Dean Baker

Recent Articles

Missing the Story on Iceland: Can the Bankers Steal Your Kids' Money

The NYT's piece on Iceland's referendum on using public money to pay debts to foreign bank depositors failed to explain the real issues involved. During the boom, several Icelandic banks courted deposits outside the country, mostly in the UK and the Netherlands, by offering higher interest rates. The banks then used these deposits to finance a range of highly speculative investments. As long the bubbles kept expanding, this model was hugely successful. However, when the bubbles burst, the value of the banks' assets collapsed and they had no ability to repay their depositors. This would have all been a private matter, except that the government insures bank deposits up to a certain level (like the FDIC in the United States). Iceland, as a matter of its treaty obligations with the European Union, is obligated to maintain a system of public deposit insurance which applies to both domestic and foreign depositors. The issue here is whether private banks can effectively create enormous...

How Does Being "Anti-Free Trade" Distinguish Anyone in Congress?

Just about every member of Congress supports protecting one or more domestic industries from foreign competition. For example, no member has publicly endorsed opening up our health care system to greater international competition. Therefore, describing a member of Congress as "anti-free trade" is misleading since the description would apply to every member of Congress. In describing Representative Sander Levin, the interim chair of the House Ways and Means Committee, as "anti-free trade, " the Post just means that he is opposed to trade measures that it supports. --Dean Baker

Jobs From the Jobs Bill: NYT Gives the Full He Said She Said

The House just approved a $15 billion jobs bill that was already passed by the Senate. Will it help the economy? The NYT told readers that Representative Bob Etheridge, "estimated that the measure could create one million jobs." It then quoted Republican Representative Steven LaTourette saying that: "This is a no-jobs bill, this is a faux-jobs bill, this is a snow-jobs bill." Later we are told that: "But lawmakers said that given the dismal unemployment picture, they were willing to give it a try, and estimated the tax breaks would put 300,000 people to work." It's not clear where this 300,000 jobs number came from or which lawmakers it is associated with. As a practical matter, the incentive in the bill, which is primarily the 6.2 percent employer side of the Social Security tax, is unlikely to be large enough to have much effect on hiring. Even in the current weak economy, employers hire close to 4 million workers a month offsetting the departure of roughly the same number of...

Defense Spending: 4.7 Percent Is Closer to 5 Percent Than 4 Percent

The NYT told readers the defense spending in the United States is equal to 4.0 percent of GDP. The Congressional Budget Office reports that it was 4.6 percent of GDP in fiscal 2009 and will be 4.7 percent of GDP in fiscal years 2010 and 2011. --Dean Baker

The Fed Can Control Long-Term Interest Rates

The Washington Post had another piece pushing deficit scare stories. This time it tells readers that Greece's problems could spillover to the U.S. According to the piece, fears of a Greek default could lead investors to become more worried about a U.S. default, pushing up interest rates on U.S. government bonds. There are two logical problems with the assertions in the piece. If investors flee U.S. bonds because they fear default, where are they going to put their money? If the U.S. actually did default, then almost any other asset will also take a huge hit. For example, holding U.S. stock or bonds would be really really stupid if you thought that the U.S. government was going to default on its debt. This would in turn imply a general flight from dollar denominated assets, which in turn would lead to a plunge in the value of the dollar. A plunging dollar would in turn lead to soaring exports and a would cause the economy to boom rather than crash, as the article claims. The other...

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