From Dean Baker
There are two key points that people should recognize about the decision to guarantee all the deposits at Silicon Valley Bank (SVB):
It was a bailout
Donald Trump was the person responsible.
The first point is straightforward. We gave a government guarantee of great value to people who had not paid for it.
We will get a lot of silly game playing on this issue, just like we did back in 2008-09. The game players will tell us that this guarantee didn’t cost the government a penny, which will very likely end up being true. But that doesn’t mean we didn’t give the bank’s large depositors something of great value.
If the government offers to guarantee a loan, it makes it far more likely that the beneficiary will be able to get the loan and that they will pay a lower interest

From Dean Baker
Word from the grapevine is that the risk of contagion may cause the Fed or the FDIC to engineer some sort of bailout of uninsured deposits, where they get paid back in full, instead of being forced to accept a partial loss on deposits over $250k. That would be unfortunate, since the people who run these companies that have large deposits are supposed to be brilliant whizzes, who should be able to understand things like FDIC deposit insurance limits.
Their incessant whining, that losing 10-20 percent of their deposits, would shut down Silicon Valley and the country’s tech sector, made for good laughs. However, the risk of a nationwide series of bank runs is a high price to pay to teach these people about the limits on deposit insurance.
We know that the view of most of

From Dean Baker
On a lazy Friday afternoon, a person’s thoughts naturally turn to car price indexes. There is actually a reason that I became interested in this topic. I noticed that in the January Consumer Price Index, the new vehicle index rose 0.2 percent. The December measure was revised up due to new seasonal adjustment factors so that what had been reported as a 0.1 percent decline last month is now reported as a 0.6 percent increase.
I was inclined to think this was an aberration and that we would see the downward trend that had previously been apparent in the data reappear in another month or two. However, I noticed that the Manheim index for used vehicle prices showed a sharp uptick for January and the first half of February. This was after a full year in which declining

From Dean Baker

Outlawing items such as marijuana or alcohol invariably leads to black markets and corruption. Since there is much money to be made by selling these products in violation of the law, many people will follow the money and break the law. They will also corrupt the legal system in the process, making payments to people in law enforcement and elsewhere in the legal system.
The old line from economists on this problem is to take the money out, by making marijuana and alcohol legal. If people can buy these items in a free market, then no one is going to have any big incentive to make payoffs to police officers or judges, there would be no reason.
We should think the same way about the pharmaceutical industry and patent monopolies. Patent monopolies and related protections

From Dean Baker
The economy can have a problem of too much demand, leading to serious inflationary pressures. It can also have a problem of too little demand, leading to slow growth and unemployment. But can it have both at the same time?
Apparently, the leading lights in economic policy circles seem to think so. As I noted a few days ago, back in the 1990s and 00s economists were almost universally warning of the bad effects of an aging population. The issue was that we would have too many retirees and too few workers to support them.
This meant a problem of excess demand. Since much of the money to support retirees comes from government programs for the elderly, like Social Security and Medicare, this meant we would see this show up as large government budget deficits, unless we had

From Dean Baker
I was happy to see this segment of Ezra Klein’s show (hosted by Rogé Karma) which featured an interview with Columbia University Law Professor Katharina Pistor. Pistor is the author of The Code of Capital: How the Law Creates Wealth and Inequality.
I’ve not yet read the book, but got the gist from the interview. Pistor is arguing that we have structured the market in ways that generate enormous inequality. In the interview, she presents several ways in which the law has been written that facilitate the accumulation of wealth by a small group of people. These include rules on property in land, intellectual property, and the creation of corporations as distinct entities with an existence independent of their owners.
Pistor’s point is that the way these rules are

From Dean Baker
The New York Times had a major article reporting on how many people in South Korea, Hong Kong, and Japan are being forced to work well into their seventies because they lack sufficient income to retire. The piece presents this as a problem of aging societies, which will soon hit the United States and other rich countries with declining birth rates and limited immigration.
While the plight of the older workers discussed in the article is a real problem, the cause is not the aging of the population. The reason these people don’t have adequate income to retire is a political decision about the distribution of income.
If the issue was simply that too few people were working in these aging societies, we should expect to see slower per capita growth than in countries where

From Dean Baker

The idea of industrial policy has taken on almost a mystical quality for many progressives. The idea is that it is somehow new and different from what we had been doing, and if we had been doing industrial policy for the last half-century, everything would be better.

