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Otmar Issing can look back on a long and consequential central banking career. Even in his retirement he is still living the part, evaluating whether his successors at the European Central Bank are pursuing stability-oriented monetary policies to his liking. His most recent critique (“‘Living in a fantasy’: euro’s founding father rebukes ECB over inflation response” https://www.ft.com/content/145b6795-2d21-48c6-984b-4b05d121ba16) shows him on the wrong side of events and debates about sound monetary policy, again. Mr. Issing spent an eight-year stint at the Bundesbank as chief economist of Germany’s legendary central bank and retired guardian of European monetary affairs. Misled by M3 overshots that were the result of the Buba’s own rate hikes inverting the yield curve, Buba kept on hiking until it crashed newly unified Germany, and the ERM too. Recession-caused fiscal troubles then saw Mr. Issing’s Buba cheerleading pressures for fiscal austerity. These involved hikes in indirect taxes and administered prices that were distorting headline inflation upwards and delaying Buba easing (see https://www.levyinstitute.org/publications/on-the-burdenr-of-german-unification). The ensuing malaise in Europe was so pronounced that it almost prevented Mr. Issing from becoming a founding father of the euro. But the euro got lucky, courtesy of a last-minute push from America’s dot-com boom. And so Mr. Issing got his chance as the ECB’s influential first chief economist. Unfortunately, lessons from Germany’s debacle ten years earlier… Read More

Omicron is a reminder that the COVID-19 pandemic is still not over. This ongoing health crisis should act as a trigger for greater investments in public health in India. Public spending on health by the union government is still below 1 percent of GDP, though the estimate has increased from 0.2 percent of GDP in 2020–21 (revised estimates) to 0.4 percent of GDP in 2021–22 (budget estimates). Strengthening investments in the healthcare sector is crucial at this juncture, as another lockdown can accentuate the current humanitarian crisis and deepen economic disruptions. In India, the lockdown was announced on March 24, 2020 by invoking the National Disaster Management Act of 2005. As per the Seventh Schedule of the Constitution, healthcare is addressed at the state-level while interstate migration and interstate quarantine are in the Union List (entries 28 and 81), that is, responsibilities of the central government. While the lockdown helped to flatten the curve, an almost irreversible economic disruption resulted in many sectors. The National Statistics Office released the advance GDP estimates January 7, 2022, revealing that in the financial year 2021–22 (FY 22), India’s GDP growth rate will be 9.2 percent. In FY 21 it was 7.3 percent. However, this growth estimate is lower than that published by Reserve Bank of India (RBI) in December 2021, which was 9.5 percent…. Read More

The Levy Economics Institute of Bard College is pleased to announce it will be holding a summer seminar June 11–18, 2022. Through lectures, hands-on workshops, and breakout groups, the seminar will provide an opportunity to engage with the theory and policy of Modern Money Theory (MMT) and the work of Institute Distinguished Scholars Hyman Minsky and Wynne Godley. Intended for those who are introducing themselves to these approaches as well as those who are looking to deepen their understanding, the seminar will be of particular interest to graduate students, recent graduates, and those at the beginning of their academic or professional careers. Topics will include the history and theory of money, central bank and treasury operations, inequality and austerity, the job guarantee, MMT and developing economies, current debates over inflation, the Green New Deal, the stock-flow consistent approach to macroeconomic analysis and modeling, financial innovation and the financialization of the economy, cryptocurrency and central bank digital currencies, and more. The teaching staff will include well-known economists, legal scholars, monetary historians, writers, and financial market professionals working in the relevant topic areas. The seminar will be limited to 60 attendees. Admission will include provision of room and board on the Bard College campus. The fee for the seminar will be $3,000; a fee waiver is available for all those in need…. Read More

If the global financial crisis (GFC) of the mid-to-late 2000s and the COVID crisis of the past couple of years have taught us anything, it is that Uncle Sam cannot run out of money. During the GFC, the Federal Reserve lent and spent over $29 trillion to bail out the world’s financial system,[1] and then trillions more in various rounds of “unconventional” monetary policy known as quantitative easing.[2] During the COVID crisis, the Treasury has (so far) cut checks totaling approximately $5 trillion, often dubbed stimulus. Since the Fed is the Treasury’s bank, all of these payments ran through it—with the Fed clearing the checks by crediting private bank reserves.[3] As former Chairman Ben Bernanke explained to Congress, the Fed uses computers and keystrokes that are limited only by Congress’s willingness to budget for Treasury spending, and the Fed’s willingness to buy assets or lend against them[4]—perhaps to infinity and beyond. Let’s put both affordability and solvency concerns to rest: the question is never whether Uncle Sam can spend more, but should he spend more.[5] If the Treasury spends more than received in tax payments over the course of a year, we call that a deficit. Under current operating procedures adopted by the Fed and Treasury, new issues of Treasury debt over the course of the year will be more-or-less… Read More

