Dean Baker

Recent Articles

Sick Europe and the Italian Elections

The elections in Italy prompted another round of knowing comments about how Europeans must get over their silly attachment to employment security (e.g. " Europe Stalls on Road to Economic Change "). None of the comments I saw even considered the possibility that the contractionary policies of the European Central Bank (ECB) play any role in Europe's economic weakness. The basic story here is fairly simple. While Alan Greenspan lowered the overnight interest rate in the United States to 1.0 percent in the summer of 2003, the ECB never lowered its overnight rate below 2.0 percent. This is in spite of the fact that inflation in the euro zone has been the same or lower than in the United States and the euro zone has consistently had higher rates of unemployment. The story does get more complicated (the Fed's overnight rate is now 4.75 percent, compared to 2.5 percent in the euro zone), but I would argue that the ECB has consistently been more contractionary than the Fed in its policies...

Immigrants and "Low Wage" Jobs

One of the great absurdities in the debate over immigration policy is the frequently repeated claim that the U.S. economy is generating more "low wage" jobs than can be filled by the domestic workforce. This line has been endlessly repeated in news stories on the issue. Quick trip back to econ 101: recall the concepts "supply" and "demand." What makes a job a "low wage" job? In econ 101 world, a job will be a "low wage" job if the supply is high relative to the demand. When there is insufficient supply, then the wage rises. My students didn't pass the course if they couldn't get this one right. Econ 101 tells us that there is not a shortage of workers for low wage jobs; it tells us that there are employers who want to keep the wages for these jobs from rising. Immigration has been one of the tools that have been used to depress wages for less-skilled workers over the last quarter century. Many of the "low-wage" jobs that cannot be filled today, such as jobs in construction and meat-...

When Out of Context Is Untrue

A couple of days ago, I gave my standard diatribe about the importance of putting numbers in context, especially budget numbers, which as isolated billions or trillions are virtually meaningless to the typical reader. In some cases, the issue is not just one of being uninformative, it's also a question of actually being wrong. In budget reporting, the most obvious case in which out of context is wrong, is when comparisons of the deficit are made through time. There have been many news reports pronouncing the Bush deficits the largest in history based on the fact that nominal deficits (which peaked at $413 billion in 2004) were larger than the size of the deficits in any prior year. This statement is true, but sufficiently misleading to be wrong. The impact of the deficit on the economy, and the potential debt burden it poses to taxpayers in the future, depends entirely on its size relative to the economy. This is the Bill Gates principle. If Bill Gates chooses to borrow $1 million for...

Bush's Numbers Racket

The word from President Bush and his minions is that Social Security is on its last legs, facing imminent danger of bankruptcy. Fortunately, Bush is prepared to rescue this antiquated program by offering workers the opportunity to invest a portion of their Social Security taxes in private accounts. He would like us to believe that this plan will both get the government out from under a crushing debt burden, in the form of future Social Security obligations, and provide younger workers with a more secure retirement. Almost every part of this story is untrue. First, Social Security does not face any crisis in the normal meaning of the term. Second, private accounts would not give workers a more secure retirement; they reduce security. And third, the basic logic of the story is faulty; it is impossible to both reduce government spending on Social Security and increase benefits, unless the plan somehow increases growth. And no economist seriously contends that putting Social Security money...

Bush's Numbers Racket

The word from President Bush and his minions is that Social Security is on its last legs, facing imminent danger of bankruptcy. Fortunately, Bush is prepared to rescue this antiquated program by offering workers the opportunity to invest a portion of their Social Security taxes in private accounts. He would like us to believe that this plan will both get the government out from under a crushing debt burden, in the form of future Social Security obligations, and provide younger workers with a more secure retirement. Almost every part of this story is untrue. First, Social Security does not face any crisis in the normal meaning of the term. Second, private accounts would not give workers a more secure retirement; they reduce security. And third, the basic logic of the story is faulty; it is impossible to both reduce government spending on Social Security and increase benefits, unless the plan somehow increases growth. And no economist seriously contends that putting Social Security money...

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