Donnerstag, 24. Juni 2010

Interview: Dean Baker, Center for Economic and Policy Research in Washington, DC.

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC.


Are higher short-term deficits a greater (political) risk than higher unemployment ?

The reality is that almost no one has any idea of how large the deficit is so its size will have very little political impact. Whatever the number ends up being, it will be huge relative to the sums that people are used to seeing in ordinary life. So the deficit would sound huge if it were cut in half, just as it would if is doubled.

As a practical matter, President Obama and Congress are going to be held responsible for the state of the economy. If they take steps to cut the deficit by a very large amount, but the economy is still very weak (possibly in part because they cut the deficit), then no one is going to know or care about their deficit reduction. They will just know that the economy is in bad shape.


What are the chances of another recession? Do you expect a double-dip?

The main story going forward is that the economy is on a very weak growth path, almost certainly less than 3.0 percent over the next year and half and possibly less than 2.0 percent. This means that the economy will be adding few jobs, possibly not even keeping pace with the growth of the labor force. As a result, the unemployment rate will remain very high for several years into the future.


Also, it stands to reason that if the underlying rate of growth is very low, then there is a higher probability that it can turn negative. There are always random factors that will affect growth in any given quarter. If the rate of growth is close to 2.0 percent, then it would not take too much bad news to push the growth rate into negative territory, giving us a double-dip. However, the main point is that growth will be very weak in any case. It does not matter very much if unusual factors cause it to be negative in any given quarter.

Particularly since the outbreak of the financial crisis, the macro economy seems to be a tightrope. Macro economists are supposed to be competent, but not didactic, be serious, but not humourless, be scientific, but not partisan. How do you deal with it?

I just keep trying to find new ways to say the same thing. From 2002 until 2007 I was warning people that the economy had a serious housing bubble that would burst and cause lots of pain. No one was very interested in hearing it. Now, I am trying to tell people that we are not doing enough to set the economy right. They don’t want to hear that either.

I keep pushing to have economics turned into a profession in which job security depends on performance. If that were the case, we might see more accurate analysis and better policy.

Thank you very much.


Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknett University. His blog Beat the Press features commentary on economics. He is the author of several books.

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