Dean Baker

Recent Articles

Krugman on China and the Dollar

Paul Krugman is absolutely right in describing the economic relationship between the U.S. and China ; the United States has nothing to fear from a decision by China to stop buying U.S. government debt. However, the discussion of the U.S-China relationship may not be quite right. Krugman has the United States meekly asking China to raise the value of the yuan since 2003, with little effect. This certainly has been the public position of both the Bush and Obama administrations. However, negotiations don't take place in public. When the United States negotiates with China, there are many items on its list. Both the Bush and Obama administrations have pressed China about increased protection for U.S. patents and copyrights. They have pressed China for increased access for U.S. films and openings for the entertainment industry more generally. They also want to open the Chinese market to Citigroup, Goldman Sachs and other big financial firms. No one ever expects to get everything on their...

The Post Is Terrified That Japan Will Become Less Crowded

Japan is an extremely densely populated country. Because of its low birth rate and immigration rate, it is likely to become less crowded in the future. While most normal people would probably consider this a positive development, the Washington Post ran an Outlook piece expressing horror at this prospect. The headline tells readers that: "even as population shrinks, Japan remains wary of immigration." It goes on to warn of a "demographic crisis," telling readers that: "The population is aging and shrinking -- a formula for economic calamity and social stagnation. Over time, there will be too few workers to care for the millions of elderly citizens, grow food on farms or fill the manufacturing jobs that drive this export-led economy." Those who have taken an intro economics class know that there are no special economic problems created by a declining population. See, it is not necessary to grow food on farms if a declining population needs less food. It is not necessary to "fill the...

The New York Times Doesn't Like Social Security

That is what readers could infer from Jackie Calmes' blognote in which she listed Social Security alongside Medicare and Medicaid as "fast-growing entitlement benefit program." Social Security is projected to grow at a 5.3 percent annual rate over the next decade, only slightly faster than the 4.4 percent projected growth rate of nominal GDP over this period. By comparison, Medicare is projected to grow at a 7.0 percent annual rate. It is also worth noting that Social Security is funded by a designated tax that is projected to keep the program fully funded until 2044. It appears that the NYT is unaware of the funding mechanism for Social Security. Given this designated tax it would make as much sense to cut Social Security as it would to cut interest payment on government bonds (i.e. default on the government debt), especially since interest is in fact a much more rapidly growing category of entitlement spending. The reference to Social Security appears in a statement telling readers...

Wrong Surprise on Retail Sales

The media reported on a 0.3 percent rise in retail sales in February, which was described as a surprisingly strong result compared with the consensus expectation of a 0.2 percent decline. However, the news was not as good as this may appear, since January's sales data was revised down by 0.4 percent. In other words, the sales volume reported for February was almost exactly in line with the consensus estimate, even though the January number is less than had previously been believed. (There does appear to be some upward movement in non-auto sales.) --Dean Baker

The Dollar, the Deficit, and Accounting Identities

It would be great if people who reported on the budget deficit for major news outlets could be required to know the basic accounting identities that get taught in every introductory economics class. The key one that almost none of them seem to know is that the trade deficit (X-M) is equal to the sum of public and private savings (T-G)+(S-I). This identity means that if the United States is running a trade deficit, then the sum of public and private savings must also be negative. That has to be true -- it is an identity. It's just like 2 + 2 = 4. It is always true. This matters for all the nutty deficit hysteria because no one every asks the deficit hawks how they would like to see the identity met. The U.S. has a large trade deficit because of the value of the dollar. At a given level of GDP, the main determinant of the trade deficit is the value of the dollar. Politicians and even many economists like to hyperventilate about "competitiveness" and talk about how we're going to improve...

Pages