Dean Baker

Recent Articles

Reporting on Social Security and Medicare: Better, but not Good

The reporting on the release of the annual Social Security and Medicare trustees reports was better this year than in the past, but still not very informative. Most reports did not include the context that would have made the information understandable to most readers/viewers. In the case of the Social Security report, there was less mention of the scary sounding multi-trillion dollar shortfall projections that are meaningless without being placed in any context. (The 75-year shortfall projected by the Congressional Budget Office [CBO] is equal to 0.4 percent of GDP over this period, approximately 40 percent of the size of the post September 11th boost to the defense budget.) Much of the reporting still portrayed the projected 2040 date of the trust fund's depletion (2052 according to CBO) as a looming crisis demanding prompt action, implying that Congress needs 34 year lead time to deal with a problem that was dealt with in 8 months back in 1983. Given the size and uncertainty...

What's the Problem With Less Crowding?

It would be reasonable to think that a densely populated island with exorbitant land and housing prices would be happy to alleviate its crowding problem. That's not the thinking at the Washington Post . The Post had an article this morning noting the surprising fact that the number of obstetricians in Japan is declining along with its dropping birth rate. The article notes that Japan's population is currently shrinking, and that if current trends continue, its population will fall from over 127 million to just 100 million by 2050. The Post then describes this drop in population as a "problem." Well, fewer people, rising capital labor to ratios (and therefore higher wages), less crowding, and less pollution is not a problem in any economics I know. Maybe the Post will explain its reasoning in some future article, but for now, this front page story simply doesn't make sense. --Dean Baker

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

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