Dean Baker

Recent Articles

Anti-Social Behavior:

W hen President Bush first described the war against terrorism, he warned that we may never learn of some of the victories therein. One such victory that has largely escaped public attention occurred last week, when the Bush administration kept the 2002 Social Security trustees report out of the hands of terrorists. Ordinarily, the annual trustees report, which provides detailed projections on the health of the Social Security program, is released at any early morning press conference. Copies are made available to anyone who wants one. The report is also posted on the Web, where the public (and terrorists) can freely download it. Reporters usually spend the day reading and digesting the report, contacting experts around the nation for assessments, and then filing their stories. This information is then transmitted by radio and television, across the country and around the world, where even al-Qaeda terrorists in caves along the Afghan border can pick it up. That didn't happen this...

Behind the Numbers: The Privateers' Free Lunch

The flawed mathematical assumption behind privatizing Social Security.

B ehind the various proposals for privatizing Social Security, in whole or in part, is one seductive assumption. By investing their savings individually in financial markets, rather than collectively relying on the Social Security system, workers supposedly will get a greater return. This premise is the basis of the proposals by two factions of the Social Security Advisory Council for government-mandated individual savings. It seems a reasonable belief, particularly given the stock market's stellar growth in recent years. But it turns out the claim is based on inconsistent assumptions about economic growth and stock market returns. The Social Security Advisory Council's own projections of growth are far too pessimistic to justify the projections for the stock market. An accurate comparison of all the costs and returns of private savings plans with the costs and returns of the existing Social Security system shows that a mandated savings plan, in which retirees invested their money...

Two Cheers for Clinton's Social Security Plan

Think Social Security should invest in the stock market? Take a closer look.

President Clinton's plan to extend Social Security's solvency through 2055 preserves the existing benefit structure and rejects individual accounts. The plan relies primarily on placing most of the projected 15-year budget surplus into the Social Security trust fund. These aspects of the Clinton plan have been warmly welcomed by progressives who feared an imminent compromise that would have added individual accounts by diverting revenue from the current system. Partly to increase the projected rate of return, and partly to steal the privatizers' thunder, the President also proposed placing some $600 billion of the projected surplus into the stock market to earn a higher return. This part of the plan warrants a more wary reception. Placing some of the trust fund in the stock market raises both phony issues and real ones. Let's dispatch the bogus ones first. For one thing, the amount of money the administration proposes placing in the stock market will never be a very large share of the...

The Inflated Case Against the CPI

A consensus seemingly has emerged that the consumer price index exaggerates inflation. But before we change the numbers, we had better look closely at the arguments. They don't hold up.

T here is now the appearance of an expert consensus that the government's most important measure of inflation, the consumer price index (CPI), seriously overstates the true increase in the cost of living. This sudden enlightenment is less the result of new research than political convenience. A cut in the CPI would reduce government payouts and ease the path to deficit reduction. Even better, it would do so via a technical adjustment that left few political fingerprints. Tax brackets and government benefit programs such as Social Security are indexed to the CPI. If the CPI overstates inflation by 1 percent, as the Senate Finance Committee's Boskin panel has proposed, and the index is adjusted accordingly, this would reduce benefits and the deficit by a cumulative total of $634 billion over 10 years. Not bad for a technical fix. Doubtless, the way we measure inflation requires continuous refinement. The Bureau of Labor Statistics (BLS) takes this task seriously, and has made myriad...

Depressing Our Way to Recovery

Deficit obsession is a sure recipe for sluggish growth.

Two and a half years after the official start of the recovery from the 1990--1991 recession, the U.S. economy is still experiencing weak growth and is generating relatively few jobs. (See the chart "A Feeble Recovery.") Employment has barely regained its pre-recession peak in 1990. More people who seek full-time work have had to settle for part-time employment. Comparatively well-paid manufacturing jobs continue to disappear, replaced by jobs in restaurants, hotels, and temporary employment agencies. Investment growth has also been the slowest of any postwar recovery. Yet remarkably, most of the nation's political leadership, whether Democratic, Republican, or Perotista, thinks the cure is further deficit reduction. A constitutional amendment to require a balanced budget by fiscal year 1999 (which begins in October 1998) has a very good chance of passing in this session of Congress. Conservative Democrats have joined Republicans in pushing the administration to accept deficit cuts...