The Washington Post had another column telling us about the run-up in corporate debt and how this is going to be 2008 all over again.  This is a popular one with the media. William Cohan has a regular feature in the New York Times telling us how a collapse of the debt bubble is imminent, giving us another financial crisis.

While excessive corporate debt can pose problems, nothing we see now, or will plausibly see in the near future, looks anything like 2008. The fact that ostensibly knowledgeable people can say this shows that they not only missed the housing bubble as it was growing, ten years after it burst, they still don’t have a clue as to what happened.

So let’s try our Econ 101 lesson once again.

The reason the economy collapsed in 2008 was that the housing bubble that had been driving the economy collapsed. The financial crisis was lots of fun (always good to see billionaire types sweating), but it was very much secondary. The issue was that the housing bubble created a massive amount of demand in the economy, which disappeared when the bubble collapsed.

Most economists probably didn’t recognize the impact of the bubble because you would need access to GDP data, as in the data that is readily available on the Commerce Department’s website any time anyone cares to look. Those who did think that GDP data are useful in understanding the economy would see that residential construction, which had averaged a bit more than 4.0 percent of GDP in the 1980s and 1990s, soared to a peak of 6.7 percent of GDP in 2005.

This surge in construction spending was not associated with any developments in the fundamentals of the housing market. After all, the baby boomers, the largest demographic group, were seeing their children move away from home and downsizing. Rents were not sharing in the upswing in house prices, moving more or less in line with inflation. And, vacancy rates were hitting record highs.

All of this should have suggested that the surge in residential construction was transitory and likely to end when house prices came back down to earth. In fact, construction was likely to over-correct since the construction boom meant there was a lot of overbuilding. Construction ultimately bottomed out at 2.4 percent of GDP in 2010 and 2011. (It is 3.8 percent in the most recent data.)

In August 2015, President Michel Martelly inaugurated the Delmas viaduct, a four-lane overpass designed to ease the capital’s grid-locked streets. “This viaduct proves once again that together we can achieve great and beautiful things,” Martelly told the

Mark WeisbrotThe New Republic, June 5, 2019

June 2019, Dean Baker, Josh Bivens, and Jessica Schieder

CEPR regularly publishes a curated collection of original research from academic institutions and nonprofits on the state of the US labor market. The compilation is part of our ongoing effort to promote informed debate on the most important economic and social issues that affect people's lives.

The Brookings Institution

Growing cities that work for all: A capability-based approach to regional economic competitiveness

This report aims to provide a framework and inform policymakers on how the evolving economy is reshaping communities’ distinct opportunities and strengths by proposing a plan for regions to grow quality jobs through capability-based industrial development strategies. This involves firms and cities working together to see what inputs firms need to be productive and for cities to invest in those inputs in order to be more attractive and resilient.

Dean Baker
Truthout, June 3, 2019

This was originally posted on the Economic Policy Institute's Working Economics Blog. If the current economic expansion which began in June 2009 makes it to this July, it will set a record for the longest period of U.S. economic growth—beating the 1991 t

Asian American and Pacific Islanders (AAPIs) are one of the fastest growing demographic groups in the US workforce. About 9.5 million AAPIs[1] ages 16 or older worked in the United States in 2017 — a dramatic increase from just over one-half of one percen

The Board has a new plan that is more optimistic, and less realistic, than the old one. There is a serious risk that it will again get caught in a downward spiral of austerity to pay for unsustainable debt service, more emigration, and continued economic

(This post first appeared on my Patreon page.)

I write about the possibility of producing drugs without patent monopolies frequently for several reasons. First, drugs can be essential for people’s health or even life. It should not be a struggle for people to pay for them. Second, there is a huge amount of money at stake, way more than in almost any other realm of public policy. Third, it is such a great example where government intervention, in the form of patents and related monopolies, creates the problem. This is not a story where we need the government to correct an inequity created by the market, we need the government to stop intervening in a way that creates tremendous inequities and inefficiencies. 

I find that people (I mean people engaged in public policy work, not random people grabbed off the bus) have a hard time even understanding what the market for prescription drugs looks like in the absence of patent and related monopolies,[1] so I thought I would devote a blogpost to describing my view of such a world.

The first and most basic point is that in nearly all cases drugs would be cheap. Drugs are very rarely expensive to manufacture. They are expensive for patients because drug companies have patent or related monopolies and they use these monopolies to charge very high prices to the people who need their drugs. If there were dozens of competing manufacturers producing the same drug, they would be no better positioned to get away with charging incredibly high prices than a supermarket could get away with charging incredibly high prices for food. (We need food to survive, too.)  They would be welcome to try, but almost everyone would simply turn to a competitor, likely driving them out of business.

We know that drugs are cheap in the absence of patent monopolies for two reasons. First, because generic prices in the United States are much less than brand prices. In addition, many of the high priced drugs sold with patent protection in the United States are sold as generics elsewhere in the world, in some cases for less than one percent of the price in the U.S.

According to data from the Association for Accessible Medicines, the trade group for the generic industry, brand drugs accounted for 74 percent of spending even though they were only 11 percent of the prescriptions sold. By contrast, generic drugs accounted for just 26 percent of spending even though they were 89 percent of sales. This implies that the average generic prescription cost just 3.6 percent of the price of the average brand prescription, or $29.70 per prescription in 2017. This figure would mean that we could save 96.4 percent of the money spent on brand drugs if we immediately got rid of protections and allowed them to be sold as generics.

May 28, 2019, Dean Baker

Dean Baker
Truthout, May 27, 2019

(This post first appeared on my Patreon page.)

Some events give extraordinary insights into the biases of the economics profession. The trade war with China clearly fit the bill.

The origins of the trade war can be traced to campaign promises Trump made to go after China over its large trade surplus with the United States, which he attributed to “currency manipulation.” The argument was that by intervening in currency markets (buying up U.S. dollars), China was propping up the value of the dollar against its own currency.

This makes Chinese goods and services relatively cheaper to U.S. consumers and makes U.S. goods more expensive to Chinese purchasers. The net effect is to increase U.S. imports of Chinese goods and reduce U.S. exports to China, thereby leading to a large trade deficit.

While most economists now acknowledge that China was intervening in currency markets in the last decade (they did not acknowledge the currency intervention at the time), they insist that this is no longer an issue. China is no longer a large net buyer of dollar denominated assets, so the argument goes, therefore it is not currently keeping down the value of its currency against the dollar.

As I have argued elsewhere, this argument ignores the effect of China holding well in excess of $3 trillion worth of dollar denominated assets. Its decision to hold a massive stock of dollar assets depresses the value of the Chinese yuan against the dollar, thereby maintaining the competitive advantage from a lower valued currency.

This is the same logic that applies with the Fed’s decision to hold trillions of dollars worth of assets that it acquired as part of its quantitative easing program. Even though the Fed is not currently buying assets, most economists argue that its holding of assets still works to keep down interest rates. Perhaps in the next decade they will acknowledge that the same relationship holds with China’s massive stock of dollars and the relative value of the dollar and the yuan, but for now they insist that currency intervention was only an issue in the past.

This is important background, because currency values will directly affect our trade balance with China, and thereby impact the number of manufacturing jobs in the United States. While reducing the trade deficit will not get back most of the relatively high paying manufacturing jobs that were lost in the last decade, it would likely still be a plus for relatively less-educated workers who still rely on manufacturing as a source of higher paying jobs.

May 2019, Adewale Maye