Dean Baker

Recent Articles

NPR Discusses Housing Market Without Talking to Anyone Who Recognized the Bubble

It seems that a condition of being a source on the housing market for NPR is having missed the housing bubble. Morning Edition ran a piece on President Obama's new housing plan in which Mark Zandi claimed that a main benefit was that it could stop the decline in house prices. Since there continues to be enormous oversupply in the housing market, as shown by a record vacancy rate and falling rents, it is extremely unlikely that house prices will stabilize until they return to at least their pre-bubble levels. It is also not clear why anyone would want to make homes more expensive for future buyers as a matter of policy. --Dean Baker

Has The Post Heard About the Housing Bubble?

It seems that they haven't. When discussing the cause of foreclosures the Post told readers that the Obama administration's new housing plan takes aim at: "the major cause of the current wave of foreclosures: "the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more-recent defaults reflect the country's economic downturn and the inability of jobless borrowers to keep paying." Actually, the major cause of both waves of foreclosure was the collapse of the housing bubble. The plunge in prices pushed many homeowners underwater in their mortgages. As much research has shown, being underwater is a key factor in foreclosure. Homeowners are unlikely to default on homes in which they have equity. --Dean Baker

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

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