I basically appreciate a great deal of Dr. Baker's work. I've noticed, though, how studiously he stays away from some topics,especially the topic of Social Security reform. And sadly, when he does decide to take it on, he does it in a way that gives both him, and President Obama, cover.
https://twitter.com/Alexa__Blogger/status/263005519080476672 Read below the fold...
Dean Baker recently posted on the closed door meetings some prominent CEOs are having on shaping austerity budgets to be used after the election to pressure Congress to arrive at a bi-partisan compromise that will cut spending much more than it raises taxes and “put us on the road to fiscal sustainability and fiscal responsibility.” Dean rightly points out that these concerns are greatly overblown since the most important problem we are facing now is growing the economy and providing for full or near-full employment. In particular, he's very opposed to entitlement cuts and is opposed to the current bipartisan impulse to sacrifice entitlements on the altar of fiscal sustainability/responsibility. He then says:
”The question is how to make it so that popular sentiment overrides the big bucks of the corporate chieftains. The obvious answer would be to make the protection of these programs central issues in the election. Members of Congress and candidates for seats should be pressed to indicate where they stand on the proposed cuts to these programs.
“That means getting them to answer specific questions, like whether they support reducing the annual cost-of-living adjustment or raising the normal retirement age for Social Security or the age of eligibility for Medicare. These are among the most important issues in people's lives and voters should not have to go to the polls not knowing where the candidates for the House, the Senate or the presidency stand on them.
“People should also be aware that politicians are true masters of evasion on these questions. A response like, "I support Social Security and Medicare," should be taken to mean that they are prepared to support cuts for these programs. All of the people running for office are smart enough to know how to say that they oppose the cuts being put on the table, and they undoubtedly would say that they oppose the cuts, if it is true.
“Similarly, a statement like, "I oppose the privatization of Social Security and Medicare" should also be taken to mean that they are prepared to support cuts to these programs. Again, they are not being asked about privatization, it's not immediately on the table, why would they give an answer about privatization except to avoid admitting their support for cuts?
“The news media should also be pressed into service in this effort. It is their job to tell us the candidates' positions on important issues and there are few issues more important to voters than Social Security and Medicare. People should harangue their local newspapers and television stations to ask candidates their positions on cuts to these programs. This is far more important than most of the gossip about the campaigns that dominates news coverage.
“The whole effort here must be focused on smoking out politicians on where they stand on cuts to Social Security and Medicare. The CEOs want to do this behind closed doors because they know that politicians who have to answer to their constituencies will never be able to get away with these cuts. The key is to force the debate into the sunlight.”
While I very much agree with the idea that we must force this debate into the sunlight and should focus on getting our Representatives, Senators, and even Presidential candidates to take a “no entitlement cuts under any circumstances position,” I also think that the methods outlined above by Dean are unlikely to be enough to carry the day. Read below the fold...
This is the second installment of a critical review of Dean Baker's second reaction to the debate kicked off by the WaPo's piece on Modern Monetary Theory, written by Dylan Matthews. The first installment discussed Dean's views on using the monetary channel to boost aggregate demand, and began criticism on his views on devaluing the currency and increasing exports. This post continues that critique, and later takes up his views on work sharing.
Expanding US Exports at the Expense of Decreasing Real Wealth? (continued)
Dean goes on:
”To see this point, imagine a more extreme case. Suppose that we had a trade deficit equal to 50 percent of GDP. If the countries who were buying up dollar assets then decided that they had enough, so we could no longer rely on imports to meet half of our domestic demand, does anyone believe that the U.S. economy could quickly and painlessly replace our imports with domestic production?”
No, of course not! But, why do economists like Dean and Paul Krugman insist on relying on far-fetched scenarios to try to argue against simple truths that may apply today? The current account balance will probably be around 4-5% of GDP this year. As the economy recovers it will probably rise to 6% of GDP again, which represents a very real benefit to the United States. But there's no reason to expect that this growth would continue indefinitely or ever reach 50% of GDP. Why should it? What are the dynamics that would drive things this way, and make other nations value the dollar so much, that they will keep their own populations barefoot?
China, India, and Japan are all under pressure domestically to change their policies and make more of their production available to their own people. Europe may also abandon austerity soon, as they experience its ravages.
The long-term trend in the current account balance won't be up, It will be down, gradually down, for reasons I mentioned above. It just doesn't make sense for foreign nations to continue giving more than they're getting from the US. So, the 50% GDP scenario is just ridiculous. Why even bother suggesting it? What does the thought experiment prove, except that Dean Baker isn't thinking through a realistic model of the forces accounting for the international trade patterns we see?
In fact, Dean isn't even really serious about suggesting that this scenario somehow corresponds to a result of MMT economics. He says:
”I would not attribute this view to the MMTers, but then the question becomes one of a degree. Perhaps a trade deficit of 6 percent of GDP is okay, but presumably somewhere between 6 percent and 50 percent we get into a problem. It seems the question then has to be how quickly the U.S. economy could adjust to a much lower trade deficit and what is the risk that foreign countries will slow or stop their purchases of U.S. assets? We may differ on the answer to these questions, but they are the questions that must be asked.”
I think these are important questions. We should ask them. But, has Dean answered them? And do his answers indicate any serious problems for the United States economy? And if so, how does that relate to MMT? If these changes could possibly produce cost-push inflation in the United States, then MMT has some answers for that kind of problem. On the other hand, if other nations stop exporting so much to the US, then that may create less demand leakage for our economy. In which case, MMT predicts that we will get closer to full employment and also that we will have to moderate deficit spending as full employment is approached.
Dean continues with more scenarios about what would happen if foreign nations began to charge us more from imports. I won't reproduce each of these here or critique them. But, invariably, there is a general pattern to them. Read below the fold...
I consider many of the leading proponents of MMT to be friends and generally find myself on the same side of political debates. However, I have to confess to being a bit unclear as to what exactly separates MMT from the good old Keynesian economics I learned in my youth.Read below the fold...
On Monday, Dean Baker decided that Robert Samuelson needed a lesson in National Income Accounting. Dean said:
”National income really is very basic stuff. It gets taught in every intro econ class. Anyone writing on economics should know it inside out. They should be able to do it blindfolded, with one hand tied behind their back, and standing upside down.Read below the fold...
[OK, I'm de-sticky-ing this at lets's implicit request. --lambert]
[I'm leaving this sticky for the super comments thread, where contirbutors are doing what the old school blogosphere excelled at -- before the access bloggers became meme laundries for D factions -- Honing the message. -- lambert]
The progressive counter-attack against the President's emerging “austerity” political strategy and program is beginning to emerge. In the last few days, we've seen posts by Nancy Altman and Eric Kingson of Social Security Works, Jane Hamsher, Robert Kuttner, and Dean Baker writing against the thrust by the Administration, the National Commission on Fiscal Responsibility and Reform, the Peter G. Peterson Foundation and its network of related organizations, and the deficit hawks in the Congress, seemingly aimed at Social Security. These posts make or imply a number of points sometimes in the form of questions. They are:
-- It meets in secret. Read below the fold...
The Obama administration’s new economics advisory board would seem like a very good place to give progressive economists a voice. There are a number of excellent people whom Obama might not want to put in line positions but would be very much worth bringing in to offer well-informed alternative views. At the risk of insulting those I forgot to mention, I would think immediately of James Galbraith, Larry Mishel, Dean Baker, Jared Bernstein.Read below the fold...