This has led to widespread applause on the left for aspects of President Biden’s agenda that can be considered industrial policy, like the CHIPS Act, the Inflation Reduction Act (IRA), and the infrastructure package approved last year. While these bills have considerable merit, they miss the boat in reducing income inequality in important ways.
First, the idea that we had not been doing industrial policy before Biden, in the sense of favoring specific sectors, is wrong. We have been dishing out more than

From Dean Baker
I was having an exchange with an old friend on Mastodon (yes, I’m there now @[email protected]), in which I was arguing that the best way to get alternatives to the current patent system was to have examples of successful drugs developed without relying on patent monopolies. Of course, there are great historical examples, like the development of insulin as a treatment for diabetes or the polio vaccine, but it would be good to have one from the current century.
The most obvious example, that really deserves a hell of a lot more attention than it is getting, is the Covid vaccine developed by Peter Hotez and Maria Elena Botazzi at the Center for Vaccine Development at Texas Children’s Hospital. This vaccine was developed using grants in the single digit

From Dean Baker

It’s more than a bit bizarre that until Elon Musk bought Twitter, most policy types apparently did not see a risk that huge platforms like Facebook and Twitter could be controlled by people with a clear political agenda. While just about everyone had some complaints about the moderation of these and other commonly used platforms, they clearly were not pushing Fox News-style nonsense.
With Elon Musk in charge, that may no longer be true. Musk has indicated his fondness for racists and anti-Semites, and made it clear that they are welcome on his new toy. He also is apparently good with right-wing kooks making up stories about everything from Paul Pelosi to Covid vaccines. (Remember, with Section 230 protection, Musk cannot be sued for defaming individuals and companies

From Dean Baker
We should all recognize that Sam Bankman-Fried is much smarter than the rest of us. After all, outwardly he looks to be one of the biggest frauds of all time. By the age of 30 he amassed a fortune that dwarfs that of your average billionaire. He did it by running a crypto Ponzi-scheme. While claiming to be using his wealth to support philanthropies that were carefully selected to maximize human welfare, he was actually living a high life-style with his friends.
Now that the Ponzi has collapsed, the investors who trusted him look to be out of luck. And, of course there is no money for the philanthropies that he supported, many of which will are now struggling because they won’t get contributions they had been counting on.
That all looks pretty reprehensible, but maybe

From Dean Baker
The World Health Organization is in the early phases of putting together an international agreement for dealing with pandemics. The goal is to ensure both that the world is prepared to fend off future pandemics by developing effective vaccines, tests, and treatments; and that these products are widely accessible, including in low-income countries that don’t have large amounts of money available for public health expenditures.
While the drafting of the agreement is still in its early phases, the shape of the main conflicts is already clear. The public health advocates, who want to ensure widespread access to these products, are trying to limit the extent to which patent monopolies and other protections price them out of the reach of developing countries. On the other

From Dean Baker
I remember talking to a progressive group a bit more than a decade ago, arguing for the merits of a financial transactions tax (FTT). After I laid out the case, someone asked me if we had lost the opportunity to push for an FTT, now that the financial crisis was over. I assured the person that we could count on the financial sector to give us more scandals that would create opportunities for reform.
Shortly thereafter, we were rewarded with the trading scandal from the aptly named investment company, MF Global. It seems that FTX has given us yet another great case study in greed and corruption in the financial sector.
The financial sector was and is a happy home for those seeking big bucks, and who don’t mind bending or breaking the rules to fill their pockets.

From Dean Baker
It is a complete article of faith in intellectual circles that the market is responsible for the rise in inequality that we have seen in the United States and elsewhere over the last half-century. Intellectual types literally cannot even consider the alternative that inequality was the result of government policies, not the natural workings of the market.
The standard line is that technology and globalization were responsible for the increasing gap in income between people with college, especially advanced, degrees and non-college-educated workers. This belief that market forces drove inequality and not policy is apparently central to the identity of its beneficiaries, who determine what appears in major news outlets.
In this way, the belief in the market causes of

From Dean Baker
It is common for politicians and pundit types to speculate on when or whether China’s economy will pass the US economy as the world’s largest. The latest episode to cross my path was a column by David Wallace in the New York Times.
There is little reason for this sort of speculation. China is already the world’s largest economy, its economy is more than 20 percent larger than the US economy, according to the IMF. Furthermore, it is growing considerably more rapidly (assuming they don’t continue their zero COVID-19 policy forever), so it is projected to be more than a third larger than the US economy by the end of the decade.
Here’s the picture.Source: International Monetary Fund.
Many people misunderstand the relative sizes of the two economies because they rely on