Lekha Chakraborty (Professor, NIPFP, and Member of Governing Board, International Institute of Public Finance, Munich) Climate change is about risks and uncertainty. How well the monetary policy stance can incorporate such risks and uncertainties is questioned by many economists. There is a broad consensus among economists that fiscal policy is capable of dealing with the climate crisis but monetary policy is not, due to the latter’s lack of tools. It is widely acknowledged that public finance commitments are essential to lowering carbon emissions. Public finance interventions—through taxation to reduce carbon prints or through public expenditure to support green energy and technology—have proven to be effective in reducing emissions. However, such empirical evidence is absent in the case of monetary policy. India was the first to integrate a climate change criterion in its inter-governmental fiscal transfers. The macroeconomic policy channel of these “ecological fiscal transfers” works through the prioritization of public expenditure on climate change commitments by subnational governments, to make a “just transition” towards a sustainable climate-resilient economy.

November 1–November 2, 2021 The onset of the COVID-19 pandemic and the subsequent losses in lives and livelihoods are looming over Sub-Saharan Africa. As in the rest of the world, the pandemic has exposed the enduring inequalities and injustices in stark terms, including those based on gender and those intersecting with gender, such as economic deprivation. There is a growing realization that collective action to overcome the long-term and ongoing challenges requires greater engagements between researchers, civil society organizations, and policymakers. Accordingly, we are organizing a two-day virtual workshop that will feature research and policy discussions that address economic aspects of gender inequalities in Sub-Saharan Africa from various angles. Part of the research to be presented is work conducted by scholars at the Levy Economics Institute of Bard College in collaboration with scholars from Sub-Saharan Africa with the generous support of the Hewlett Foundation. The workshop will also highlight recent research by leading scholars in the region. The presentation of research will be accompanied by a free-wheeling exchange of ideas between scholars and participants. A policy roundtable with a select group of prominent members of the academic, policymaking, and civil society communities will conclude the workshop. The workshop will be held between 13:00 and 15:30 (GMT) on November 1, 2021 and between 13:00 and 16:00 (GMT) on November 2, 2021…. Read More

Research Associate Lekha Chakraborty, recently chosen to join the governing council of the International Institute for Public Finance, was interviewed for an Onmanorama podcast on the question of gender budgeting and the advantages of centering care work. Chakraborty argues policymakers in India should prioritize integrating a comprehensive care economy policy package in macroeconomic management, and laments the separation (disciplinary and otherwise) between questions of gender and of macroeconomics. In the context of the ongoing pandemic, she advocates sending monthly cash transfers to women engaged in otherwise unpaid and undervalued household work. [iframe width=”450″ height=”253″ src=”https://www.youtube.com/embed/cG-C4ECX11E” title=”YouTube video player” frameborder=”0″ allow=”accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture” allowfullscreen></iframe]

After pausing last spring due to the pandemic, the Minsky Conference is back. Join us next week, May 5-6. It would be an understatement to say this has been an eventful year in world economies and financial markets. It is also a period in which we are seeing some signs of change in economic thought and policymaking. The conference has always been an important occasion for contact between heterodox and more mainstream economics; this year, that could be a particularly interesting dynamic to watch. The full program is below. Register here for the online event.   Wednesday, May 5, 2021 9:15–9:30 a.m. Welcome and Introduction Dimitri Papadimitriou, President, Levy Institute 9:30–10:30 a.m. Speaker Charles Evans, President and CEO, Federal Reserve Bank of Chicago MODERATOR: Binyamin Appelbaum, Editorial Board Member, New York Times 10:30 a.m.–12:00 p.m. Session 1. PROSPECTS FOR REFORMING THE FINANCIAL SYSTEM MODERATOR: Robert Huebscher, Advisor Perspectives SPEAKERS: Charles Goodhart, Emeritus Professor of Banking and Finance, London School of Economics Paolo Savona, Chairman, CONSOB Jan Kregel, Director of Research, Levy Institute 12:00–1:00 p.m. Speaker Robert Barbera, Director, J.H.U. Center for Financial Economics; Economics Department Fellow, The Johns Hopkins University 1:00–2:30 p.m. Session 2. WHAT’S AHEAD FOR THE US ECONOMY MODERATOR: Michael Stephens, Levy Institute SPEAKERS: Lakshman Achuthan, Cofounder, Economic Cycle Research Institute Michalis Nikiforos, Research Scholar, Levy Institute; Professor University of Geneva Frank Veneroso, President, Veneroso Associates, LLC 2:30–4:00 p.m. Session 3. ECONOMIC POLICY FOR THE NEW… Read More

