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by Felipe Rezende S&P has issued a negative outlook regarding Brazilian sovereign debt. The S&P’s announcement stated that Over the coming year, failure to advance with (on- and off-budget) fiscal and other policy adjustments could result in a greater-than-expected erosion of Brazil’s financial profile and further erosion of confidence and growth prospects, which could lead to a downgrade. The ratings could stabilize if Brazil’s political certainties and conditions for consistent policy execution–across branches of government to staunch fiscal deterioration–improved. It is our view that these improvements would support a quicker turnaround and could help Brazil exit from the current recession, facilitating improved fiscal out-turn and provide more room to maneuver in the face of economic shocks consistent with a low-investment-grade rating. This warning has been echoed by other credit rating agencies threatening to downgrade Brazilian sovereign debt to junk. But, should anyone trust credit rating agencies? Once more, credit rating agencies are clueless in their assessments. They have specialized in making the wrong assessments regarding sovereign governments’ capacity to pay local-currency debts. They have downgraded sovereign governments like the US, UK, Japan, and now Brazil. Paradoxically, credit rating agencies, which have a track record ranging from arbitrary and imprecise to clueless (here, here, here, here), can still dictate the outcomes of the fiscal policies of sovereign governments. Recent downgrade warnings… Read More

An article from Bloomberg listed nine people who saw the Greek crisis coming years ago. The list may be narrowly confined to Anglo-Saxon economists, but I am quite happy that most of the people listed worked at, or were/are affiliated with, the Levy Institute.   Wynne Godley is the first on the list, given his prescient words in the London Review of Books in October 1992. I am happy I contributed to spreading his thoughts in Italy.   Mat Forstater is a friend I regularly meet at the annual Minsky Summer Seminar at Levy.   Stephanie Kelton, now chief economist on the U.S. Senate Budget Committee, was often at the Minsky Seminar, before her latest appointment.   Stephanie worked with Randy Wray, who is among the most prolific and influential economists at Levy. If so many economists doing research together got it right on Greece (as well as on the 2007 recession) maybe it is not by the power of crystal balls, but because of robust, consistent economic thinking?

The “negotiations” that surrounded the latest Greek deal do not reflect well on the system (such as it is) of EMU governance. And there are no silver linings to be found in the outcome of this process. It is a testament to how far we are from “normal” that even the best-case scenario would have left little room for optimism. Even if Greece had received a sensible package — one involving debt restructuring and a pause in austerity — this would still have meant an intolerably long period of high unemployment. (“Even if the Greek economy were to miraculously bounce back to its precrisis growth rate, it would take almost a decade and a half to return to precrisis employment levels.” p. 3 [pdf]) Moreover, the particulars of the Greek situation aside, it is important to recall how far we are from a resolution of the broader eurozone crisis, which will arguably not end until the fundamentally flawed euro setup — of which the Greek crisis is a symptom — is addressed. In this vein, Pavlina Tcherneva recently spoke to Richard Aldous of The American Interest about the latest Greek deal and the “stateless currency” that is the euro (listen to the podcast here). Tcherneva also touched on an aspect of this broader theme in her recent RT interview. In the clip below she links the “deflationary environment” in the eurozone to the absence of a central fiscal authority:   [iframe width=”427″ height=”255″… Read More

From Athens, Dimitri Papadimitriou spoke with Ian Masters about Tuesday’s emergency meeting in Brussels (attended by Greece’s new finance minister)  and the country’s prospects going forward. Papadimitriou touched on both the economic and political facets of the crisis, and discussed the idea that Greece is being “taught a lesson” as a demonstration to the rest of the eurozone (think Spain and Podemos) that the “wrong type of government” will not be allowed to succeed. Listen/download here.

This week a slow-motion train wreck hit the wall in Europe. Greece’s Syriza government came to power earlier this year on a mandate to keep Greece in the euro but end austerity. It was clear from the start that this project could only work out if Greece’s euro partners finally acknowledged that their austerity policies of the past five years had failed and that it was about time to change course and actually start helping Greece to recover. This was not such an outrageous proposition. Any sane and economically literate person would consider a 25-percent decline in GDP and a youth unemployment rate north of 50 percent as evidence that the utterly brutal troika-imposed austerity experiment had backfired badly. Any European of normal emotional disposition would look at the humanitarian crisis in Greece with horror and shame. Yes, this is really happening in Europe, inside the European Union, in the 21stcentury! There was a time when Europeans appealed to their common destiny and spelled solidarity in capital letters. There was a time when Europe felt strongly that its future place in the world would only be one of peace and prosperity if the nations and peoples of Europe respected each other and joined forces to act constructively and in unison – “united in diversity.” Not so anymore. In Berlin, Germany,… Read More

Pavlina Tcherneva spoke to RT’s Erin Ade yesterday on Greece’s impossible situation: [iframe width=”427″ height=”255″ src=”https://www.youtube.com/embed/1FUcBvaHdik?;start=210″ frameborder=”0″ allowfullscreen></iframe]

“There are red lines in the sand that will not be crossed,” Greek Prime Minister Alexis Tsipras said just weeks ago as he began the long negotiations process with creditors. Some of these lines included no more pension cuts or value-added tax (VAT) increases, and a debt restructuring deal that incorporates renewed economic assistance from Europe. Tsipras has been working to complete the previous government’s austerity commitments, without any guarantee of a meaningful debt reprieve in the future. Yet on Monday, he crossed his own previous red lines and offered a round of fresh austerity measures worth 7.9 billion euros ($8.9 billion) — the largest to date — which in turn prompted mass protests at home. Crafted by the Greeks, an agreement seemed close at hand, but was nevertheless rejected by the International Monetary Fund and Greece’s euro partners at the European Commission and European Central Bank. The fiscal tightening that is currently being discussed is on the order of 2 to 3 percent of gross domestic product (GDP), comparable to that at the peak of the crisis in 2010. If the creditors’ amendments are accepted, here is what the new arrangement will mean for the Greek people, especially those hardest-hit: … Read the rest at Al Jazeera.

