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Dean Baker

Dean Baker

Dean Baker is a macroeconomist and codirector of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He is a regular Truthout columnist and a member of Truthout's Board of Advisers.

Articles by Dean Baker

The real reasons wages are low

5 days ago

From Dean Baker
It’s good to see the New York Times making the case for higher wages in an editorial. Unfortunately, they get much of the story confused.
First off, the essence of the case is that higher wages will lead to more consumption, which will spur growth. This is true, but higher pay is not the only way to generate more demand. We also get more demand with larger budget deficits, lower interest rates, and a smaller trade deficit.
But that is the less important problem with the piece. The bigger problem is the assertion that the failure of pay to keep pace with productivity growth over the last four decades is due to higher profits.
“Wages are influenced by a tug of war between employers and workers, and employers have been winning. One clear piece of evidence is the yawning

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How many lives would have been saved if we had collaborated on vaccines with China?

11 days ago

From Dean Baker
We know that Republican office holders are not allowed to say that Joe Biden won the election. Apparently there is a similar ban in place for news outlets when it comes to the question of the United States collaborating with China, and other countries, in developing vaccines against the pandemic.
In recent days, there have been articles in several major news outlets about how China vaccinated close to 1 million people, under an Emergency Use Authorization, for vaccines that are currently in Phase 3 clinical testing (here, here, here, and here). While large-scale distribution of vaccines, that have not completed testing for safety and effectiveness, is probably not a good public health practice, none of these pieces raised any questions about whether the United States,

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The Krugman boom: Don’t bank on It

12 days ago

From Dean Baker
I have largely been in agreement with Paul Krugman in his assessment of the economy over the last dozen years or so, but I think in his latest column he let the promise of a post-Trump era get the better of him. Krugman notes that the distribution of effective vaccines should allow people to return to their normal lives.
He argues that this will lead to a spending boom, as consumers have accumulated savings through the slump and will now be in a position to spend lots of money. As a model he points to the boom in 1983 and 1984 after the Fed lowered interest rates.
While I have not been one of the doomsayers predicting economic collapse, I can’t be as optimistic as Paul on this one. First, just to be clear, Krugman does not at all question the need for immediate and

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“Protecting Intellectual Property” against China means redistributing income upward

15 days ago

From Dean Baker
The New York Times had an article discussing the prospects for U.S. trade relations with China during Biden’s presidency. At one point it tells readers:
“Mr. Biden has given few details about his plans for U.S.-China relations, other than saying he wants to recruit American allies such as Europe and Japan to pressure China to make economic reforms, like protecting intellectual property.”
Stronger and longer patent and copyright protections have redistributed enormous amounts of income upward over the past four decades, likely more than $1 trillion annually (half of all corporate profits). If Biden plans to put stronger enforcement of U.S. intellectual property claims at the center of his trade relations with China, it means he wants to redistribute even more money away

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Lowering the bar on success: Megan McArdle on drug development

18 days ago

From Dean Baker
Washington Post columnist Megan McArdle was anxious to tell readers that drug development in the pandemic has been a great success story. After all, look at all the treatments we have, and now it appears that Pfizer/BioNtech have developed a highly effective vaccine. What could be better than that?
Well, first we need a bit of perspective. Yes, we place an enormous value on our health and our lives, so getting effective treatments and vaccines quickly are extremely important. But we do also care about what we pay to get there.
To take my favorite analogy, the firefighter who goes into a burning building to rescue a couple of children can be said to deserve many millions of dollars. After all, we put a huge value on human life. While firefighters are reasonably

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Donald Trump and being deplorable

29 days ago

From Dean Baker
As it increasingly looks like Joe Biden has won the election, I see many people around me appalled that so many of their fellow citizens can vote for someone as racist, sexist, and otherwise offensive as Donald Trump. Given what we know about the guy, and think everyone else should know about him as well, it is hard not to be appalled.

But we will not get anywhere politically by looking at half the country with disgust. Trying to win over some of Trump’s voters doesn’t mean giving in to Trump’s racism and sexism, it is about recognizing that large segments of the country have not benefitted from the economy’s growth over the last four decades as a result of deliberate policy.

