Dean Baker

Recent Articles

NPR Misses the Story on Dividend Tax Cut

NPR had a report this morning on the debate over extending the lower tax rate on dividends. The report correctly pointed out that the vast majority of this tax cut will go to the richest 1 percent of the population. It also noted the ambiguity of the evidence showing any substantial link between lower dividend taxes and increased investment and growth. However, the report neglected to point out that the vast majority of stockholders do not benefit from the cut in the dividend tax rate. The reason is simple. Most stockholders hold most or all of their stock in retirement accounts. These accounts accumulate money tax free as long as the money is in the account. When a worker retires and pulls money out of the account, the money (all of the money) is taxed as ordinary income. This is regardless of whether the money in the account came from wages, dividends, interest or capital gains. (The tax is paid in advance with Roth IRAs, but holders of these accounts also get no benefits from the...

Money for Nothing

Eduardo Porter had a very good piece in the Times this morning on the huge run-up in the foreign exchange reserves of developing countries. The basic point is that these reserves are held in short-term deposits that typically pay little or no real return. In poor countries that have great need of capital, diverting money to foreign exchange reserves has a large opportunity cost. The fact, that developing countries feel that they need such large reserves is a testament to the failure of the international financial system. If the system were working well, they would have no more need of reserves at present (relative to their GDP) than they did twenty years ago. We did a short paper on this topic a few years back. It is good to see the issue finally drawing more attention. --Dean Baker

John Kenneth Galbraith, 1908-2006

The passing of John Kenneth Galbraith is a real loss. His works made major contributions to public debate over the entire post-World War II era, and continue to have an impact. The New York Times had a mostly fair commentary today on Galbraith's life and work. (Brad DeLong does a good job pointing out the ways in which it is not fair .) The Post apparently did not learn the news in time for the Sunday edition, or alternatively it had not prepared an obit in advance. Any assessment of Galbraith's life invariably includes the comment that his work had more influence outside of economics than within the profession. This is unfortunate for the economics profession. While we can benefit from mathematical modeling and new econometric techniques, I believe that Galbraithian insights will ultimately prove far more important in advancing our knowledge of the economy and society. --Dean Baker

New York Times Exposes CEO Pay Scam

Eric Dash at the New York Times had a very good piece this morning on a backdoor $500,000 bonus that Denny's gave to its CEO, Nelson Marchioli, by allowing him to buy stock at below the market price. Of course Denny's is free to pay Mr. Marchioli whatever it feels is appropriate, but by making the payment in the form of stock options priced at below market values, it was able to conceal this payment from all but the most vigilant analysts. As the article points out, Denny's is not the only company making such surreptitious payments to its top executives. There are two important points here. First, this sort of surreptitious pay deal demonstrates a continuing problem in corporate governance. Companies are not supposed to be run for the well-being of their CEOs. If the pay could not be disclosed openly, then it is not proper, end of story. It would be reasonable for the laws to mandate that all compensation packages for top executives have to be subject to shareholder approval at...

No Correction on Mexican Growth at the Washington Post

To those following the issue, the Washington P ost still has not corrected the error in its reporting on Mexico's post NAFTA growth rate (" Mexican Deportee's U.S. Sojourn Illuminates Roots of Current Crisis ," 4-17-06:A1). My April 18th post noted that the growth data reported in this article implied that Mexico had enjoyed an average GDP growth rate of 17.5 percent a year in the post-NAFTA era, which would be a world record. The IMF data show Mexico's growth rate at a weak 2.9 percent. While the Post has taken a strong pro-NAFTA position on its editorial page, I wrote and continue to believe that this error was an honest mistake. The failure to correct this error after it has been called to their attention is harder to explain. (I also noted a similar error on growth in the Post's Sunday Outlook section, but we can give opinion writers more leeway.) Since the Post will make an effort to correct misspelled names in wedding announcements, it is difficult to understand its refusal to...