Economics

Six Questions with economist Dean Baker

Dean Baker is an economist and the co-director of the Center for Economic and Policy Research based in Washington, D.C. He is the author of several books including his latest entitled, “Getting Back to Full Employment: A Better Bargain for Working People.” In his blog, "Beat the Press," Baker examines the media's coverage of economic issues.

Recently, “The Suit” interviewed Baker asking him six questions that cover a range of topics including the Fed’s plans to raise interest rates, the country’s top rank in income inequality, and how social media has impacted his profession.

According to Federal Reserve Chairwoman, Janet Yellen, the central bank plans to raise short-term interest rates later this year. How does that impact the U.S. economic outlook for 2016?

The big question is whether it is a one-time increase or whether we are looking at a sequence of rate hikes. It is very likely that sometime this fall, we will see the Fed move from the zero interest rates that we've had for six years now, presuming it's just a quarter percentage point. Is the Fed's policy going to be to raise it a quarter point, then see what the economy looks like? And, depending on whether they feel that the economy is strong, they might raise it again on a path to get to two percent or somewhat higher. Or, if the Fed thinks the economy is showing signs of weakness they may just sit back and wait at a quarter point. I think that is still up in the air as to what they are going to do. If they raise a quarter point every meeting or at every other meeting, that is going to mean higher interest rates on mortgages, car loans, credit card debt, what companies pay on borrowing their bonds or bank loans. That will slow the economy. My concern is that there is still a lot of weakness in the labor market. Workers don't have bargaining power and they are not able to get wage gains, and if the Fed is moving to slow the economy in that context, it's not a good story for large segments of the workforce.

As the world’s second largest economy, what is the impact of China’s devalued currency in the U.S?

This will definitely be a factor in slowing growth. For China it is a good move and helps their growth. For the United States it means that we are likely to see a further worsening of our trade situation. We've already seen a growth in our trade deficit and this is likely to make that worse. In the context of an economy that is still growing weekly and still has a long way to grow to make up for the impact of the recession, it's not helpful. My hope would be that the Federal Reserve Board's response would be to put off its plans for rate hikes. I guess will find out soon enough whether they see it that way.

On the subject of income inequality, reports state that: “The United States is now the most unequal of all Western nations. Can you point to the causes?

Over the last 35 years, the bulk of gains of economic growth have gone to those at the top; certainly those in the top ten percent of the income distribution, and to a very disproportionate share of those in the top one percent, and even top tenth of one percent. In 1979–a business cycle peak, which is why I and others often refer to it–ten percent of personal income went to the richest one percent of households. Today it is about 20 percent, so their share of personal income has doubled over that 35 year period. What that means is that even though the economy has grown during that period, and we have had some periods of pretty good growth certainly during the late '90's, most people have seen very little gain from that. The hourly pay of a typical worker is not much higher–maybe four percent to six percent–than what it was in 1979. There is a lot of debate as to why it has occurred and I believe it is a variety of factors. The decline of unionization played a big role, as has trade. A lot of workers that have lost jobs or who have been forced to take pay cuts because they suddenly find themselves in competition with very low paid workers in Mexico, China, or elsewhere. You see that very clearly in the automobile industry. Higher rates of unemployment through the years are also a contributing factor.

What is the outlook for people in the U.S, 55-years-old and older who are approaching retirement age?

It's not a great picture. They don't have traditional pension plans. Those are disappearing rapidly. We have the data of what they have in 401-k's and IRA's and it's not very much. There are very few people that have been able to save much, so these people really have to work. They are ill-prepared for retirement. If you don't have the money at that point, there is not much you can do. Senator Warren and Senator Sanders in his campaign have called for raising social security benefits. To my view that is a very reasonable thing to do.

Student loan debt and increasing costs for a college education are dissuading potential students to pass on higher education and jump into entrepreneurship for “on the job” training. Can you blame them, and if so, what trends do you predict for college enrollment?

Now, women both start and even more complete college at considerably higher rates than men. It seems clear to me that a big part of the story is the fear of debt. Both Senator Sanders and former Secretary Clinton have raised issues about making it easier for people to pay for college, and that's a very good thing and hopefully we will see that as an outcome in the not-too-distant future. I don't know if we've seen that much of an uptick in entrepreneurship. Anecdotally perhaps, but in terms of the data it's just not clear. One thing that will push in that direction is the Affordable Care Act. People don't have to be dependent on their job for their health insurance. Historically, that's been an important impediment to entrepreneurship. People can now get their healthcare through the exchanges and presumably that will lead to more entrepreneurship.

As an economist, has social media impacted that way you work, and has your blog helped you to gain a larger audience?

Social media, to my view, has just been fantastic. We had an establishment in the profession that was completely wrong on a massive event in the economy--the crash of 2008-009. They didn't see it coming, they were totally blindsided by it. A few of us, I'm happy to say I was one, were out there warning about it, and I was able to get some audience because of social media. I got my stuff out in a way that would not have been possible absent my blog and these channels that didn't exist ten or fifteen years ago.

For more information about the Center for Economic and Policy Research, visit: www.cepr.net/
To visit Dean Baker’s blog, “Beat the Press,” visit: www.cepr.net/blogs/beat-the-press/

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