This group does not at all coincide perfectly with the group of people who support Trump.

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Government-granted patent monopolies gave Purdue Pharma incentives to push opioids

October 22, 2020

From Dean Baker
Maybe this is too obvious a point, but I don’t see it mentioned in news coverage of the company’s settlement. If we could ever have a serious debate on the relative merits of government-granted patent monopolies compared with direct upfront funding, as we did with Moderna’s research on a coronavirus vaccine, the incentive that patents give to lie about the safety and effectiveness of drugs would be an important factor.
Unfortunately, we may never have this debate because our policy types refuse to consider any alternatives to the patent monopoly system. It’s sort of like in the days of the Soviet Union, they didn’t have public debates on the merits of central planning.

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Waiting for a vaccine and the collaborative research alternative

October 17, 2020

From Dean Baker
It seems increasingly likely that China will begin providing vaccines to its own people, as well as those in some other countries, by December, and possibly as early as next month. The prospect of a vaccine being available that soon has to look good to people here, now that the Trump administration’s pandemic control efforts have completely failed. The whole country would like to get back to normal, but that doesn’t seem like a serious possibility until we have an effective vaccine widely available.
It seems China’s leading vaccine makers got ahead of the ones in the U.S. and Europe by using the old-fashioned dead virus approach to developing a vaccine. This is well-known technology that they were apparently able to quickly adapt for a vaccine providing protection

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Waiting for a vaccine: Killing for inequality

October 11, 2020

From Dean Baker

I have been harping on the fact that it is very likely China will be mass producing and distributing a vaccine at least a month, and quite possibly several months, before the United States. This should make people very angry.
Even a month’s delay is likely to mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections. And, it adds a month to the time period before we can get back to living normal lives. Of course, the delay could end up being many months, since we still have no idea how the clinical trials will turn out for the leading U.S. contenders.
We are in the situation where we can be waiting several months for a vaccine, after one has already been demonstrated to be safe and effective, because the Trump administration opted to

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Patent monopolies in prescription drugs cause corruption # 43,508

October 5, 2020

From Dean Baker
Economists and economic reporters all know that tariffs can lead to corruption. The idea is that if a government-imposed tariff raises the price of a product by 10-25 percent above the free market price, companies have a large incentive to find ways to avoid the tariff. This can mean reclassifying imports to get around the tariff or trying to curry favor with politicians to get exemptions. The New York Times and ProPublica have run several excellent pieces providing examples of such behavior (e.g. here, here, and here).
The reasonable takeaway from these stories is that tariffs should be applied sparingly and with clear purposes in mind. Indiscriminate use of tariffs is likely to lead to large-scale corruption, as corporations use their political power to gain special

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It’s not vaccine nationalism, it’s vaccine idiocy

September 25, 2020

From Dean Baker
Last week an official with China’s Center for Disease Control and Prevention (CDC) said that the country may have a vaccine available for widespread distribution by November or December. This would almost certainly be at least a month or two before a vaccine is available for distribution in the United States, and possibly quite a bit longer.
While we may want to treat statements from Chinese government officials with some skepticism, there is reason to believe that this claim is close to the mark. China has reported giving its vaccines to more than 100,000 people. In addition to giving it to tens of thousands of people enrolled in clinical trials, it also has given them to front line workers, such as medical personal, through an emergency use authorization.
This may not

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Trade wars are class wars: even more than Klein and Pettis say

September 19, 2020

From Dean Baker
I have long enjoyed reading Matthew Klein’s columns in the Financial Times and elsewhere. They are invariably insightful and I have learned much from them. I am less familiar with Michael Pettis’ work, but I have liked what I have read. Therefore, I expected a lot from their book, Trade Wars are Class Wars, and I was not disappointed.
The basic point is that the major trade imbalances in the world over the last four decades have been driven by the suppression of wage growth, with income being redistributed from labor to capital. This has led to shortfalls in aggregate demand that countries try to offset by having trade surpluses. The main actors in that picture are China and Germany.
In the Klein-Pettis view, the U.S. has also suffered from this upward redistribution,

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Are corporate CEOs worth $20 million?

