Dean Baker

Recent Articles

Globalization and the Green Economy: China Provides Expertise to the U.S.

The NYT reports that China's government signed a deal with the state of California and General Electric to provide engineering expertise and high tech parts for the construction of high-speed rail. This is a fascinating and totally predictable story which cause great pain to many purveyors of the economic conventional wisdom (CW). China has been building high-speed trains, the United States hasn't. This means that the country has substantially more expertise in this area than the United States. As a result the transfer of this green technology will go from China to the United States, the opposite direction assumed by purveyors of the CW. More generally, this story shows the absurdity of the assumption of the purveyors of the CW that somehow the U.S. will transfer all its grunt work (i.e. manufacturing) to the developing world and leave the high tech stuff for our smart workers. The reality is that the developing world has hundreds of millions of smart workers who are able to do...

Did the Media Miss the Bubble? Did Saddam Lose His Last War?

Steven Pearlstein often has insightful columns, not today. He discusses a conference he attended in which a repeated theme was how the media contributed to the crisis with its poor reporting. He then comments: "although it's a bit overdone, I'll admit there is a dollop of truth in it." A "dollop?" How about an enormous ocean full of truth to it and Pearlstein continues to contribute to the crisis today by covering up the earlier failure. He tells readers that: "Three years after the onset of what was then thought of as the "subprime crisis," there remarkably is still no consensus on why it happened, who is to blame, how necessary the government bailouts were and what needs to be done to prevent such a cataclysm from happening again. Over time, the issues have been overwhelmed by populist anger, infused with political ideology, distorted by partisan maneuvering and special-interest pleading, and ultimately eclipsed by economic recovery." Yeah, it's all really really complicated. Except...

They Still Haven't Heard of Patents at the NYT

David Leonhardt had a column discussing overuse of expensive medical care in the NYT today. Remarkably, this discussion did not mention the effect of patents in complicated decisions on treatment and raising costs. Patents are essential to this discussion for two reasons. First, drugs and medical tests that are very expensive are generally expensive because of government granted patent monopolies, not their inherent cost. For example, a new generation of cancer drugs that can cost tens of thousands per year would be relatively cheap in the absence of patent protection. These drugs were expensive to develop, but once they have been developed, the production is cheap. By forcing patients to pay the high patent protected price, an otherwise simple decision (use the cheap drug) can instead be made very complicated. The other reason why patents play such an important role in this discussion is that they give a party (the patent holder) a huge stake in misrepresenting the issues. Because...

California Gets a Bad Rap on Pensions in NYT

California has done some really really stupid things (like a tax credit for first time homebuyers ), but the NYT did the state and its readers a disservice in going after California's pension fund liabilities. The basic story is that if you assume a 4.14 nominal rate of return on pension fund assets, then the state's pension liabilities look really really bad. The big question that readers should ask is, so what? There have been few people who have been more critical of assuming exaggerated market returns than me, but 4.14 percent nominal? Anyone want to take a bet that California's pension funds will do better than this? Look, the market has plummeted from its prior levels. This is good news for future returns. Lower price to earnings ratios open the door for higher future returns. The logic is simple: you are paying much less for each dollar of profits. For this reason, the assumption of 4.14 percent average nominal returns (that gives us just over 2.0 percent real, assuming a 2.0...

David Brooks' Celebration: The U.S. Is Richer Than Chad!

Okay, it's not quite that bad, but when someone who pretends to be serious wants his readers to celebrate the fact that: "the average American worker is nearly 10 times more productive than the average Chinese worker," it's getting pretty silly. (Actually it's probably closer than 7-8 times, but this is David Brooks we're talking about.) People in the United States are used to comparing their living standards to countries like Canada and Germany, not China. While China is a rapidly developing country, it is still a relatively poor country in a process of catching up. It's more than a bit silly to tell people in the United States that our productivity is many times higher than that of a poor peasant agricultural worker in central China. Brooks seems fascinated by the fact that our income is on average projected to rise. This is true and always has been true and it is true for almost every other country in the world. Incomes rise, incomes rise, incomes rise. Let's say that a few...

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