Dean Baker

Recent Articles

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...

Arctic Oil Nonsense

Proponents of drilling in the Arctic National Wildlife Refuge are happy to make whatever outlandish claims are convenient to advance their cause. A few years ago, they were pushing the line that drilling in the Refuge would generate 500,000-750,000 jobs, citing a study by WEFA, one of the country's leading economic forecasting firms. We did a short analysis showing the faults of this study. When WEFA refused to stand behind its study, this outlandish job claim quickly disappeared from the debate. But the nonsense continues. President Bush claimed today that the country would be producing another million barrels of oil a day if President Clinton had allowed drilling in the refuge. He presumably meant this claim to impress his audience, implying President Clinton's opposition to drilling in the refuge is a major factor behind today's high oil prices. A few simple facts indicate otherwise. First, there is a world market for oil. What matters in determining the price of oil is how much...

The Housing Bubble: Why Did the Media Miss It?

As the housing bubble starts to unwind people will be looking for villains in this economic disaster. There are many, with the list including Alan Greenspan, the bulk of the economics profession, and of course, the reporters covering the housing market. As was the case with the stock bubble, there was very little attention paid to the underlying fundamentals in the market. Anyone who bothered to look at the data could have quickly recognized that the run-up in home prices in the years after 1997 had no historical precedent . From the early 1950s until 1997 (the years for which we have good data), house prices largely followed the overall rate of inflation. In the years since 1997, house prices have increased by 50 percent after adjusting for inflation. If housing prices have tracked the overall price level for 50 years, and then suddenly take-off relative to other prices, this is a fundamental change in a key sector of the economy. Fundamental changes in the economy are not impossible...

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