Dean Baker

Recent Articles

Fannie and Freddie's Losses Are Profits at Goldman Sachs

In a discussion of the future of Fannie Mae and Freddie Mac the Washington Post noted that the government had committed $125 billion to cover their losses. While the article reports that these losses have been a major political issue, it would have been useful to point out that the losses were, in effect, subsidies to banks. Fannie Mae and Freddie Mac buy mortgages in the secondary market. If they lose money it means that they paid banks more for these mortgages than they were worth. This overpayment is effectively a subsidy to banks who otherwise would have been left holding the mortgages on their books and likely would have incurred losses when they went bad. --Dean Baker

Eliminating Waste in Student Loans: Jobs at Risk

The NYT reports that opponents of a measure that would save money by putting private lenders out of the government guaranteed student loan business warn that it could cost jobs. This is of course true. Suppose there is an efficient computer company that sells computers for $500 each and an inefficient computer company that sell comparable computers for $1,000 each. It is likely that the inefficient computer company employs more workers for each computer produced than the efficient manufacturer. Therefore switching orders from the less efficient company to the more efficient company would cost jobs. This is effectively what is happening with the student loan program, except the more efficient provider happens to be the government. There is no more argument to obstruct this switch because of possible job loss than there would be to try to prevent people from buying goods from more efficient producers. This is economic growth. The people who lose their jobs should be reemployed where...

Protectionists Dominate Health Care Debate

Anyone seriously interested in controlling health care costs would be actively discussing alternatives to patent protection for financing the development of prescription drugs and medical equipment. Everyone who has taken even an intro economics class knows that there will be horrible waste and corruption when goods can sell for hundreds of times their competitive market price, as can be the case with prescription drugs and medical equipment. Those interested in controlling costs would also be actively seeking to promote international trade in medical services since the health care systems in other countries are so much more efficient than the U.S. system. Neither of these items even gets mentioned in David Leonhardt's discussion of the prospects for controlling health care costs. This is indicative of the incredible corruption of the public debate on health care reform. --Dean Baker

High Unemployment Is Due to Skills Mismatch: We've Heard This Before

The NYT reports that the Fed is debating whether much of current unemployment is due to a skills mismatch between workers and the available jobs as opposed to simply a cyclical shortfall in demand. It is worth noting that the assertion of skills mismatch is a predictable behavior of economists in policy positions in every recession. There were many papers arguing exactly this story after the last downturn as the economy continued to shed jobs for almost two years after the recession ended. --Dean Baker

NPR Still Hasn't Heard About the Housing Bubble

Morning Edition introduced an interview with George Soros by saying that the United States is still recovering from a financial meltdown. This is wrong. The reason that we have near double-digit unemployment is that we had an $8 trillion housing bubble that collapsed. The financial crisis was secondary. This is best demonstrated by countries like Spain. Even though it has a relatively well-regulated financial system, and therefore did not have a financial crisis, its unemployment rate is 19 percent. Spain's problem was that it had a horrific housing bubble. It is not easy for an economy to recover from the distortions created by such asset bubbles. NPR missed the bubble as it grew. It apparently still does not recognize what has happened to the economy. --Dean Baker