July 2, 2015

July 2, 2015 (Jobs Byte)

Ten years ago, with the technology-stock bubble well past us, the Congressional Budget Office (CBO) predicted that from 2000–2015 the potential for the United States economy to produce goods and services—at full employment—would grow 58 percent. This year

Mark WeisbrotThe Globe and Mail, June 30, 2015

The NYT had a bizarre front page article about the limited effectiveness of monetary policy in the euro zone and elsewhere. The headline of the piece refers to "trillions" of dollars being spent by central banks, a line repeated in the first sentence:

"There are some problems that not even $10 trillion can solve.

"That gargantuan sum of money is what central banks around the world have spent in recent years as they have tried to stimulate their economies and fight financial crises."

In fact, central banks have not spent this money, they have lent this money, mostly by buying government bonds. This matters hugely because lending is a much more indirect way to boost the economy than spending.

Lending by central banks is supposed to boost growth by lowering interest rates. This encourages borrowing in the public and private sectors. This helps to explain the growth in debt in recent years. Rather than indicating a troubling situation, this was actually the point of the policy. Rather than focus on the amount of debt countries, companies, and individuals have incurred, it would be more reasonable to examine their interest burdens. These are mostly quite low.

For example, Japan's interest burden is less than 1.0 percent of GDP in spite of having a debt to GDP ratio of more than 200 percent. This is due to the fact that the interest rate on even its long-term debt is well below 1.0 percent.

Dean Baker
Truthout, June 29, 2015

This post was originally published at Girl w/ Pen. Often, when we see improvements by all (be it in educational attainment, income, health, etc.), we overlook the fact that gender or racial gaps still persist or have even gotten worse. There has been much

The Bank of International Settlements (BIS) issued a new report warning of the dangers of low interest rates. Robert Samuelson wants us to take these warnings very seriously, effectively saying that another crisis could be around the corner due to the recent build up of debt.

First, it is worth noting that warning of disaster due to expansionary monetary policy is what they do at the BIS, sort of like basketball players play basketball. The BIS has been warning for years that inflation was about to kick up if central banks didn't start raising interest rates. Of course, the exact opposite has happened, inflation rates have fallen and most central banks have been actively trying to increase the inflation rate from levels they view as too low to support growth.

The second point is that the rise in debt in a time of low interest rates is to be expected for two reasons. First, at low interest rates governments, corporations and individuals have more incentive to take on debt. This is not obviously a problem. For example, many corporations have taken advantage of extraordinarily low interest rates to issue long-term bonds. This gives them the opportunity to have cash to work with for decades into the future at very low cost. In these cases, they have the cash on hand and can easily meet their interest obligations.

In a previous post, we pointed out that the Affordable Care Act (ACA) was providing young parents with the option to work part-time by severing the link between employment and health care insurance. Since workers can now obtain insurance through the excha