Dean Baker

Recent Articles

Offshore Drilling Will Have No Noticeable Impact on Oil Prices

The Post reported on President Obama's lifting of the moratorium on offshore drilling and the response to the decision. While the article noted the reactions of politicians and presented polling data, it neglected to mention the fact that the oil that can potentially be obtained from these areas will have no noticeable impact on oil prices. According to the Energy Information Agency , it will take two decades for the areas to reach peak production of 100,000 barrels a day, or 0.1 percent of world oil supply. In other words, the decision to open up drilling in these areas was entirely political. It had nothing to do with meeting the country's energy needs. This information probably would have been more useful to readers than accounts of the political reaction to President Obama's decision. The NYT did a bit better in providing some context, but not much. It told readers that offshore sites may provide enough oil to supply the country for 3 years. It later noted that the Gulf Coast area...

Productivity Growth Does Not Explain the Lack of Jobs

The Washington Post repeated a common complaint that the reason that the economy is not creating jobs is because employers are squeezing more productivity out of workers and therefore need fewer workers to produce the same level of output. Productivity growth cannot explain the failure for the economy to generate jobs thus far in this recovery. While productivity growth has been strong over the last year, growing by 5.8 percent from the fourth quarter of 2008 through the fourth quarter of 2009, this is common for a period of recovery. Productivity grew at a 6.9 percent rate in the four quarters from the first quarter of 2001 to the first quarter of 2002, a 5.4 percent rate from the third quarter of 1982 to the third quarter of 1983, and a 4.6 percent rate from the third quarter of 1974 to the third quarter on 1975. The rapid productivity growth seen in the last four quarters is a typical pattern at the end of a recession, it does not explain the lack of job growth in this recovery...

Sorkin is Wrong: There Is No Tradeoff Between Growth and Bank Capital Requirements

NYT columnist Andrew Ross Sorkin warned readers that higher bank capital requirements, intended to ensure safety: "would come at the expense of economic growth as banks would make fewer loans.This is not true. The Federal Reserve Board decides on the level of reserves that it wants to pump into the financial system based on the level of economic activity. If economic activity is too slow, it can increase the volume of loans available to banks by putting more reserves into the system. Contrary to what Sorkin asserts, it is not necessary for the banks to raise their leverage of the same amount of reserves in order to generate more loans for businesses. --Dean Baker

Surging Homes Sales? Seasonal Adjustments, Please

The NYT told readers that home sales are surging in advance of the April 30th expiration of the extended first-time homebuyers tax credit. While it is reasonable to expect somewhat of a surge, there is actually very little evidence of one this far. The Mortgage Bankers Association mortgage applications index has been running substantially below last year's depressed levels. The vast majority of homebuyers will be taking out mortgages, so if this index is depressed, it suggests that there is not yet any surge in buying. The evidence presented in the article is that home sales in several cities were considerably higher in February than January. This is not evidence of an upturn in sales. This is a normal seasonal pattern, as home sales bottom out in the winter. (It is possible that the data presented in the article is seasonally adjusted, although the piece does not indicate that it is.) --Dean Baker

Exploding Health Care Costs: Can Someone Tell the NYT About Something Called "Patents"?

The NYT discussed concerns that the new health care bill will do little to address the problem of overuse of certain medical procedures that drive up costs. Remarkably, the article never discusses patent monopolies, which are a major factor driving up costs and excess use. Patents lead to excess costs for two reasons. First, by granting monopolies, patents push up the price of many drugs and medical equipment by several thousand percent above their marginal cost. This is especially true of drugs, almost all of could be profitably sold for just a few dollars a prescription in a free market. The other reason that patents drive up costs and lead to misuse is that the rents provided by patent monopolies provide an enormous incentive for manufacturers to mislead patients and doctors and push their products in cases where they may be inappropriate. In pursuit of patent rents manufacturers spend an enormous amount of money marketing their products and often conceal information that reflects...

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