Dean Baker

Recent Articles

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...

Post Pulls Out the Stops In Pushing Its Trade Agenda

The Washington Post is a huge supporter of trade agreements like NAFTA that put non-college educated workers in direct competition with low-paid workers in the developing world, while largely protecting the most highly educated workers like doctors and lawyers. They push this selective protectionism by calling it "free trade." They also call anyone who disagrees with their agenda of selective protectionism, which is designed to redistribute income upward, a protectionist. The paper really outdid itself today with a front page editorial that used the term "free trade" in the headline and 7 other times in a 900 word article. --Dean Baker

The Washington Post Is STILL Missing the Housing Bubble

The Post had a front page article with a headline warning readers that a "new round of foreclosures threatens housing market." Yes, well actually a huge oversupply of housing created by the bubble-driven construction boom is virtually certain to push prices back down to their trend level. This one really is not hard. Nationwide, inflation-adjusted house prices rose by more than 70 percent during the bubble. Over the hundred years from 1896 to 1996 they had just kept pace with the rate of inflation. Prices must fall by another 15 percent or so to get back to their long-term trend. Given this departure from long-term trends, and the continued massive oversupply of housing as measured by record vacancy rates, it would be very surprising if house prices stabilized at their current level. Another wave of foreclosures will be a factor depressing prices -- and could cause prices to overshoot on the downside -- but prices would be virtually certain to fall further in any case. The Post...

NYT Joins Efforts to Scare Public About the Size of Government Debt

Peter Peterson, the billionaire Wall Street investment banker, is devoting more than $1 billion to a campaign to whip up fears about budget deficits in order to force cuts in Social Security and Medicare. It almost looks as though the NYT has joined the effort. It printed an article today that uses a measure of government debt that is explicitly designed to be misleading. The article reports on the debt of Greece, but then adds in a discussion of the debts of other countries, including the United States. The calculations are misleading because they compare future obligations over many decades to the current year's GDP. The honest way to do this calculation is to compare future obligations to projected GDP over the time horizon in which these obligations will be met. However, this calculation would produce a much lower ratio. (The debt in the case of the U.S. would be around 6 percent of GDP.) It is also worth noting that in the case of the United States, the vast majority of the...

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