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Baseline Scenario

The Baseline Scenario is a blog created after the financial crisis in 2007-2008 by Professors Simon Johnson (MIT Sloan) and James Kwak (University of Connecticut School of Law). The blog examins issues that plague the global economy.

COVID-19: Inequality

By James Kwak By some measures, in the short term, COVID-19 will surely reduce inequality of wealth, and probably inequality of income as well. As a purely mechanical matter, the rich have a lot more money to lose when the stock market crashes and most sectors of the economy grind to a halt. Photo by Free-Photos from PixabayAt the same time, however, this pandemic is throwing into stark relief how unequal the lives of Americans are today. Most of the upper-middle class and rich seem to...

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COVID-19: The Butcher, the Brewer, and the Baker

By James Kwak “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” —Adam Smith, The Wealth of Nations Image by Mandy Fontana from PixabayThis is the most famous line from the most famous justification of market capitalism. Smith’s point is that it is individual self-interest that drives the economy. In the next paragraph, he goes on to describe how gains from trade explain the division of labor in...

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COVID-19: The Statistics of Social Distancing

By James Kwak It seems that social distancing is the primary strategy for slowing the propagation rate of COVID-19. That and widespread testing are the key tools for containing an outbreak, for reasons discussed repeatedly in the media. Photo by Hans Braxmeier from PixabayBut does it work? Or, more to the point, how well do different degrees of social distancing work? How strict does it need to be, and how tightly does it need to be enforced? It seems to me that this is an important and at...

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COVID-19: Not One Penny

By James Kwak The airline industry is trying to hold up the federal government for $29 billion in grants and another $29 billion in loans. They threaten that if they don’t get the grants they will lay off employees, and that if they don’t get the loans they will use their remaining cash on dividends and stock buybacks. Photo by Júlia Orige from PixabayFirst of all, the second threat is staggering in its audacity. At current course and speed, the airlines will go bankrupt. When you are in...

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COVID-19: Who Bears the Losses?

By James Kwak Our business and household sectors are losing lots of money every day, and will continue to lose money for the foreseeable future. People no longer spend money at restaurants. Restaurant owners can no longer pay the rent or pay back their business loans. Restaurants fire their workers, who lose their paychecks and can no longer pay their rent, or their credit card bills, or their student debt. In an economic crisis like this, the overriding question is: who ultimately bears...

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Thoughts About COVID-19: PPE

By James Kwak PPE, as we now know, stands for Personal Protective Equipment, like face masks and gloves. Right now there isn’t enough of it, and that’s one of the constraints on being able to test people, which is one of the biggest problems we face. Photo by ehpien (CC BY-NC-ND 2.0) The only point I want me make here is this: This is how capitalism is supposed to work. If you’re a for-profit healthcare provider—or any kind of provider that is trying to provide the most value, however...

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About that Democratic Primary …

By James Kwak Today is the day of the New Hampshire primary, and, perhaps more importantly, lots of people in California are getting their ballots around now. Before you cast your vote in the Democratic presidential primary, I wish you would read Take Back Our Party, either online (for free) or in print. But I know most of you won’t, so this is what I want to say. As a preamble, if you are a moderate Democrat—if you think welfare reform and financial deregulation were good ideas; if you...

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Take Back Our Party, Print Edition

By James Kwak I’ve never wanted to write a book as much as I wanted to write Take Back Our Party. And I’ve never wanted people to read one of my books as much as this one—in particular, before the 2020 Democratic primary season ends. For that reason, I bypassed the usual publication route. (As my editor at Pantheon liked to say, the period for turning a manuscript into a book is, for unknown reasons, the same as the gestation period of a human. In his defense, he did get both 13...

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Economism on Marketplace

By James Kwak David Brancaccio of Marketplace has started a new radio project called Econ Extra Credit: reading a first-year economics textbook, one chapter per week, along with his listeners. Luckily, he chose one of the textbooks produced by the CORE project, a group of economists who set out to rewrite the economics curriculum in the wake of the financial crisis and Great Recession. David invited me to talk with him about “Economics 101” and the one-sided impression of the world that...

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False Choice

By James Kwak The scene: Two well-dressed, fully employed people sitting at a table in the chic café at their workplace. Martha: Do you like your health plan? George: I love it. Martha: How much do you pay for your plan? George: About $550 per month.* Martha: Do you have a deductible? George: I have a $1,000 deductible for my whole family. Martha: What about co-payments? George: I have to pay 20% of the cost for hospital stays and outpatient surgery. Martha: What if you just want to see...

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