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In the interview below, James Galbraith provides a behind-the-scenes account of the latest rebuff of Greece’s offer by German Finance Minister Wolfgang Schäuble and talks about what lies ahead (in English and Greek): [iframe width=”448″ height=”252″ src=”https://www.youtube.com/embed/_dI75VJUpZY?feature=player_detailpage” frameborder=”0″ allowfullscreen></iframe]

Most analysis of the Greek debt crisis ignores an important reality: While Greece may be the villain du jour, every eurozone nation is profoundly short of cash. That’s because of a well-acknowledged, but not fully appreciated, flaw at the heart of eurozone financial architecture that converted a historically unprecedented number of nations from issuers of their own currency to users of a common currency. Greece is simply the first country to experience the extreme consequences of that loss of monetary sovereignty. With no independent source of funding, no currency of its own, no central bank to guarantee its government liabilities, it has had to ask others for help. And as a condition for securing that help, Greece has until now been forced to consent to radical austerity policies. As an analogy, consider a United States with a common currency but no Treasury to conduct macroeconomic policy, stabilization or stimulus spending. Imagine also that the Federal Reserve was banned by law from guaranteeing U.S. government debt. And imagine that one state, say, Illinois (think Germany) was the major net exporter, accumulating dollars (euros) while most other states (as is the case in the eurozone) were net importers, thereby bleeding dollars (or euros). Finally, imagine Illinois providing a loan to cash-strapped Georgia (think Greece), dictating that it implement slash-and-burn privatization of public… Read More

As deflation sets in in the economies of Europe and Japan, Robert Kuttner’s words in Debtor’s Prison: The Politics of Austerity versus Possibility—an interesting, readable new volume—complement those of many of the Levy Institute’s scholars. The book argues that during the financial crisis and its aftermath, policymakers continually relied on excessively optimistic projections of economic growth. Hence, stimulus plans adopted by Congress were not up to the task. Meanwhile, monetary policy could do little more than keep the crisis from worsening. As a result, the recovery remained exceedingly weak, and deficits overshot estimates to boot. Kuttner notes that in spite of the end of the recession, US growth rates on the order of 1.7 percent in 2011 and 2.2 percent in 2012 have not been high enough “to blast out of the deflationary trap.” The more recently released annual growth rate of 2.4 percent for 2014, as well as the 2.2 percent final figure for the year before, indicate that he is right when he argues against the political “consensus” that “borrowing money is the last thing the government should do.” In fact, fiscal policy still needs to be made more stimulative, perhaps through increased infrastructure spending. Kuttner decries a situation in which an “austerity lobby” is set to bat down such efforts in Washington. Also notably, Kuttner uses a… Read More

For our Spanish-speaking followers, my Modern Money Primer has just been released in Spanish and is available: Here’s the description of the book: El esfuerzo intelectual que se realizó en el campo de la física tras la aparición de la teoría de la relatividad o del modelo copernicano, no se llevó a cabo en la economía tras la aparición del dinero fíat. Teoría Monetaria Moderna es la plasmación de dicho esfuerzo intelectual. En este libro se expone claramente qué es el dinero en realidad y lo que es más importante se exponen las políticas económicas que deberían llevarse a cabo para llevar a la práctica un programa político coherente con dicha realidad. L. Randall Wray es doctor en economía y profesor en la Universidad de Missouri-Kansas City, así como director de investigaciones del Center for Full Employment and Price Stability. Además, pertenece al Levy Economics Institute of Bard College de Nueva York. I’ll be in Madrid for the book launch. See you there. More details to follow.

