The (Rational) Gift of Prophecy
Recent past performance is the best indicator of near future performance. Dean Baker was right then; it's likely that he's right now. Let's heed his advice.
-JB
The Credit Squeeze Scare
By Dean Baker
October 1, 2008
There is little reason to believe that the current tightness is substantially worse than what we have seen in prior recessions.
The New Economy: A Millenial Myth
By Dean Baker
March-April 2000
In short, the stock market is a classic bubble. It is every bit as "new" as the tulip bulb mania in Holland in the 17th century or the South Sea Bubble in England at the beginning of the 18th century. While the bubble inflates, the economy looks goods, since the surge in stock prices creates massive amounts of wealth, which leads to growth in consumer demand. In addition, the fact that many workers, especially higher paid workers, can be paid in stock options that may ultimately prove worthless helps relieve supply constraints on the economy.
The current situation can be compared to one in which $10 trillion of counterfeit money ($35,000 for every person in the country) entered into the economy. As long as people were willing to accept this money for payment for goods and services, it will provide considerable stimulus to the economy. Once it is recognized that the money is counterfeit, the situation will be very different.
How or when the stock market collapses remains to be seen. It is likely that the crash will coincide with a sharp decline in the value of the dollar, further complicating the economic picture. It is virtually certain that the crash will produce a wave of bankruptcies and lawsuits, as investors attempt to reclaim some of their losses from the people who gave them bad advice or misleading information. It may take a considerable period of time to get the economy back in order. If the nation can continue to experience rapid economic and productivity growth in the wake of this collapse, then we will have evidence of a new economy. Until then, the evidence suggests that the new economy is nothing more than an old-fashioned bubble.
First the Hype, Now the Pain; Market's Fall Was Both Predictable and Predicted
By Dean Baker
Los Angeles Times, June 27, 2002
In a world in which investors are willing to believe unreal numbers, it is inevitable that some will seek to profit by deliberately producing their own unreal numbers. But the country did not have to be taken in.
The reporters who cover these issues, with few exceptions, acted just like the business reporters who repeatedly named Enron one of the nation's top companies: They celebrated the bubbles.
Similarly, "strong dollar" became a mantra, with few showing any recognition of its implications. In short, the people with responsibility, who should have known better, completely failed in their jobs.
But one feature of the "new economy" seems likely to hold through this disaster. The people on top, those who were most responsible, will survive relatively unharmed by the crashes.
Few economists, economic reporters or market analysts are going to find themselves either out of work or facing poverty in their old age. That fate will be reserved for the people who listened to their advice.
No Cheap Wars
By Dean Baker
December 16, 2002
Of course, this is all speculation. It is possible that an attack on Iraq will go like clockwork – meeting little resistance and arousing little concern from people elsewhere in the region or the world. But, we should at least give some thought to the possibility that it won’t turn out that way. Needless to say, the people making the decisions will not be the ones who pay the price if they turn out to be wrong.
Bursting Bubbles: Why the Economy Will Go From Bad to Worse
By Dean Baker
May 9, 2003, In These Times
The stock market bubble... the housing bubble... the dollar bubble.
The triple bubble economy of the late ’90s presents the most difficult set of economic problems since the Great Depression. The solutions are neither simple nor painless, but—just as was the case with the New Deal—big problems can open the door to big solutions.
The Housing Bubble: A Time Bomb in Low-Income Communities?
By Dean Baker
May/ June 2004, Shelterforce: The Journal of Affordable Housing and Community Building
At this point, it is probably too late to avoid the pain and destruction that will be caused by the collapse of the housing bubble. However, it is possible to at least minimize the harm. This can be done in two ways. First, potential homebuyers should be made aware of the inflated nature of the housing market. It is simply wrong to tell people that housing prices never fall – they do and they can fall from bubble-inflated levels. Second, government policies that promote homeownership rather than renting, especially for low-income families, should be curtailed. Whether or not the promotion of homeownership is generally a good idea, it is definitely not a good idea in a bubble-inflated housing market. Persuading families to buy homes at bubble-inflated prices is encouraging them to throw away their life savings. This is not a good direction for government policy.
The Coming Housing Crash
July 31, 2006
All the economists who missed the stock bubble—this is almost all economists—are just about to be embarrassed again. Several reports released this week provide the strongest evidence yet that the housing bubble may finally be deflating.
Recession Time: The Housing Bubble Bursts the Economy
By Dean Baker
September 11, 2007
The growth of the housing bubble made this sort of collapse inevitable, just as the crash of the stock bubble was inevitable. The only question was when the bubble would finally burst and the exact form that the collapse would take.
It was incredibly negligent for the Federal Reserve Board and the Bush administration to allow the housing bubble to grow unchecked, and especially to allow the sort of mass fraud perpetrated against moderate income homebuyers in the subprime market. At this point, there is probably no way to avoid a recession. If those making economic policy show no better judgment going forward than they have in the recent past, it is likely to be a long and painful recession.
Year of the Fat Cats
By Dean Baker
January 7, 2008
"Even when they fail to produce returns for their shareholders, CEOs of US companies still receive extraordinary pay packages."
One of the standard year end rituals is to assess the stock market’s performance for the year. Many people noted that the Dow Jones index rose a respectable 7.5 percent in 2007. Before anyone celebrates this modest achievement, it is important to remember that the Dow includes just 30 blue chip stocks. The much broader S&P 500 index rose by just 3.5 percent, slightly less than the rate of inflation in 2007. In other words, the real return for most stockholders was roughly equal to what their stock paid out in dividends, not a terribly good story.
The Economic Hit from the War in Iraq
By Dean Baker
February 10, 2008
Recent polling by the Pew Research Center shows that the economy has overtaken the Iraq war as the public's gravest concern. But as the pundits and presidential candidates react to this finding, a fundamental truth is being obscured: The war itself is a drain on the economy, and it will become more of a drain the longer it continues.
The Recession in the United States: A Progress Report
By Dean Baker
July 1, 2008
In short, the U.S. economy is facing bad news right now on a number of different fronts. There is little doubt that it will be facing a recession, and quite possibly a very severe recession. Insofar as other countries tie their economies and their finances to the U.S. economy, they will likely also experience severe economic problems. Those countries that were smart enough to look to other markets for their exports and other outlets for their capital will manage to avoid seeing their economy sink along with the U.S. economy.
Dean Baker is the co-director of the Center for Economic and Policy Research. He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer.
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2008-10-04