Dean Baker

Recent Articles

How Big Is China and How Ignorant Are They at the WAPO?

Those are the questions that readers of the WAPO's Sunday Outlook section must be asking. The Post told readers that: "this year, China's economy is expected to produce about $5 trillion in goods and services. That would put it ahead of Japan as the world's second-biggest national economy, but it would still be barely one-third the size of the $14 trillion U.S. economy." This reflects China's GDP measured on an exchange rate basis. However, economists typically use purchasing power parity measures of GDP for international comparisons. By this measure, China's economy is expected to be about $9.5 trillion this year . At its current growth rate, it will pass the size of the U.S. economy in about five years. By many measures it is already larger than the U.S.. For example, it has more Internet users, college graduates in science and engineering, a larger car market, and about twice as many cell phone users. The article also tells readers that the exchange rate will not have much impact...

NYT Goes Off the Deep End On Budget Deficits

The NYT notes that interest rates have recently risen and are generally predicted to continue to rise. It then told readers : "That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession." Okay, what are they smoking there? We have just been through a period of extraordinarily low interest rates. Interest rates fell to their lowest levels in more than 50 years. This was a deliberate policy response to the worst downturn since the Great Depression. Once we are out of the worst of this downturn, everyone expected that interest rates would rise even if we had a balanced budget and moderate inflation, the latter of which is predicted by almost all economists. In other words, the standard projections from the Fed, the Congressional Budget Office and most private economists is that interest rates will be rising to normal levels from very low levels. Almost no one is...

Financial Crisis Commission Too Dumb to Recognize Housing Bubble Even Now!

This would have been a better headline for the Washington Post article on the testimony before the crisis commission of Fannie's former chief executive as well its top regulator. The discussion before the commission was apparently whether Fannie and Freddie were motivated by profit when they moved into Alt-A mortgages in 2005 and 2006 or whether they were trying to fulfill their mission of increasing homeownership. While there may be some debate over individual motivations, the obvious point that apparently went unmentioned in this article was that if the executives at Fannie and Freddie were not totally clueless about the housing market, they would have been cutting back on buying mortgages altogether in 2005 and 2006, when house prices were at levels badly inflated by the bubble. It was guaranteed that prices would drop and a high percentage of even traditional prime mortgages would go bad. In this environment, the responsible route for Fannie and Freddie would have been to only...

NPR Tells Listeners That Financial Regulation Is "Complicated"

We need reporters to do this ? In the course of the report NPR assured listeners that there was nothing that could be done about AIG's explosive issuance of credit default swaps (CDS) because it was an insurance company that operates in hundreds of countries. And furthermore, the federal government doesn't even regulate insurance, states do. Did this mean that the Fed could do nothing if it chose? Where were the statutory powers that allowed the Fed to arrange the unraveling of the Long-Term Capital Hedge Fund? Neither NPR's reporters nor anyone else would be able to find any statutory authorization for this action. The Fed used its authority and its ability to threaten non-cooperative actors to force most of the major banks to join this effort. In the same vein, if it had decided that the issuance of trillions of dollars of CDS by AIG was a problem, there were certainly steps it could have taken. For example, it could have told the major banks that they should not be buying CDS from...

Another Front Page Editorial from the Washington Post

The Washington Post (a.k.a. Fox on 15th) feels so strongly that we should reduce the budget deficit that they ran yet another front page editorial on the topic. The piece told readers in the second paragraph: "This mounting government debt poses a painful choice for developed countries such as Britain, Japan and the United States: either a deep reordering of public expectations about everything from the retirement age to tax rates, or slower growth as record levels of borrowing crimp economic activity." Well, that's pretty clear. The Washington Post told us in no uncertain terms that things will have to be pretty bad, no two ways about it. Only those who bothered to read to page two would find out that there is actually considerable uncertainty about the point at which debt really poses a serious burden on the economy. On page two they would discover the United States actually had a debt to GDP ratio that was nearly twice as high as it is presently. This did not prevent it from having...

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