From Dean Baker
The standard line in policy circles about the soaring inequality of the last four decades is that it is just an unfortunate outcome of technological change. As a result of technological developments, education is much more highly valued and physical labor has much less value. The drop in relative income for workers without college degrees is unfortunate and provides grounds for lots of hand wringing and bloviating in elite media outlets, but hey, what can you do?
Manufacturing plays a central role in this story since it has historically been the major source of high-paying jobs for workers without college degrees. Manufacturing jobs offered a pay premium of almost 17.0 percent in the 1980s. This had fallen sharply by the start of the last decade and had largely

From Dean Baker
The Inflation Reduction Act includes a remarkable innovation. Share buybacks will be taxed at a 1% rate. This is a huge deal, not only because it taxes money that was often escaping taxation at the individual level, but it is a move away from basing the corporate income tax on profits, which can be easily manipulated, to taxing returns to shareholders.
It is time for a major and simple overhaul of the corporate income tax system. The main problem with the current system is that it is focused on the wrong target. Instead of taxing corporate profits, we should be taxing stock returns to investors.
The big issue here is that corporate profits are not a well-defined concept. A thousand issues arise in determining profit, all of which depend to a substantial extent on

From Dean Baker

With the United States data we have seen from the last few months, it’s fair to say that no one has a very good idea of where the economy is. At the most basic level, we have seen seven months of incredibly rapid job creation this year; the economy added 3.3 million jobs through July, along with two consecutive quarters of negative growth. We don’t have to join the Trumpers in calling this a recession, to be bothered by seeing two main economic indicators going in opposite directions.
I suspect most economists (I haven’t done a poll) would agree that the negative growth reported for the first two quarters was a statistical fluke. The GDP data are often revised by large amounts, so it would not be surprising if we see a very different picture after comprehensive

From Dean Baker
It’s pretty funny that we continually debate the causes of inequality when we routinely pass bills that redistribute income upward. The semiconductor bill about to be approved by Congress is the latest episode in this absurd charade.
To be clear, the bill does some good things. It has funding both to subsidize manufacturing capacity for semiconductors in the United States and also for further research in developing better chips in the future. Both of these are positive developments even if the benefits of the former are overstated.
It was common in the pandemic days to tout the supply chain problems as evidence that we needed more manufacturing in the United States in a variety of areas. However, that story ignored several factors.
First, the pandemic knocked out many

From Dean Baker
I just read this NYT column by Bryan Stryker, on how Democrats can win back the working class. I have no idea how its proposals poll, but as an economic matter, they will do little to help the working class.
The big problem with Stryker’s argument is that it assumes that the working class will somehow benefit from having more manufacturing jobs. This would have been true 20-years-ago when noncollege educated workers in manufacturing enjoyed a substantial pay premium over workers employed in other sectors. It is no longer true today.
Due to our trade deals (especially Clinton’s), which cost millions of manufacturing jobs, the sector no longer offers any substantial pay premium over employment in other sectors. At the most basic level, the average hourly earnings of

From Dean Baker
California’s Governor, Gavin Newsom, announced plans last week for the state to set up its own manufacturing facility to produce low-cost insulin for California residents. This is a great idea.
Insulin is an old drug that can be produced as a cheap generic, which is the case almost everywhere else in the world. A monthly supply of insulin in Canada costs $12, in Germany $11, and in Italy $10. In the United States, it costs on average around $100, and in many cases, people are paying several hundred dollars a month for their insulin. This is a tremendous burden on people, especially when they are retired or unable to work because of their medical condition.
The reason that drug companies can get away with charging high prices for an old drug is that they have made

From Dean Baker
Last month I wrote a piece where I managed to mangle a very simple point. While the reported saving rate had fallen in April, it was actually due to people paying more capital gains taxes, not the result of households spending down savings.
The issue here is straightforward. Saving is defined as the portion of disposable income that is not consumed. Savings can fall either because either consumption has increased, or disposable income has fallen.
We are not seeing especially rapid consumption growth in 2022 (real consumption actually fell in May), rather we are seeing weak growth in disposable income, which is defined as personal income, minus tax payments. The story here is not that personal income growth has been weak, but rather that tax payments have soared.
The May

From Dean Baker   

It was very frustrating to read Noam Scheiber’s profile of Jaz Brisack, the person who led the first successful union organizing drive at a Starbucks. Brisack does sound like a very impressive person and it is good to see her getting the attention her efforts warrant. However, Scheiber ruins the story by repeatedly telling readers that the neoliberals, who have dominated political debate in recent decades, want a free market. Nothing could be further from the truth.

