Dean Baker
The Huffington Post, April 18, 2012

Dean Baker
The Hankyoreh (South Korea), April 2012

Dean Baker
Al Jazeera English, 4 de abril, 2012
En Inglés

It seems that Mitt Romney and his team are revving up for another big battle over the stimulus. They want to tell the story that the economy would be off to the races if only President Obama had not tried to boost growth with his stimulus package of spending increases and tax cuts. In their story all we have to do is cut wasteful government spending.

At this point, we might think the game was over. There has been extensive research on the impact of the stimulus on the economy by independent analysts.  The vast majority of it is consistent with the Obama administration's predictions that the stimulus created between 2-3 million jobs. (Of course we needed 12-13 million, but that is another story.)

For example, the Congressional Budget Office came up with an estimate along these lines in 2010. Using an entirely different methodology, last year two Dartmouth professors found job estimates that were consistent with the 2-3 million jobs number.

But Mitt Romney and his crew apparently want us to believe that we would be better off if the government had just stood back and let the economy continue to sink. Its main support for this claim is a series of studies by Harvard professor Alberto Alesina. These papers purport to show that governments that reduced their budget deficits had more rapid growth. Alesina found that the boost to growth from deficit reduction was strongest when the deficit reduction was accomplished by reducing spending rather than raising taxes. Alesina’s takeaway is that cutting government spending is the quickest route to recovery.

There are two important problems with Alesina’s work. First, he did not distinguish clearly between deficit reduction that was the result of economic growth and deficit reduction that was the result of deliberate policy. Second, he did not distinguish between deficit reduction that was carried through when an economy was operating near its potential and deficit reduction that took place when an economy was badly depressed, as is the case with the U.S. economy at present.

Paul Krugman has kicked off a debate in the blogosphere about the historic decline in inequality in Latin America over the last decade and the role of left-of-center governments.  This is a topic I have looked at in quite some detail and so naturally welcome any debate.  Citing a paper by Giovanni Andrea Cornia, Krugman tells us that:

"The region moved left politically circa 2000, partially turning its back on the Washington Consensus — and there has been a dramatic reversal in inequality trends."

It is clear that on average inequality has fallen in Latin America.  Krugman links to a graph from Cornia that shows average regional inequality, as measured by the Gini coefficient, decreasing during the last decade.

Well, as it turns out, Juan Carlos Hidalgo from the Cato Institute is none too pleased with Krugman’s analysis, claiming he has a “tortuous relationship with the facts.” 

Hidalgo starts off by asking if we can “assign the recent decline in inequality in Latin America to any specific ideology?” and cites a recent paper that argues “there was no strict correspondence between declining inequality and either the ideological profile of national governments or any specific redistributive initiatives.”

Yes, inequality has decreased in most Latin American countries, not just countries with left-of-center governments.  But what matters isn’t if centrist or rightwing governments haven’t reduced inequality while left-of-center governments have.  The relevant question is: have left-of-center countries reduced inequality more than the rest?

Dean Baker
Al Jazeera English, April 18, 2012

Mark WeisbrotThe Guardian Unlimited, April 18, 2012En Español | In Italiano | Em Português

April 2012, Dean Baker

"The cooperation with Venezuela is the most important in Haiti right now in terms of impact, direct impact," President Martelly told the Associated Press in December. The most important channel for this cooperation is the PetroCaribe agreement, which most Caribbean countries are currently a part of and which the government of René Préval joined in 2006. Through the agreement Venezuela finances part of Haiti’s fuel import bill, allowing for a portion to be paid up front and the remainder to be used as a loan with a long maturity and low rates. The funds made available through PetroCaribe are, as the International Monetary Fund (IMF) explains, “under the control of the central government”. This makes PetroCaribe assistance drastically different from aid provided by traditional donors, which by and large bypasses the government. In fact, traditional budget support to the Haitian state was lower last year than the year before the earthquake.