August 31, 2020

From Dean Baker
This simple and important question does not get anywhere near the attention it deserves. And, just to be clear, I don’t mean are they worth $20 million in any moral sense. I am asking a simple economics question; does the typical CEO of a major company add $20 million of value to the company that employs them or could they hire someone at, say one-tenth of this price ($2 million a year) who would do just as much for the company’s bottom line?
This matters not only because a thousand or so top executives of major corporations might be grossly overpaid. The excessive pay of CEOs has a huge impact on pay structures throughout the economy. If the CEO is getting $20 million it is likely the chief financial officer (CFO) and other top tier executives are getting in the

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Should we be more worried about the economy?

August 21, 2020

From Dean Baker
We are really in an unprecedented period where the economy is trying to recover from the shutdowns of April and May while being faced with partial shutdowns due to the resurgence of the pandemic in large parts of the country. We are struggling to make sense of data, which often has a substantial lag. We are still getting data from July even as we are in the last weeks of August. Furthermore, when we have large monthly changes, the picture at the end of July could have been very different than the beginning of the month.
The Opportunity Insights program at Harvard University is trying to help navigate the storm with its Economic Tracker. This provides much more current data on a variety of measures by relying on various industry sources. The latest picture is not good.

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Financing drug development: What the pandemic has taught us

August 19, 2020

From Dean Baker
We are still very much in the middle of the pandemic, with the U.S. seeing tens of thousands of new infections daily, and the world experiencing hundreds of thousands of new infections. However, it is not too early to look at areas where we need to reevaluate public policy, most importantly in financing the research and development of new drugs and vaccines.
The accepted wisdom in policy circles has been, that while the government can finance basic research, we need to rely on government-granted patent monopolies to pay for the actual development and testing of new drugs. The argument is that we want private companies to compete to develop new and better drugs, with the rents earned from their patent monopolies compensating them for the cost of research and testing, as

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More thoughts on the post-pandemic economy

August 12, 2020

From Dean Baker
I have written before on the post-pandemic economy and how it should actually provide enormous opportunities, but it is worth clarifying a few points. First and most importantly, there is an important measurement issue with GDP that people will need to appreciate.
It is often said that GDP is not a good measure of well-being, we see this in a very big way in the post-pandemic period. It is likely that many of the changes in behavior forced by the pandemic, first and foremost telecommuting, will be enduring.
Most immediately, this will show up as a sharp drop in GDP. We will be consuming much less of the goods and services associated with commuting to and from work. This means that we will be driving less. That means we will be buying less gas and needing fewer cars, car

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USA record 32.9 percent drop in GDP

July 30, 2020

From Dean Baker
The saving rate hit a record 25.7 percent level in the first quarter, indicating that few of the pandemic checks were spent
The Gross Domestic Product (GDP) shrank at a record 32.9 percent annual rate in the second quarter. While almost all the major categories of GDP fell sharply, a 43.5 percent drop in consumption of services was the largest factor, accounting for 22.9 percentage points of the drop in the quarter. Nonresidential fixed investment also fell sharply, dropping at a 27.0 percent annual rate. Residential investment fell at a 38.7 percent annual rate.
The plunge in service consumption was expected, since this was the segment of the economy hardest hit by the shutdowns. Within services, health care, food services and hotels, and recreation were the biggest

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Thoughts on Zachary Carter’s The Price of Peace

July 27, 2020

From Dean Baker
I just finished reading Carter’s book and I will agree with the general assessment. It is an outstanding book that brings together much useful material on the life and influence of Keynes.
While I am of course familiar with Keynes’ history and the history of Keynesianism, there is much that I learned here. In particular, I am impressed with the importance he gives Joan Robinson in spreading the ideas of Keynes, especially to followers from the United States.
When I first start taking economics, I hugely appreciated Robinson’s writing. She both did very important analytic work, especially her pathbreaking analysis of imperfect competition, but was also tremendously witty in her popular writing. I will always remember her great comment on unemployment (paraphrasing): “The