I will start the indictment with their support of intellectual property. Government-granted patent and copyright monopolies transfer many hundred billion dollars annually from the rest of us to the top 10 percent, and especially the top one percent. Bill Gates would still be working for a living if

From Dean Baker
I was very disappointed with Ezra Klein’s NYT interview with Bhaskar Sunkara, in large part because I have a high opinion of Sunkara, the founder of Jacobin and now the president of The Nation. My main disappointment stems from his non-answer to one of the main questions raised by Klein.
Klein asked why the Democrats, and other liberal/left parties around the world, rely largely on more educated people for their support, while more working-class types have turned to the right. Socialists had historically envisioned socialism as the agenda of the working class, not college-educated professionals.
Sunkara gave an answer that put the blame on the decline in unions, which is undoubtedly a big part of the story. But the answer clearly goes beyond this.
Liberal/left parties

From Dean Baker
There is good reason for believing that the prices of many items that drove inflation higher in the last year have stopped rising and are may even be going in the opposite direction. Used cars are the best example. The CPI index for used vehicles rose 40.5 percent from January 2021 to January 2022. In the three months from January to April, the CPI index has fallen by 4.5 percent.
More generally, the supply shortages that drove prices higher in 2021 seem to be replaced by gluts, with major retailers like Amazon and Target complaining about stockpiles of unsold goods. With the stimulus measures from the pandemic fading into the past, and people no longer fearing to travel or go to restaurants, it is likely that we will be seeing serious downward pressure on the prices of

From Dean Baker
The New York Times ran a piece discussing why innovations in cloud computing and artificial technology have not led to more rapid increases in productivity. It raises a number of possibilities, but leaves out an obvious one, increasing waste associated with rent-seeking. We clearly see an increase in waste associated with rent-seeking, the only question is whether it is large enough to have a notable effect on productivity growth.
The piece actually touches on, without commenting on it, one of the major sources of waste. It discusses the practices of a major health insurer.
Health insurance does not directly contribute to GDP. Health care (actually health) is what we care about. Health insurers determines who has access to health care. In principle we want as few people

From Dean Baker
It is amazing how frequently policy types talk about “free trade” as though it is actually a policy anyone is interested in promoting. The reality is that what passes for free trade is a policy of removing barriers to allow low cost manufactured goods to enter the United States without restrictions. This puts downward pressure on the pay of manufacturing workers. Since manufacturing had historically been a source of high paying jobs for workers without college degrees (it is no longer), the loss of these jobs out downward pressure on the pay of non-college educated workers more generally.
A policy of genuine free trade would mean eliminating barriers that limit trade in physicians’ services as well as the services of highly paid professionals more generally. It would

From Dean Baker  

Inflation has stayed higher longer than I expected. I got that one wrong. I am happy to acknowledge my mistake, but I also want to know the reason why. This is not a question of finding excuses, I want to know why the economy is acting differently than I thought it would.
The most obvious reason is the supply chain disruptions that led to the original jump in prices have lasted longer and been more far-reaching than I expected. Part of this is due to the persistence of the pandemic, with the delta and omicron strains disrupting economies around the world.
The other major source of disruption is Russia’s invasion of Ukraine. This has blocked the supply of many items manufactured in Ukraine, but more importantly, the war reduces its ability to grow and sell wheat

From Dean Baker
The New York Times had an editorial about the corruption of the patent system in recent decades. It noted that the patent office is clearly not following the legal standards for issuing a patent, including that the item being patented is a genuine innovation and that it works. Among other things, it pointed out that Theranos had been issued dozens of patents for a technique that clearly did not work.
As the editorial notes, the worst patent abuses occur with prescription drugs. Drug companies routinely garner dozens of dubious patents for their leading sellers, making it extremely expensive for potential generic competitors to enter the market.  The piece points out that the twelve drugs that get the most money from Medicare have an average of more than fifty patents

From Dean Baker  

It is our policy on technology that drives inequality, it is not the technology.
I rarely disagree with Paul Krugman’s columns, but every now and then he does say something that I have to issue with. In a column last month, Krugman complained about the enormous costs associated with China’s zero COVID-19 policy. He tied it to its reliance on old-fashioned Chinese vaccines that used dead virus material, instead of using the mRNA vaccines developed by researchers in the United States and Europe.
There are good grounds for criticizing China’s zero COVID-19 policy. It may have been reasonable in the early days of the pandemic when we had neither vaccines nor effective treatment. However, the massive lockdowns required, which also literally threaten lives (people can’t