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Article Artículo

The Keystone Job Mirage

The Keystone pipeline could have a serious impact on our children’s future, since it will facilitate the removal of high carbon oil from western Canada. This comment must be qualified, since if oil prices stay near $50 a barrel, then it is likely that most of this Canadian oil will stay in the ground whether or not the pipeline is built. However, the environmental issues should be front and center in the decision as to whether or not to build the pipeline.

Dean Baker / January 05, 2015

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Confusion on the Internet Is Not the Answer

The Washington Post once again displayed its contempt for economics when it published Michael Harris' book review of The Internet Is Not the Answer, a new book by Andrew Keen. Many of the central points in the review are seriously misleading or just outright wrong.

The best example of the latter is the claim in reference to the turning over of the backbone of the Internet from the government to the private sector in the 1990s:

"It was, in the words of venture capitalist John Doerr, 'the largest legal creation of wealth in the history of the planet.'"

Handing over the Internet to the private sector was not a creation of wealth, it was a transfer of wealth. The wealth already existed -- it was the backbone of the Internet. It simply went from being held by the public to being held by private individuals. This is comparable to creating wealth with patent monopolies. At the point where a patent is issued, the wealth already exists. However the patent allows it to be privately appropriated rather than shared by the public at large.

Harris compounds the confusion when he approvingly cites Keen's assessment of Amazon:

"But Keen argues that 'the reverse is actually true. Amazon, in spite of its undoubted convenience, reliability, and great value, is actually having a disturbingly negative impact on the broader economy.' He points to what he describes as Amazon’s brutally efficient business methodology, which has squeezed jobs out of every sector of retail, according to a 2013 Institute for Local Self-Reliance report that Keen cites. The report says brick-and-mortar retailers employ 47 people for every $10 million in sales, while Amazon employs only 14. Perhaps the question Keen is getting at is this: Are we consumers, or are we citizens? It’s a frustratingly complex inquiry."

There are two different issues here. The first is the extent to which Amazon has led to productivity growth. In general this is a good thing for the economy. Companies like General Motors and U.S. Steel have adopted labor saving technologies over the last century. This has reduced prices for consumers and allowed workers to enjoy higher standards of living. There is no obvious reason we should want people to have to waste time working in retail stores if we can adopt technologies that save us the trouble. Insofar as Amazon has helped to increase productivity, this is a good thing.

Dean Baker / January 04, 2015

Article Artículo

Robert Samuelson Thinks That Because He Is Confused About the Economy, Everyone Else Is Also

Robert Samuelson has a really serious problem of projecting his own conceptual confusions on others. In his column this morning he repeatedly uses "we" when he actually means "I."

"We overestimated our ability to control the economic environment. What we have learned is that outside events — here, the financial crisis and Great Recession — can overwhelm collective protections and discredit conventional beliefs. The economy is more random, unstable and insecure than we imagined. It is less susceptible to policy engineering."

Of course "we" did not overestimate the government's ability to control the economy. Some of us were completely aware of the dangers posed by the housing bubble and the amount of stimulus that would be needed to bring the economy back to full employment. As we pointed out, the Fed should have taken steps to burst the housing bubble, starting with public warnings like the ones that Federal Reserve Board Chair Janet Yellen made last summer in reference to junk bonds and social media company stocks. The Fed also could have used its regulatory power to crack down on fraudulent mortgages that were being securitized in huge numbers.

This is not the only error in Samuelson's piece. He also mistaken argues that because most government benefits go to the poor and middle class:

"it is not possible to pretend that the whole superstructure of government has somehow been turned against the middle class. This is not just a distortion of reality; it is the converse of reality."

In fact the government has structured the market over the last three decades in ways that cause most income to flow upward. For example its trade deals have been focused on putting less educated workers in direct competition with the lowest paid workers in the world. This has the predicted and actual effect of driving down their wages. At the same time, highly paid professionals, like doctors and lawyers, are largely protected from international competition. The government has also had longer and stronger patent protection, causing middle class people and the government to pay hundreds of billions more for prescription drugs than would be the case in a free market. The benefits from these forms of protectionism disproportionately go to the wealthy.

Dean Baker / December 29, 2014