Dean Baker

Recent Articles

Helping Banks by "Helping" Homeowners?

The NYT reports on a new plan from the Obama administration to help homeowners. According to the article, under the plan the Federal Housing Authority (FHA) will guarantee new loans in exchange for banks writing down some of the principle on underwater mortgages. It would have been worth pointing out that the FHA is currently facing serious financial problems as a result of its expanded role in the housing market over the last few years. Many of the mortgages it has guaranteed have gone bad. This has led to large losses, pushing its reserves below required levels. The losses to the FHA are gains to banks, which would have been forced to absorb these losses themselves without the FHA guarantee. Of course many banks would not have issued the mortgages without the FHA guarantee. (The WSJ did note the FHA's financial problems.) In a context where house prices are currently dropping and virtually certain to fall further over the next year, an FHA guarantee based on current prices is likely...

Exports Do Not Magically Increase Productivity

That seems to be the argument of a Washington Post article that reports that firms are finding ways to increase output without hiring more workers. Of course firms are always finding ways to increase output without hiring more workers, this is called "productivity growth." Rather than being a problem, productivity growth is a good thing. It means that we can produce more with the same amount of work. Alternatively, we can have the same amount of output while we only work fewer hours. Productivity growth only creates a problem when we have a seriously mismanaged economy. In this case, productivity growth can lead to unemployment because the government fails to take the steps necessary to sustain demand (i.e. spend money) or divide employment (e.g. through work-sharing). The implicit argument in this article, that increased exports provide a magic route for increasing productivity, is silly. --Dean Baker

Sallie Mae Complains That Direct Government Loans Will Increase Efficiency

That is the implication of its complaint that getting private financial companies out of the government insured student loan business will cause it to shed 2,500 jobs. Since the government is not hiring new employees to deal with the extra business, the implication is that these people were unnecessary paper pushers. This move by the government is freeing up resources to be used more efficiently elsewhere. --Dean Baker

NPR: "Republican Leader Senator Judd Gregg Has No Understanding of Health Care Bill"

That should have been the lead to an NPR piece following up a Morning Edition interview with New Hampshire Senator Judd Gregg. Senator Gregg, who is often held up as a thoughtful fiscal conservative, concluded his interview by asserting that the health care bill approved by Congress would increase the size of government from 20 percent to 25 percent of GDP. That's not what the Congressional Budget Office says. According to CBO's projections the bill would increase government spending by about 1.0 percent of GDP in 2019, the last year in CBO's budget horizon. This means that Senator Gregg is off by an amount equal to 4 percentage points of GDP or the equivalent of $560 billion a year in today's economy. It would be reasonable for NPR to highlight the fact that one of the Republicans' leading spokespeople on fiscal issues apparently has no idea what he is talking about when it comes to the health care debate. Instead, NPR allowed Gregg's outlandish assertion to be communicated to...

The NYT Features the Views of the Mysterious "Many" Who Don't Understand Social Security's Finances

Serious newspapers don't pull down ghosts from the sky to present their views to readers. However, in an a rticle discussing the implications of the health care plan, the NYT told readers:"many have come to believe that the system [Social Security] must change or go broke, the battle Mr. Bush fought and lost in 2005." Of course people who are familiar with the finances of the system don't believe such things. The Congressional Budget Office projects that the program can pay all scheduled benefits through the year 2044 with no changes whatsoever. Even after this date it could still pay more than 75 percent of projected benefits long into the future (a level far higher than current benefits) even if no changes were ever made. In fact, these projections show that Social Security is on a sounder financial footing today than it has been through most of its history since it can go 34 years with no changes being made at all. This was not true at any point in the first 40 years of the program...

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