Thom Hartmann: Right now, Dean Baker is with us. Dean Baker, one of my favorite economists, he has just written a lot of really, really brilliant stuff. Macro-economist, co-director of the Center for Economic Policy Research, CEPR.org the website. And Dean, welcome to the show.
Dean Baker: Thanks for having me on.
Thom Hartmann: In the front page of today’s, our local paper anyway, The Oregonian, I’m assuming similar articles were run all across America because it’s an AP story. The headline: New Home Sales Enjoy Big Surge in June". The essence of the story is that home prices, home sales rather, rose in the month of June at the fastest clip in eight years. “The housing market is back and all things are going to be great, and this is the beginning of the end of the recession!” Your thoughts on that?
Dean Baker: Well a few different things. The housing market is almost certainly falling less rapidly than it was. House prices, in many areas, are still over-valued. They’ll probably continue to fall. There was somewhat of an uptick in the market, I think, in April, May, probably due to the very low interest rates, mortgage interest rates were under 5% for part of that period, you may recall. Plus you have the $8000 first time home buyers tax credit. So there were a few things that were pushing the housing market up, and I think it’s a temporary boost. I mean I don’t think we are going to go into another freefall with the housing market, but I think it’s probably not going to continue to rise for now. We still have an enormous excess supply of housing, and house prices remain over-valued. Now in terms of the economy as a whole, we’ve still lost thus far, around six trillion dollars in housing loans. This idea that we’re gonna have this spinning turn around, the economy’s going to be zooming, it’s close to crazy. It’s amazing to me, that you get people pretending to be serious economists saying that.
Thom Hartmann: It seems to me that, and give me a reality check on this, that the, that what’s really going on is that folks within the Obama administration are trying to reinflate the financial services sector bubble. That this is really what Geithner is all about.
Dean Baker: Well it’s hard to know what their intentions are. I mean that may be what they think. It seems a little hair-brained if that’s actually what they’re hoping to do, but I wouldn’t rule that out. It’s very hard to see how the economy gets back on a healthy path from where we are now, barring either (a) a lot more stimulus, which is what I’d like to see, or (b) the longer term story, that you get the dollar down so you can get out trade balanced, or closer to balanced. And neither of those seems to be in the offing at the moment. So how you boost this economy back, again, just to say, just so it's clear as possible for people, it’s really simple arithmetic. We were driven by a housing bubble, people were spending money that they didn’t have, because they thought they had it, because their house price had gone through the roof. Now the house price is coming back down to earth, which in my mind is a good thing. It’s not a happy story, but it had to happen. And they’re not going to go out and spend money they don’t have which is also a good thing. But we need something to make that up and the only thing to make that up at the moment would be another big dose of government stimulus. Alternatively, we can get the dollar down, get our trade in balance, but that will take a longer period of time, and we’re not taking steps towards that direction right now.
Thom Hartmann: Or possibly a national manufacturing policy.
Dean Baker: Well we might want to do that, but that’s not what’s going to get us out of this tomorrow.
Thom Hartmann: No, it wouldn’t. But I think it would over the long-term. You have put forward a suggestion for a national rental program, stimulus would be the wrong word I guess, um… Right to Rent you call it.
Dean Baker: Yeah. Well, this is basically a way to help; people are facing foreclosures and you know, question is what would you do for them? There have been all these various plans put forward, really beginning with the Bush administration. Congress had one last summer, and the Obama administration had one back in February, that involves mortgage modifications, and each one puts up more money, more tax payer dollars, to basically get the banks to make modifications. But even with putting up more and more money, we are still finding that very few people are getting modifications. The foreclosure rate in the last quarter was the most graphed ever. So to my mind, you know, we want to keep people in their homes, how can you do that quickly? And the best way I can think of is how about we just give people the right to stay in their house as renters, pay the market rent, for a substantial period of time, five to ten years, something like that. Gives people housing security. Also, it would give the lenders a real incentive to work out a modification, because you can’t just throw someone out on the street.