Senior Scholar Rania Antonopoulos recently participated in a webinar for the European Trade Union Institute, during which she discussed the rationale behind and experience with the implementation of the “Kinofelis” direct job creation program—a limited job guarantee for Greece. Watch her presentation below (accompanying slides are here). The Levy Institute’s previous Strategic Analysis for Greece found that supplementing EU Recovery Funds with a more expansive job guarantee program (employing up to 300,000 people by 2022Q1) would help lift the Greek economy closer to its pre-pandemic growth trend. [youtube https://www.youtube.com/watch?v=RBhzK2M-hWU&w=504&h=284#t=15m2s]

In a February 18th front page article in the business section of the New York Times, Eduardo Porter surveys the potential for a job guarantee program. After starting with the caveat issued by Republican politicians—why trust your life choices to bureaucrats?—the piece goes on to present opinions of various experts on employment programs. It is noteworthy that even among the specialists, not one has ever been involved in actual fieldwork or research in the various experiments with job guarantee programs. In an era in which we are asked to respond to facts, none of those consulted on the implementation of job programs has ever provided statistical analysis of results, nor studied the communities where the programs were actually successful in achieving their stated goals—which in general are much wider than the suggestions that the programs have not contributed significantly to lessen economic recessions, or that they are too expensive and that they might produce “useless make-work.” Indeed, there are no references to the many existing experiments. Consider Argentina, where there is ample evidence that the Head of Households Program (HHP) played an important role in alleviating the recession and actually had a significant impact on the recovery of the economy after the 2001-2 economic, political, and social collapse. In situ fieldwork based on participant interviews conducted in urban irregular settlements… Read More

It seems the IMF aviary has turned on the hawks and embraced the deficit owls. Has the IMF joined the policy shift to MMT? Yes, in part, but it appears to be a viral form of MMT: according to Vitor Gaspar, the IMF’s head of fiscal policy, “Nations’ first priority should be vaccination, while the reduction of public debt is now far down the list of urgent actions… the main role of fiscal policy in the immediate future should be to be stimulative, to help restore economic growth, reduce unemployment and beat Covid-19.” This is a big shift in IMF policy advice on post-crisis response, Chris Giles notes: “After the financial crisis a decade ago the fund recommended that countries should reduce their debt levels.” But the pervasive pandemic is not the real reason for the change in feathered preferences: “Mr Gaspar said the IMF’s change of heart towards a relaxed approach to high levels of public debt stemmed from central banks’ reduction in interest rates. The drop in market funding costs means that, although advanced economies’ public debt has doubled as a share of GDP from 60 per cent to 120 per cent over the past 30 years, interest payments have halved from 4 per cent of GDP to 2 per cent.” Or perhaps the IMF is following Keynes’s… Read More

The core philosophy of this Japanese defensive art used by the weak against the stronger Samurai is to mobilize the opponent’s greater force to your own advantage. Many have criticized the run-up in the quotation of the GameStop shares as a violation of market principles or regulations. Far from it, it simply represents the fact that day traders may be dumb money, but they have understood how to apply jiu-jitsu. If the intent was simply to profit from trading the stock, no retail trader could ever compete with the institutions. To attempt to directly manipulate the price of the stock through outright purchase or sale would be impossible. The strategy that was used was simply to recognize, as Softbank had done earlier in the year, the nature of market hedging. There is a myth that hedging can eliminate risk. This almost never happens, unless there is a perfect match between risk of gain and risk of loss. In all other cases, hedging requires compensation to transfer the risk—to those more able to bear the risk, as Greenspan would say. After the 2008 financial crisis, we learned that ability had nothing to do with it; it was who was willing to bear the loss, and most were not able and required the government to bail them out. So in the run-up… Read More