Over the duration of the agreement, which began in 2008, Venezuela has provided nearly $1.9 billion (PDF) in petroleum products, with over $800 million being paid up front. Following the earthquake, Venezuela cancelled some $400 million of PetroCaribe debt, yet with large disbursements since the earthquake Haiti still owes some $580 million. While significant resources have already been spent, Haiti maintains a balance of $350 million in PetroCaribe funds.

The government of Haiti has predictably turned to one of its only pools of un-restricted funds to finance reconstruction and development programs. The IMF notes that the GOH has “committed to only use PetroCaribe resources to finance growth-enhancing investment projects.” The spending with PetroCaribe funds represents a significant portion of capital spending undertaken by the central government. In the latest IMF review of Haiti’s economy, the IMF estimates that PetroCaribe funds will account for nearly half of domestically-financed capital spending in 2012, amounting to 4.7 percent of GDP. While foreign financed capital spending still overshadows this (it is projected to be 14.9 percent of GDP in 2012), the PetroCaribe funds are unique in that they are directly under the control of the government.

The reconstruction projects financed with PetroCaribe funds have come under scrutiny recently as allegations emerged that Martelly received some $2.5 million in kickbacks related to contracts awarded by the Haitian government. Yet it is also true that the PetroCaribe funds represent some of the largest infrastructure related investments in Haiti since the earthquake. Overall, $380 million has been awarded to firms for infrastructure-related work (PDF) and the most recent data shows that over 73 percent has already been spent. For comparison, the Government Accountability Office found in November that of $412 million in infrastructure projects approved by USAID, only 0.8 percent had been disbursed. It is no wonder then that Martelly told the AP that Venezuela aid stacked up favorably with US assistance, which often takes more time:

"Sometimes for a simple project, it might take too long for the project to happen," he said. "If you're asking me which one flows better, which one is easier, I'll tell you Venezuela."

Amazingly, despite the clear benefits of the PetroCaribe agreement for Haiti, a steady supply of oil, concessional financing, unrestricted funds, it almost never happened.

Mark WeisbrotThe Guardian Unlimited/Marianne2, 10 Avril, 2012 En Anglais

I enjoy teaching, I used to do it for a living. So I am happy to take on the job of teaching David Brooks about the budget so that he does not consistently embarrass himself in his NYT columns.

Today he is trying to give us a balanced assessment of President Obama's case for his budget. He just puts the facts on the table. Brooks tells us, "I’m not going to pass my own comprehensive judgment on this here."

The problem is that the facts are not quite as Brooks lays them out. To start with, Brooks seems more interested in scaring people than informing them. He tells readers:

"I’ve based that argument on certain facts. President Obama’s 2013 budget will add roughly $6 trillion to the nation’s debt over the next 10 years. By 2022, Americans will be spending $915 billion on interest payments on the debt alone, a number far larger than that year’s entire defense budget."

That sounds really really bad. After all, $915 billion is a really big number, can we afford that? The way that you look to answer that question is by comparing the spending to the projected size of the economy. GDP is projected to be $24.7 trillion in 2022. The projected interest spending in that year is then 3.7 percent of GDP. That is somewhat higher than 3.3 percent of GDP we hit in 1991, but not hugely so.

Furthermore, if the Federal Reserve Board continued to hold the $3 trillion in assets it has purchased to boost the economy, much of this interest would be refunded to the Treasury. Currently, the Fed is refunding about $80 billion a year to the Treasury, or a bit more than 0.5 percent of GDP. Its interest earnings would be projected to rise when interest rates go higher. (The Fed could raise reserve requirements to offset the potential inflationary impact of the additional reserves in the banking system.)

[ CORRECTION: Brooks is right here. He said "that" year, not "last" year.] Comparing projected interest payments in 2022 to last year's defense spending is a joke. Serious people do not compare nominal sums that are more than a decade apart. This is because serious people have heard of inflation. Hey, we're spending 8 times as much on the military today as we did at the height of World War II. This is true using nominal dollars, but obviously an absurd comparison.]

Dean Baker
Truthout, April 16, 2012