Dean Baker

Recent Articles

Wasting Public Funds on Destroying the Planet

It is remarkable that ostensibly intelligent people can be made to fear the possibility that Europe and Japan will be less crowded places in the years ahead. The Financial Times has an article that reports on a warning from "top fertility experts" over "Europe's chaotic response to its demographic crisis." It is hard to find the evidence for the crisis in the story. The article reports that health care spending as share of GDP is projected to rise from a Europe-wide average of 6 percent at present to 8 percent by 2050. Since the U.S. currently spends 15 percent of its GDP on health care, it is difficult to get too concerned about this prospect. The article gives the usual hype about the rise in dependency ratios, there will be fewer workers for every dependent. Those who have mastered arithmetic know that the projected increases in productivity swamp the impact of rising dependency ratios on living standards. For example, if productivity growth averages a very modest 1.5 percent...

Interesting News On China

The New York Times reported on Saturday that China's central bank is adopting a more contractionary monetary policy in order to slow its economy and reduce inflation. If China's central bank is concerned that inflation is getting out of control, then it would be an ideal time for the country to begin to raise the value of its currency against the dollar. This would have two beneficial effects from the bank's standpoint. First, a more valuable Chinese currency will make Chinese exports more expensive. This will slow China's export growth, and thereby help to slow its economy. The other effect is that a higher valued currency will make imports cheaper. Lower priced imports will help to alleviate domestic inflation by making cheap goods available as inputs into production, and also by allowing workers to consume more without pay increases. A higher valued Chinese currency will be a mixed story for the United States. On the one hand, it will make U.S. goods more competitive, both in the...

Strong Words on the Fed

"The Fed chairman may be appointed by the president and confirmed by the Senate, but his real bosses are on Wall Street." This isn't the ranting of some crazed radical; it is a line from a column in the Washington Post 's Outlook section, by Richard Yamarone, an investment analyst. While I probably never would have phrased it so bluntly, I think that Mr. Yamarone is largely correct. It is worth reflecting on this one. The interests of Wall Street investors are not necessarily the same as the interests of the public as a whole. For example, big wage increases, that come out of corporate profits, would be very welcome news to the vast majority of the population, since they depend on wages for the bulk of their income. Needless to say, lower profits are not welcome news on Wall Street. The fact that we have an arm of the federal government that answers to the special interests on Wall Street, rather than the larger public, should be cause for concern in a democracy. --Dean Baker

Cooking Unemployment Data to Make the U.S. Look Better

Laurent Guerby made a post on the prior topic about European-U.S. unemployment comparisons, I was just at a conference sponsored by the OECD where exactly this issue came up. The basic point is that proponents of the U.S. model want to add people in employment training programs and disability roles in Europe to their official unemployment rates for purposes of international comparisons. This seems bogus on several grounds. First, the employment training programs are obviously heavily subsidized by the government (often 100 percent), but there are many situations in the U.S. where jobs enjoys substantial government subsidies. The EITC peaks at more than 35 percent of wages, throwing in work related child care benefits can easily push the subsidy to more than half of the wage. At what point do we say that the job is simply concealing unemployment, a 60 percent subsidy?, an 80 percent subsidy?, or does it have to be 100 percent? Furthermore, what if the government paid the full wage, and...

Is Bernanke Promoting Inflation?

There is an interesting aspect to the recent rise in the inflation rate that the media have not really explored. The biggest factor in the higher than expected May measure was a jump in rent. (The two rental indices, owners' equivalent rent and rent proper, account for nearly 40 percent of the core consumer price index [CPI].) One explanation for more rapid increases in rents is that people who cannot afford to buy houses, due to higher mortgage rates, are now looking to rent. The Census Bureau's data on vacancy rates gives us evidence to support this position. Rental vacancy rates have fallen by almost a full percentage point from their record high 10.4 percent in the first quarter of 2004. At the same time, the vacancy rate in ownership units has increased from 1.7 percent to 2.1 percent over this period. (There are twice as many ownership units as rental units, so the overall vacancy rate is basically the same over this period.) Insofar as this story is true, it implies a very...