Thom Hartmann: Yeah. Any traction for this?
Dean Baker: Actually, it’s getting some traction. I’ve heard from several sources that President Obama himself is actually interested. And last week, or the week before, Charles Schumer, the senator from New York, who is obviously very important in the scheme of things here, and very close to the financial industry also, he actually said he thought it was a very serious proposal and something that they should look at. So, you know, I don’t know. I mean, it was especially surprising to me, coming from Senator Schumer, because he is close to the financial industry, but on the other hand, they’ll take somewhat of a hit on this, but given how much money we’ve given them, they should be willing to take somewhat of a hit.
Thom Hartmann: Yeah. We’re talking with Dean Baker, the Center for Economic Policy Research, CEPR.org, the economist. And writer, and so ahead of the curve on so many things. Dean, just broadly, what’s your take on the worst and best scenarios, over the near term? You know, over the next six months to three years, for the economy, and the consequences of that.
Dean Baker: Well the worst scenario that I can envision, that we continue to spiral downward. I mean, I won’t use the term Great Depression, I don’t think we’re talking about that sort of story, but we could easily manage in the unemployment rate, well I think it’s very likely, across ten percent by the summer, possibly eleven percent by early next year. And we could be sitting there for several years, which is a pretty horrible story for an awful lot of people.
Thom Hartmann: And for the Democratic Party.
Dean Baker: And the Democratic Party. I’d hate to be Barack Obama running for re-election with eleven percent unemployment rate. I’d hate to be in the country, not a pretty picture. But in any case, that’s the bad scenario. The good scenario, you know, if we don’t get another round of stimulus, it’s really hard for me to see the economy bouncing back. We might begin to edge upwards, see the unemployment rate gradually come down, but if we don’t do either another round of stimulus or, as I was saying, something in terms of getting the dollar down, so we could see a big boost to our exports, to a big improvement in our trade situation, it’s hard for me to see a real bounce back. So maybe the unemployment rate, after, again, it’s going to hit ten no matter what, but maybe it will start to edge down, nine percent, eight percent, by 2011, that’s still not a very pretty picture.
Thom Hartmann: Right. More than half of all of our international trade is actually the arbitrage of labor. It’s companies like Hewlett-Packard, setting up a division in China, manufacturing things there, selling them to themselves in the United States, and that gets listed as International trade. We see this right across the board with a whole variety of companies and industries. Why do you, and other economists, continue to support this kind of free trade, rather than saying, you know, there should be tariffs on this to reflect the differences, a whole wide variety of differences, in the two economies?
Dean Baker: Well, at the end of the day, if you actually had free trade, we don’t have free trade, let’s be 100% clear, we do not have free trade.
Thom Hartmann: No, the Chinese have twenty percent average tariffs, and we have two percent average tariffs.
Dean Baker: No no no no no. What we’ve done is we’ve put a limited segment of our economy in competition. Our doctors don’t compete, our lawyers don’t compete, if we could snap our fingers and remove all the barriers, then what you’d see is that a lot of us would benefit, because we would get much cheaper healthcare, we’d get much cheaper legal services, all the things we pay a lot of money for now, because you have professionals that make six, sometimes get as high as six figure salaries. Those pays would go way, way down.
Thom Hartmann: But they’re not producing things of value.
Dean Baker: Well, whether or not they’re producing things of value, we would get their services at much lower costs. I mean, doctors produce things of value, they provide care for us. But when you can get doctors for $100,000 rather than $400,000.
Thom Hartmann: Yeah. Okay. Alrighty, Dean Baker. CEPR, Center for Economic Policy research, dot org, is the website. Dean, thanks for dropping by today.
Dean Baker: Sire. Thanks for having me on.
Thom Hartmann: Good talking with you.
Transcribed by Suzanne Roberts, Portland Psychology Clinic.