Here’s a nice piece: The Workers’ Think Tank: With an eye on the United States and Greece, scholars at the Levy Economics Institute are developing plans to ensure full employment, by Sasha Abramsky, The Nation. As Sasha notes, the Levy Institute has a novel approach to fighting unemployment: JOBS! Hardly anyone ever thinks about that—that the cause of unemployment is lack of jobs. For some reason, virtually all policymakers and economists (including progressives) think that jobs will magically appear. True, some suggest that US unemployment is created because China (et al.) “steals” jobs that are rightfully due to America. Hence, the solution is to steal them back. But why not just create more? Is it really that hard to come up with a list of things that people could usefully do, right here in America? As Sasha writes, things appear to have improved in America, “Yet scratch below the surface and you’ll see that the United States still has a considerable economic problem. While the official unemployment rate has fallen to 5.6 percent, the lowest since 2008, the percentage of the adult population participating in the labor market remains far lower than it was at the start of the recession. At least in part, headline unemployment numbers look respectable because millions of Americans have grown so discouraged about their prospects of finding work… Read More

Yesterday on the floor of the US Senate, Sen. Bernie Sanders delivered a speech featuring Pavlina Tcherneva’s widely-discussed chart, which illustrates how the bottom 90 percent’s share of income gains during economic expansions has shrunk to (literally) less than nothing. Watch (beginning at 26min50s): [iframe width=”461″ height=”351″ src=”//www.c-span.org/video/standalone/?c4525785″ frameborder=”0″ allowfullscreen></iframe]

The recent 40 percent jump in the value of the Swiss Franc will have some effects similar to those of deflation where it seems to be taking hold, including Japan and much of Europe. When a currency increases in value, foreign debts in those currencies become more of a burden. The New York Times brings it home with the story of households in Poland and other European countries who have some foreign debt of their own—mortgages whose payments are suddenly much higher in their own currency, after the Swiss National Bank (the Swiss counterpart to the ECB and the Fed) stopped using foreign-currency operations to peg its currency against the Euro. In fact, the FT reports that mortgages in the Swiss currency make up 37 percent of Polish home loans. The Swiss decision was encouraged by a European Central Bank that is getting ready to push long-term interest rates down further through its own program of quantitative easing (QE). Instead of printing more Francs to buy Euro and other currency, the Swiss National Bank (SNB) allowed the Franc to rise in one big move, abandoning its peg to the depreciating Euro. This move will increase import demand in Switzerland from Poland and other European producers. But as always with a sudden devaluation, foreign-currency debtors suffer from a so-called currency mismatch… Read More

If one were asked to describe the formal economic and political processes that have shaped the condition of the eurozone since the eruption of the euro crisis in late 2009 in a terse and peremptory way, he or she might boldly and truly say this: “German Chancellor Angela Merkel’s policies spearhead the unraveling of the European project while European Central Bank (ECB) President Mario Draghi seeks to keep the (neoliberal) game going.” Indeed, there is little doubt that Germany’s neo-mercantilism is the driving force leading a sizable segment of the eurozone’s economy on the path to stagnation and decline, while the ECB has been trying hard to carry out the role of a traditional central bank by fulfilling its duty as a lender of last resort in order to save the euro and preserve the eurozone. The ECB intervened in the euro crisis in May 2010 by buying up government bonds from Greece (even when a 110 billion euros bailout package had been approved for Greece), Spain, Portugal, and Ireland under its Securities Market Program. By 2011, the ECB was buying up Spanish and Italian bonds by the bucketload in order to force a drop in the bond yields of the two largest peripheral economies of the eurozone. With the end of the crisis in the periphery nowhere in sight,… Read More

With Syriza in the driver’s seat, Greece now has some hope for the end to austerity imposed by Germany and the troika. Here’s a good short piece in the New York Times by C. J. Polychroniou, a research associate and policy fellow at the Levy Economics Institute. As he explains, what Syriza wants is no more—and no less—radical than what the USA did in the 1930s to deal with its Great Depression: “the bulk of Syriza’s economic program for addressing the catastrophic crisis in Greece, which has evolved into a humanitarian crisis, is inspired by President Franklin D. Roosevelt’s New Deal programs.” The official press is reacting in horror! Oh the horror of bringing Democracy and Pinko policies into the Officially Neoliberal EMU regime! C.J. continues: “Interestingly, the task for the implementation of the employment program has been assigned to a colleague of mine at the Levy Institute, Rania Antonopoulos, who has been appointed deputy minister of Labor and Social Solidarity under a Syriza-led government.” Yes, Senior Scholar Rania Antonopoulos is director of the Gender Equality and the Economy program at the Levy Institute, specializing in macro-micro linkages of gender and economics, international competition, and globalization; job guarantee policies and their macroeconomic and employment impacts; social protection and poverty reduction; and the implications of paid and unpaid work on poverty… Read More

