Dean Baker's Blog, page 91

Problems with the Volcker Rule: The Dollar is 0.2 Percent too High Against the Euro

Charles Calomiris argued in an NYT column this morning that the Volcker rule needs to be fixed. The argument centers on the idea that it has raised the cost of trading and thereby discouraged arbitrage trades.

He cites the specific example of a breakdown in the relationship between currency spot and future prices and interest rate differentials. This means, in principle, that there are sure profit-making opportunities in the market that are going untaken.

While we are supposed to see this as...

The Economy Is Not Roaring

I was going to ignore Robert Samuelson's column this week, but then I realized he said the economy was "roaring," not "snoring." GDP growth for the second quarter was 2.2 percent. That's okay, but given our long-term average is close to 3.0 percent, that hardly fits the definition of "roaring."

We did create a lot of jobs last month, as we have for the last several years, but strong job growth in the face of mediocre GDP growth means that productivity growth is weak. That's not exactly a posi...

Farm Prices and the Dollar: Can't the Washington Post Discuss the Relationship?

Around a decade ago, I was talking with a staffer of the Senate Commerce Committee about infrastructure. I gave a list of potential projects, including trains. He interrupted me and said that they don't talk about trains there.

I asked if I was hearing him correctly. He explained that trains were a divisive issue among committee members, so there was an informal agreement that they simply wouldn't bring them up. I wonder if there is the same situation with regards to the impact of currency va...

Washington Post Headline: "Trump Thinks Trade War Presents Great Opportunities for Family Business"

Okay, that was not the actual Washington Post headline. Instead, the front page article was headlined "Trump thinks he's saving trade. The rest of the world thinks he's blowing it up."

Yet again we have a newspaper telling us the innermost thoughts of a politician, in this case, Donald Trump. And yet again, I will assert that the Post has no idea what Trump actually thinks. Since his family businesses seem to be gaining from concessions at least from China, it is certainly as plausible that h...

The Bad Side of China's Intellectual Property "Theft": Cheap Solar Panels and Electric Cars

There has been a repeated refrain in the media that Trump has been on the wrong track with China by worrying about our trade in manufactured goods. The argument is that he instead should be focused on China's alleged taking of our intellectual property.

While most news coverage assumes this concern about China's behavior makes sense, it's worth asking if that is true. Specifically, what is the downside of China taking advantage of technologies developed in the United States without paying wha...

Trump Administration Gets Trumpian In Boasting About Its Tax Cuts

Folks may remember that the Republicans sold their tax plan, which centered on a big cut in corporate taxes, with the promise that it will lead to a flood of investment. This would mean higher productivity growth, and therefore higher wages. Well, we aren't really seeing much evidence of that increase to date, but that doesn't stop the Trump White House from making the claims anyhow.

While noting that unemployment has continued the long downward path begun during the Obama years (just kidding...

The Potential Benefits of Italy's Populist Threat to the Euro

In an NYT Upshot piece, Neil Irwin outlined the risks that are posed to the US and world economy if Italy were to leave the euro. While the scenarios he sketches are plausible, there are two more positive scenarios worth considering.

First, it is possible that Italy is able to arrange an orderly withdrawal from the euro. In this scenario, there would presumably be some arrangement where the debt is partially written down, or there is some grace period on payments, which would amount to the sa...

Racial Resentment Is Impetus for Welfare Cuts but So Is Ignorance on Spending Levels

The Washington Post reported on new research indicating that racial resentment is a major factor in the political support for cuts to TANF, food stamps, and other social welfare programs. While this is undoubtedly true, it is likely that widespread ignorance about the amount of money going to these programs is also a major factor.

Polls consistently show that people hugely overestimate the amount of money that the federal government is spending on various welfare programs. People routinely an...

Marc Thiessen Says We Should Thank Republicans for Making it Easier for Drug Companies to Steal Us Blind

(Okay, that's not exactly what he said.) If you were worried that the pharmaceutical companies were not taking enough of your money, the Republicans have the answer for you. They pushed through the "Right to Try Act," which will allow people with a terminal illness easier access to drugs that the Federal Drug Administration has not determined to be effective.

While Thiessen sees this as a great thing in his Washington Post column, the obvious problem is that with the incentive provided by gov...

When It Comes to Italy, NYT's Definition of Economic Logic Doesn't Fit the Data

An NYT article discussing the possibility that Italy will leave the eurozone told readers that this decision would defy economic logic. It noted the various downsides for Italy of leaving the euro and then told readers:

"As demonstrated by the Brexit vote, which numerous analyses showed would not be good for Britain’s health, economic logic does not always prevail."

It's not at all clear that "economic logic" would dictate that Italy is better off in the euro than outside it. Italy's econom...