Dean Baker

Recent Articles

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...

Energy Insurance

T he vast majority of scientists who study climate issues now agree that carbon emissions are a potentially disastrous problem. However, economic fears have obstructed even the mildest remedies. Particularly in the United States, voters resist taxes that would raise fuel costs, and there has been little political support for massive investment in new technologies or mass transit systems. Yet there are also some less painful ways to cut greenhouse gases. One is to change how the nation buys its automobile insurance. If people paid for insurance on a per-mile basis, instead of in a lump sum, it would provide a substantial disincentive to drive--about the same disincentive as a $1.50 per-gallon gas tax. This in turn would reduce the number of miles driven by 10-20 percent. Less driving would mean fewer accidents, which would then lower the cost of insurance. So "clean" (pay by the mile) insurance may be the biggest free lunch...

Patent Medicine

A bsurdly high prices have put lifesaving prescription drugs out of reach for millions of Americans and for hundreds of millions of people in developing countries. In large part, patent protection is to blame. The patent system is a trade-off: Consumers pay a monopoly price on a drug for 17 years to provide incentives for firms to undertake research that yields large profits. But the patent system is not the only way to support drug research. Alternatives that have a proven track record of success already exist--specifically, research supported by foundations, universities, and the government. Shortening patent terms and putting most pharmaceutical research in the public domain would cut costs for consumers as well as for government. And contrary to industry propaganda, doing so would not reduce innovation. This idea may sound radical, but look at the numbers. The drug industry currently spends around $18 billion a year on socially useful research. If research spending grows at a real...

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