After a record-setting 23 straight quarters of shrinking GDP, the Greek economy was less awful in 2014, and an economic recovery of sorts might finally be under way. However, the Levy Institute’s latest projections (which are generated using a stock-flow consistent macroeconomic model tailored to Greece) indicate that Greece still faces years of anemic growth if it continues its current policies. Given the severity of the economic wounds inflicted on that country, a recovery led by market forces alone — that is, without any fiscal stimulus — likely means another decade or more before Greece climbs back to its precrisis levels of output and employment. In their latest report, Dimitri Papadimitriou, Michalis Nikiforos, and Gennaro Zezza observe that median income in Greece fell by 30 percent between 2010 and 2013, real GDP is now down to where it was in 2001, and the largest share of the unemployed have been out of work for a year or more. Carrying on with the status quo is no longer tenable — and looks very likely to be overturned in the next election. Using their stock-flow model for Greece, Papadimitriou, Nikiforos, and Zezza put together projections for three alternative policy scenarios: (1) a “New Deal” program of public investment and direct job creation funded by EU transfers; (2) a suspension of interest payments on… Read More

The ECB is to be congratulated on finally defying its German masters, who have long kept the euro’s guardian of stability in captivity. For a number of years, Germany’s unholy triangle of power over the land of the euro – Berlin, Frankfurt, Karlsruhe – has enforced a diktat that undermined both the euro economy and democracy, causing a deep socioeconomic crisis, the rise of nationalism, and anti-EU sentiments across the continent. At last, the ECB has liberated itself from the scourge of hyperinflation scaremongering that is the self-serving conviction – and declaration of intellectual bankruptcy – of the Germany political elite. It is fitting that the chance for a revival of democratic values and European solidarity is knocking on Athens’ door this weekend. In the markets’ perception, Mario Draghi over-delivered yesterday on his famous “whatever-it-takes” promise made at the height of the euro crisis in the summer of 2012. The euro and bond yields are down, stocks are up, party time is here. Things are going according to plan and everyone financial is in high spirits. The question is what Mario’s QE bazooka will really do beyond the markets – for the real economy, that is. The markets are not worried about that issue at this point. Or perhaps some are thinking ahead like this: if growth stays weak, there… Read More

In the context of last Tuesday’s State of the Union, Pavlina Tcherneva was interviewed by Wall Street Journal Live‘s Sara Murray on the issue of the effectiveness of policies to combat widening income inequality. [iframe width=”475″ height=”288″ src=”http://video-api.wsj.com/api-video/player/iframe.html?guid=84206A51-1034-4E5F-A37D-363CBF7499CD” autoplay=”0″ frameborder=”0″ allowfullscreen></iframe]   In the interview, Tcherneva comments that while some of the progressive taxation policies outlined by the President may be part of the solution, we ought to be focusing more on raising wages at the bottom and middle of the income distribution through the promotion of tight full employment — with direct job creation policies playing a key role. She notes that the President’s proposal to create more infrastructure jobs would help on that front, but that we are still well short of full employment.* Tcherneva memorably captured the increasing severity of the problem — economic expansions that have left the bottom 90 percent further and further behind — with the chart below. She lays out a brief summary of her alternative, “bottom-up” approach to fiscal policy in this one-pager: “Growth for Whom?” *(Note that Tcherneva’s concept of tight full employment would ultimately bring the unemployment rate below what is conventionally understood as “full employment.” With a maximal job guarantee policy, anyone ready and willing to work would have access to a paid job in the public, nonprofit, or… Read More