In this video segment, Martin Wolf briefly illustrates the UK’s “severe sectoral imbalances” and the dangers of the current government’s budget policy:   [iframe width=”427″ height=”255″ src=”https://www.youtube.com/embed/bVU0LpZrLlk?start=2601″ frameborder=”0″ allowfullscreen></iframe]   Below is what Wolf describes as his favourite chart (discussed at 48:40), which puts the UK’s public debt situation — the ostensible justification for the above-mentioned budget policy — in historical context: “the idea we were in a public debt crisis was a fantasy.”

Senior Scholar James Galbraith on the “reforms” being demanded by creditors (vis. pensions, labor markets, privatization, and the VAT) in the negotiations over Greece’s fate: On our way back from Berlin last Tuesday, Greek Finance Minister Yanis Varoufakis remarked to me that current usage of the word “reform” has its origins in the middle period of the Soviet Union, notably under Khrushchev, when modernizing academics sought to introduce elements of decentralization and market process into a sclerotic planning system. In those years when the American struggle was for rights and some young Europeans still dreamed of revolution, “reform” was not much used in the West. Today, in an odd twist of convergence, it has become the watchword of the ruling class. The word, reform, has now become central to the tug of war between Greece and its creditors. New debt relief might be possible – but only if the Greeks agree to “reforms.” But what reforms and to what end? The press has generally tossed around the word, reform, in the Greek context, as if there were broad agreement on its meaning. The specific reforms demanded by Greece’s creditors today are a peculiar blend. They aim to reduce the state; in this sense they are “market-oriented”. Yet they are the furthest thing from promoting decentralization and diversity. On the contrary they work to destroy local… Read More

    SFC (stock-flow-consistent) economics is about watertight accounting: each model strictly accounts for all financial stocks and flows, making sure, for example, that when a change in someone’s income is assumed, all corresponding changes to other incomes and balance sheet items and their behavioral effects are taken into account. Along the same lines are the laws of physics, as ecological economists have emphasized—though seemingly with little regard for the all-important world of finance, government deficits, MMT, etc. This subfield has represented another group of dissenters in academic economics and the policy world since the 1970s or so. Some early ecological dissenters rejected academic economics altogether, with anti-economist Hazel Henderson, for example, devoting a chapter of one work to a critique of the Post-Keynesian school, which she found far too narrowly focused on economic growth and the distribution of wealth. It is fortunate then that among the papers presented at the Post Keynesian Study Group (PKSG) workshop in the U.K. last month were two that attempted to meld Post-Keynesian economics with ecological economics. In particular, the paper by Yannis Dafermos, Giorgos Galanis, and Maria Nikolaidi echoed themes in SFC modeling, bringing back to mind the map in this news article on land subsidence in California (accompanying image above) which had appeared in the New York Times last weekend and seemed… Read More

It was never going to be easy. That much was known from the outset. Greece’s newly elected government and the country’s creditors started from too far apart to quickly settle on anything that would be easily sellable to their respective constituencies. Greece’s radical left-wing Syriza party came to power on a mandate to end austerity. The Greek people had experienced the worst crisis of any Western country in the postwar era; in the previous five years, their economy had shrunk by one-quarter, and unemployment skyrocketed, while indebtedness exploded accordingly. No other Western nation has come even close to suffering a humanitarian crisis of this dimension for generations. A people in despair – brought to their knees, the Greeks are yearning for a revival of their fortunes. Remarkably, in utter denial of the fact that the brutal austerity experiment imposed on Greece since 2010 had proved outstandingly counterproductive, Greece’s creditors remained set to continue with what to them had become business as usual. They held out sizable fresh austerity, naively expecting the Greeks to shoulder the costs of the administered austerity wreckage alone. Their so-called bailout program assumed that Greece would run primary budget surpluses of 4.5% of gross domestic product as far as the eye could see. No other country had ever done so – but the Greek people were… Read More

Gender and Macroeconomics: Current State of Research and Future Directions A conference organized by the Levy Economics Institute of Bard College with the generous support of The William and Flora Hewlett Foundation BGIA, New York City 108 W. 39 St., Suite 1000A March 9–11, 2016 Call for Papers The goal of this conference is to advance the current framework that integrates gender and unpaid work into macroeconomic analysis and enables the development of gender-aware and equitable economic policies. We are especially interested in topics relevant to Sub-Saharan African countries, including but not limited to: Relationships between economic structure (e.g., the relative importance of the service sector, agriculture, the care economy, trade, etc.), growth regime (wage-led versus investment-led growth), and gender inequities. Mechanisms and the extent to which unpaid work constrains women’s participation in paid work and access to economic opportunities. Implications of women’s labor market participation for their well-being and for intrahousehold allocation of time. Structural, macroeconomic, and microeconomic aspects of women’s employment in the informal sector. Formulation and analysis of gender-aware policy interventions. Frameworks for integrating the role of unpaid work in measures of well-being (e.g., time and income poverty). We invite both theoretical and empirical studies and encourage submissions that employ innovative methodologies and new datasets. We are also interested in papers that provide a comprehensive picture of the… Read More