Dean Baker

Recent Articles

TARP Give Aways

The Post discussed the extent to which banks have repaid their TARP money , noting that small banks have been much slower to pay back the government loans than large banks. At one point the article discusses the sale of warrants on bank stock that the government received as part of the package. It comments that: "the goal of requiring the warrants was to ensure that taxpayers would see a return once the banks recovered." It is worth noting that the government lent TARP funds at interest rates that were far below the interest rates prevailing in the market at the time. In many cases these below market loans were needed to allow banks to survive. In all cases, the subsidy provided by these below market loans amounted to a substantial gift to the bank. For example, Goldman Sachs (one of the more creditworthy banks) had to pay 10 percent interest on the money it borrowed from Warren Buffet at almost the exact same time as it got TARP loans from the government. The interest rate on TARP...

Why the "Jobs Bill" Won't Creat Jobs

The NYT article on the jobs bill passed by the Senate yesterday included the views of economists Timothy Bartik and John Bishop as to why the bill will likely create few jobs. It would have been helpful to include the fact that the private sector adds roughly 4 million jobs a month, most of which are replacing jobs lost due to either workers quitting or being laid off. The jobs bill would allow firms to take the credit for any of the workers that they would have hired anyhow, as long as the workers has been employed less than 40 hours in the last sixty days. Since the credit provided in the bill is relatively small (6.2 percent of wages for the rest of 2010 and $1,000 if the worker stays on the payroll for 1 year), the vast majority of workers for whom the credit is claimed almost certainly would have been hired even without the credit. In other words, it is money for nothing. --Dean Baker

Senator Simpson's China Bashing

The NYT ran a profile of former Senator Alan Simpson, who was selected as one of the co-chairs of President Obama's deficit reduction commission. The article quotes him as saying: “when Medicare, Medicaid and Social Security suck up the entire revenue stream, we will be going to China and others to finance two wars, and that means borrowing it.” This statement reflects either Mr. Simpson's ignorance of economics or his antipathy towards China, or possibly both. The reason that the United States borrows money from China is due to the over-valuation of the dollar. At the current level of GDP and current value of the dollar, the United States would be borrowing just as much from China if its budget was balanced. Anyone who is concerned about foreign borrowing by the United States should be discussing the value of the dollar, not the budget deficit. --Dean Baker

More Europe Bashing

The NYT notes the recent decline in the euro and points out some of the negative economic effects (e.g. higher oil prices), then tells readers: "more important, there is a queasy feeling that the decline of the euro makes an uncomfortable statement about Europe’s chronic tendency to underperform the United States in economic growth." Hmmm, "there is a queasy feeling." Where does one find this queasy feeling? The NYT quotes the chief executive of a German health care company who seems to feel somewhat queasy, but that is the only evidence presented in an article with the headline: "ailing Euro Seen as a Signal of Deeper Woes on Continent." They may have overstated their case somewhat. --Dean Baker

The Fed Controls the Consumer Protection Agency's Budget

At this point people are still combing through the fine print of Senator Dodd's financial reform bill to determine all its ramifications, however one point is very clear in assessing the independence of the new Consumer Financial Products Protection Agency. The Fed will have control over the agency's budget. This means that if the Fed believes that the agency is causing too much trouble to the financial industry, it would have the power to squeeze its budget so that it would become less troublesome. It is also worth noting in this context that the Fed sets its own budget. (It gets its money the old-fashioned way: it prints it.) Every year the Fed sends a budget showing its major budget lines to Congress. This is purely informational, Congress does not approve the budget. Given the way Dodd proposes to set it up, if the Fed were to decide to squeeze the new agency Congress would have no immediate recourse. This fact should be mentioned in news coverage of the issue. --Dean Baker