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The $24 an hour minimum wage

July 23, 2020

From Dean Baker
The push for a $15 an hour minimum wage has developed considerable political momentum over the last decade. It is a very real possibility that we will see legislation imposing a national minimum wage of $15 an hour by 2024 if Joe Biden wins the election this fall.
That would be a great thing, it would mean a large increase in pay for tens of millions of workers, but it is still very modest compared to what the minimum wage would be if it had kept pace with productivity growth. As is often mentioned, the purchasing power of the minimum wage hit its peak in 1968, at roughly $12 an hour in today’s dollars. However, productivity (output per hour work) has more than doubled over the last 52 years.[1]
This means that if the minimum wage had kept pace with productivity growth

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The stock market and MMT: the Dow Is not your friend

July 15, 2020

From Dean Baker
It is standard for economic reporters to treat higher stock prices as good news. A rising stock market is often touted in the same way that job gains or GDP growth are touted, as evidence of a stronger economy.
This can be true. When the economy is growing at a healthy pace, the stock market is usually rising also. But the link is far more tenuous than is generally recognized. The market is in principle a measure of expected future profits. Policies that redistribute income from workers or taxpayers, such as anti-union laws or a corporate tax cut, would be expected to lead to a rising stock market, even if they did not spur economic growth.
But even beyond this direct redistributive issue, there is another sense in which a rising stock market can be bad for the 90

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Combating the political power of the rich

July 10, 2020

From Dean Baker
I have written many times that I thought the focus on wealth inequality, as opposed to income inequality, was misplaced. There are many practical, political, and legal problems associated with taxing wealth that are considerably smaller when we talk about altering the economic structures that redistribute so much income upward.
But beyond the issue of whether inequalities of income or wealth are more easily tackled, there is also a very strange argument for focusing on wealth that is based on its impact on political power. The argument is that people like the Koch brothers or Mark Zuckerberg can gain enormous political power as a result of their immense wealth. Therefore, if we believe in democracy, we have to bring such outsized fortunes down to earth.
It is certainly

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Is it impossible to envision a world without patent monopolies?

July 6, 2020

From Dean Baker
Apparently at the New York Times the answer is no. Elisabeth Rosenthal, who is a very insightful writer on health care issues, had a column this morning warning that we may face very high prices for a coronavirus vaccine. She points out that this is in spite of the fact that the government is paying for much of the cost of the research. Rosenthal then argues we should adopt a system of price controls or negotiations, as is done in every other wealthy country.
While her points are all well-taken, the amazing part is that she never considers the simplest solution, just don’t give the companies patent monopolies in the first place. The story here is the government is paying for most of the research upfront. While does it have to pay for it a second time by giving the

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Structuring globalization to redistribute income upward

June 30, 2020

From Dean Baker
The Washington Post ran a piece on how patterns of globalization may be changed due to the pandemic. It is more than a bit confused in not distinguishing short-term effects from long-term effects and its inability to distinguish between problems caused by fiscal policy and policies caused by the fallout from the pandemic.
The headline for the piece on the Post’s homepage is “Covid-19 is erasing decades of economic gains achieved through globalization.” The subhead is “The way we travel, work, consume, invest, interact, migrate, cooperate on global problems and pursue prosperity has likely been changed for years to come.”
Literally nothing in the piece supports the claim in the headline and insofar as items in the piece support the subhead it is at least as likely to be

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More thoughts on the recession, stimulus, and recovery

June 28, 2020

From Dean Baker

As we get more data in, it seems increasingly likely that we are looking at a horrible and prolonged recession, not a complete economic collapse of Great Depression proportions. The May employment report showed a substantial bounce back in employment, with jobs up by more than 2.5 million from the April level. Retail sales had a huge 17.7 percent jump in May, by far the largest on record, although they are still 6.1 percent below the May 2019 level.
Mortgage applications also show a considerable degree of confidence about the future, with both refinancing and purchase mortgages soaring. Mortgage applications for refinancing are up more than ten-fold from year-ago levels, while purchase applications are up 268.6 percent to the highest level in more than 11 years. The

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Great time for a vacant property tax

