Kids

I have pasted below a post from Patreon page. I had planned to wait a little longer, but this NYT piece convinced me to post it now.

Debt and Deficits, Again

With the possibility that the Democrats will retake Congress and press demands for increased spending in areas like health care, education, and child care, the deficit hawks (DH) are getting prepared to awaken from their dormant state. We can expect major news outlets to be filled with stories on how the United States is on its way to be...

If the Fed is Raising Interest Rates Because of the Growth in Non-Wage Compensation, It is Badly Mistaken

The NYT ran a piece saying that the Federal Reserve Board is raising interest rates, in spite of weak wage growth, because of the more rapid growth in non-wage compensation.If this is true, then its policy is badly mistaken.

The piece tells readers:

"The average worker received 32 percent of total compensation in benefits including bonuses, paid leave and company contributions to insurance and retirement plans in the second quarter of 2018. That was up from 27 percent in 2000, federal data sh...

Washington Post Is Badly Off on the Story of China and the Trade War

The Washington Post ran a very confused piece on how China perceives Donald Trump's trade war. First of all, it hugely exaggerated how much is at stake for China. It implied that China's economy could take a serious hit if Trump's trade war substantially reduces U.S. imports from China.

At the moment, Trump is putting tariffs on $300 billion of exports from China. If this lead to a 50 percent reduction of China's exports of these items to the U.S. (a huge reduction) that would be $150 billion...

Washington Post Says McKinsey Consultants Agree with Trump Administration Growth Projections

The failure of economics reporters in major news outlets to make simple logical connections is truly astounding. The Washington Post gave us another great example of this failure in a piece on robots replacing workers in a Chinese warehouse.

The gist of this story is that this warehouse, which only has four workers overseeing dozens of robots, could be the wave of the future. At one point the piece tells us that the consulting firm McKinsey projects that almost one-third of jobs could be repl...

Quick Comment on Optimal Bailout

I have repeatedly said over the last few weeks (and ten years) that bailing out the banks was not necessary to prevent a second Great Depression. While I think this is absolutely true for reasons I have laid out many times, let me make a couple of additional points.

I think a bailout that imposed stringent conditions on the financial industry, essentially requiring a downsizing and restructuring, would have been better than just letting the banks fail. That would have been the best possible o...

Response to Bernanke On the Bubble Versus Financial Crisis Story of the Great Recession

Ben Bernanke responded to Paul Krugman's post last week, which agreed with my argument that the main cause of the Great Recession was the collapse of the housing bubble rather than the financial crisis. Essentially, Bernanke repeats his argument in the earlier paper that the collapse of Lehman and the resulting financial crisis led to a sharp downturn in non-residential investment, residential investment, and consumption. I'll let Krugman speak for himself, but I see this as not really answer...

The Bubble and the Great Recession: The Need for Denial

(This post originally appeared on my Patreon page.)

The tenth anniversary of the collapse of Lehman brought a flood of news stories on the financial crisis. The housing bubble, whose collapse precipitated the crisis, was only mentioned in the background if at all.

In keeping with the general tenor of the commentary, Brookings brought in former Fed chair Ben Bernanke to present a paper saying the story of the Great Recession really was the financial crisis. To my knowledge they did not have an...

Donny Trump's Trade Policy: Punishing Enemies and Helping Friends

Paul Krugman is on the money in his analysis of Trump's trade policy. The issue is not just that he is using tariffs. Tariffs can sometimes be useful tools, either to pressure a trading partner to change their practices or, in some cases, to support an industry in need of breathing space.

But no such logic can applied to Trump's tariffs. He is angry at Canada and China for reasons that have never been clearly stated and seem to change daily.

He also doesn't seem to understand the most basic l...

Trump's Plan to Cripple the Fashion Industry and Promote Unauthorized Copies

The Washington Post had a piece on how Trump's tariffs on goods produced in China is promoting unauthorized copies of many fashion items. The reason is that his 10 percent tariff is hitting the brand products, but the unauthorized copies are often smuggled in and escape the tariff. This increases the price differential by 10 percent of the brand product price, giving people more incentive to buy the unauthorized copy. Since these companies depend on brand loyalty, the impact could be lasting...