Dean Baker (1) (1958–)

In a perfect world, all popular economics writing would be as clear, fact-based, and useful as this short work. Few things are as important to society as sound macroeconomic policies, but the subject suffers from the twin disadvantages of being deadly boring to outsiders and needlessly contentious among insiders. Baker and Bernstein are both first-rate economists of a liberal bent who have devoted much of the past several years to advocating policies to combat high unemployment, which, more than high inflation or the federal budget deficit, they see as the main economic problem confronting the US. They offer a brief diagnosis of the causes of high unemployment, as well as several detailed suggestions for reducing it; this is one of those rare economic policy works where the solutions section is as long as the problems section!

In popular media, complaints about the Federal Reserve usually focus on some imagined hyperinflation just around the corner as a result of the various rounds of Quantitative Easing. In reality, the Federal Reserve's sins have less to do with supposedly raising inflation, which has been well below target for years now, and more to do with their failure to keep unemployment down, which is the second half of their official mandate. As Baker and Bernstein point out, full employment is "essential for reducing the income stagnation that has beset the middle class, reducing poverty rates among working-age families, pushing back against economic inequality, and improving our fiscal outlook." They take a look at the current unemployment rate and why it's so high, finding that there's really not much wrong with the US labor market aside from persistent weak demand - i.e. "structural unemployment" is much less of a big deal than is assumed.

There's an interesting section on full employment during the Clinton boom, which in their view was driven not so much by fiscal policy as by the Fed's loose monetary policy and the stock market bubble. This should worry people, as it implies not only that the much weaker "Bush boom" was driven by the housing bubble, which may mean deeper troubles in the economy, but also that fiscal policy might need much more help from the Fed than it's getting to restore full employment. The important conclusion is that American workers did not suddenly become less skilled or less productive in 2008, we're suffering from weak demand, and spending time worrying about nonexistent high inflation ("Crying 'Fire! Fire!' in Noah's Flood", in Hawtrey's famous phrase) instead of actual high unemployment is a waste. Getting back to full employment would not only be a boon to the unemployed, since after all the single least productive job you can have is none at all, but would be about the single best way to restore balance to the budget. More jobs means more tax revenue.

After determining that the current high unemployment rate is essentially a deliberate policy choice rather than some mysterious affliction, they propose two broad packages of solutions: trade policy and jobs policy. Baker and Bernstein suggest that the current US trade imbalance is a big problem, artificially raising the value of the dollar and hurting our exports. Periodically the US complains at China for artificially keeping its currency devalued, which increases our trade deficit. While currency and trade wars often take a misleadingly zero-sum approach to the world, it's undeniable that in a situation of slack demand, imbalances cost jobs (one need only read Paul Krugman's work on the internal imbalances within the Eurozone to get the gist of this model). There are powerful interest groups calling for a high-valued dollar, but we should try to think of workers as a whole and not specific industries.

As far as direct jobs policies are concerned, they recommend three distinct packages: greater public investment, more public jobs, and a greater focus on work sharing. For the first item, more infrastructure of the sort that was in the stimulus would be great (check out Michael Grunwald's superb The New New Deal for more on the lasting benefits we'll be seeing from that much-maligned bill). For the second, they hold the little-known TANF jobs program funded by the stimulus as a model, but merely rolling back the immense job losses of state and local governments after the recession would be useful as well. For the third item, they praise Germany's Kurzarbeit work-sharing program, since by cutting hours instead of cutting jobs, workers still receive paychecks, still develop skills, and still stay in the labor force, all of which are tremendously important.

This is an excellent contribution to the debate that will be sadly overlooked, since our current national conversation revolves around dealing with the latest absurd Republican spasm of pique. However, there's a lot that policymakers could take from this work, and use to craft a set of programs that would truly lift us out of this historically weak recovery. Baker's previous book, The End of Loser Liberalism, is of similarly high quality and is also worth a look.… (meer)

I read a lot of liberal/progressive books, and this was one of the best I've come across in a while. As you can tell by the title, this is economist Baker's attempt to enter the crowded market of attempts to reframe the debate between "free market/growth" conservativism and "let's just hand poor people money" liberalism. It goes without saying that that's a dumb dichotomy and only hopeless Fox News junkies (who aren't exactly this book's target market) think that way, but where this book betters its peers is not only in its clear explanation of just how un-Adam Smithian the modern GOP has become, but also in straightforward policy prescriptions in how to allow more people to take advantage of economic growth and re-level the playing field.… (meer)

Do I agree with many of Baker's points? Yes: there is no such thing as a neutral, natural market outcome; economic outcomes are always choices made by human policy-makers just as much as they are by human producers and consumers. Would less inequality be nice? Yes.

Is this a good book? Not particularly. It is clearly written, but also written with rather too heavy a hand; Baker's statistics speak for themselves, for the most part, but his rhetoric suggests some grand upper middle-class conspiracy to defraud, well, someone else. For instance, anti-inflation policy "is a commitment by the government... to keep wages down." That's a bit like saying "Dutch dykes are a commitment by the government to jack up the price of water-front properties." Are the two things connected? Yes. But there are plenty of good reasons to pursue anti-inflation policies, and plenty of bad reasons, and keeping wages down is not generally the first one that leaps to mind. Again, this is a question of rhetoric.

It is also a question of context. Baker suggests that the strength of the US dollar is a policy decision made by the US government to, duh, make life harder for the working class. If the government really wanted to, it could somehow get China to help weaken the dollar vis a vis China's currency. But there's no reason to believe that that is true: the weak Chinese currency helps China far more than anything the US could offer as a trade-off. Similarly, central banks focus on anti-inflation, not because of nefarious underhanded dealings, but because they have to focus on something, and it turned out that focusing on currency exchange rates wasn't a very good method for central banking. Could they have chosen something else to focus on? Yes. But they had focused on full employment in the past, and under that economic system, it didn't work. Baker thinks they should focus on full employment again. He might be right. But he constantly underestimates how hard it would be to bring out the changes he's calling for.

He also lacks much comparative breadth. US doctors are over-paid, but, I'm guessing, not primarily because the industry is heavily protected. The Australian medical profession is highly protected, but not as highly paid, nor as highly specialized. Why? Because Australia has universal healthcare, not privatized health insurance. With privatized health insurance, it's in everyone's economic interest to make medical procedures as expensive as possible: that way, the doctors make more money, the hospitals make more money, Pharma makes more money, and the patient doesn't see too much difference, because health care costs are taken out of the pay packet, rather than handed over at the counter. Install a system under which it's in most people's interests to keep medical costs down, and you'll have fewer trips to specialists, more GPs, cheaper pills, and so on. None of which is to say that medicine needs to be protected. Again, I agree with so many of Baker's points, but his rhetoric is so irritating that I find it hard to see my agreements.

In other words, he seems to have learned many lessons from contemporary 'right-wing' economics: the heartlessness, the unwillingness to examine the actual world rather than models, and so on.

On the other hand, this is a policy polemic, and part of the point is to make readers believe that change is possible. Many of his readers will be heartless context-and-history deniers who also have no interest in helping actual human beings. Baker wants to help people. He insists that major change is possible. Here's hoping he's right.

PS: he seems to have no idea how publishing works for novelists, poets, and essayists, who want to earn a living from their work. He essentially equates the economic effects of copyright and patent protection. But there's a pretty big difference between "it would be nice if nobody else could make money off the novel I spent three years writing" and "it would be nice if I could sell this life-saving cancer medication at 1000 times the production cost."… (meer)