June 26, 2020

From Dean Baker
I have long been a big fan of a vacant property tax. As the old saying goes, you tax what you want less, and why would we want vacant properties. This is especially likely to be relevant in many high-priced cities where the demand for commercial real estate is likely to go through the floor due to an increase in telecommuting.
As cities mull many types of tax increases to deal with pandemic caused budget shortfalls, a vacant property tax should stand out as a productive alternative. The economy would be best-served by having landlords quickly recognize that their property is not worth as much as it use to be, and therefore lower rents to keep it occupied. This will be good for keeping old businesses and supporting new ones, since rent is major expense for most

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Patents and the Pandemic, again

June 20, 2020

From Dean Baker
I know I have been pounding on this a lot, but it is important and there is a lot of money at stake. All we need (okay, maybe not all) is some clear thinking.
The Washington Post had a good piece this week talking about how a company set up by a hedge fund, with no background or expertise in pharmacology, arranged to get rights to a drug that was developed by researchers at Emory University on a $16 million contract with the government. The drug, EIDD-2801, is thought to be a potential treatment for the coronavirus. Shortly after arranging to buy the rights to the drug, the company turned around and sold them to Merck, presumably for a substantial profit.
The piece highlights how some companies are likely to profit off government-funded research, often while

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The sure way to end concerns about China’s “theft” of a vaccine: Make it open

May 22, 2020

From Dean Baker
In the last couple of weeks both the New York Times and National Public Radio have warned that China could steal a vaccine against the coronavirus, or at least steal work in the U.S. done towards developing a vaccine. Both outlets obviously thought their audiences should view this as a serious concern.
As I wrote previously, it is not clear why those of us who don’t either own large amounts of stock in drug companies or give a damn about Donald Trump’s ego, should be upset about the prospect of China “stealing” a vaccine. Concretely, if China gained knowledge from labs in the United States that allowed it to develop and produce a vaccine more quickly, this would mean that hundreds of millions of people might be protected against a deadly disease more quickly than would

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Corruption and the Pandemic Bailout

May 17, 2020

From Dean Baker
Neil Irwin had an interesting New York Times piece on how concerns about moral hazard in the bailout may damage the recovery. The gist of the article is that the fear that bad actors will be wrongly rewarded will prevent us from spending enough money to get the economy back on its feet. Irwin’s point is very important, but it does require some further examination.
We might agree for example, that it is silly to oppose an airline bailout because it will help shareholders if the bailout will also save tens of thousands of jobs. The priority should be to preserve jobs and, as much as possible, keep viable corporations intact through this crisis. This is not only to keep employment as high as possible during the crisis but also to preserve the basis for a strong recovery.

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Fixing the bailout scammers: The Ten Percent Solution

May 6, 2020

From Dean Baker
The pandemic crisis created a rare economic opportunity. In effect, the whole economy was thrown up for grabs, with the winners and losers determined by who had the political power to get a nice bailout. Needless to say, those who were already rich got the big handouts, those at the bottom got crumbs, if anything at all.
Suppose we had let the market work its magic on the airlines, on the hotel chains, the restaurant chains, the aircraft industry (i.e. Boeing), and on the oil industry. With few exceptions, the big actors in these sectors would all have been bankrupt. The companies would have been reorganized, with the ones that were otherwise viable being restructured. Debtors would take large haircuts only collecting a fraction of what they had been owed. Shareholders

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More thoughts on a wealth tax and alternatives

May 1, 2020

From Dean Baker
Last week the Boston Review (BR) published an exchange on a wealth tax that included a proposal from Berkeley economists Emmanuel Saez and Gabriel Zucman, with a number of responses, including one from me. I was critical of the proposal for both political reasons and because I think avoidance and evasion will be massive problems.
On the political side, in addition to the difficulty of getting a wealth tax through Congress, there is the virtual certainty that the current Supreme Court will rule it unconstitutional. This is not an abstract question of whether a wealth tax should be viewed as constitutional. I realize that many legal scholars have argued that such a tax is not inconsistent with the power to tax granted to Congress by the constitution. This is a very

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