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Co-organized by the Levy Economics Institute of Bard College and Economia Civile with support from the Ford Foundation Megaron Athens International Conference Centre Athens, Greece November 21–22, 2014 On November 21 and 22, the Levy Economics Institute of Bard College will hold its second annual conference at the Megaron Athens International Conference Centre in Athens, Greece. Co-organized by the Levy Institute and Economia Civile, the conference will focus on the continuing debate surrounding the eurozone’s systemic instability; proposals for banking union; regulation and supervision of financial institutions; monetary, fiscal, and trade policy in Europe, and the spillover effects for the US and the global economy; the impact of austerity policies on US and European markets; and the sustainability of government deficits and debt. To register, click here. Participants George Argitis, Professor of Economics, University of Athens; Scientific Director, Institute of Labour, GSEE Emilios Avgouleas, Chair, International Banking Law and Finance, University of Edinburgh Elga Bartsch, European Chief Economist, Morgan Stanley Marek Belka, Governor, National Bank of Poland Peter Bofinger, Member of the German Council of Economic Experts; Professor of Monetary Policy and International Economics, University of Würzburg; Research Fellow, Centre for Economic Policy Research Carlos da Silva Costa, Governor, Bank of Portugal Stanley Fischer, Vice Chair, US Federal Reserve System* Richard W. Fisher, President and CEO, Federal Reserve Bank of… Read More

People in Scotland are heading to the polls today to decide the question of secession. One of the major policy questions for an independent Scotland is whether the country should attempt to keep the pound. As many have now begun to appreciate — with a little help from the eurozone spectacle — this would likely be a big mistake. In “Euroland’s Original Sin,” Dimitri Papadimitriou and L. Randall Wray explained why a separation between fiscal and monetary sovereignty — when countries do not issue their own currency yet retain responsibility for fiscal policy — is the root of the problem in the eurozone. Any country with this setup will face budgetary constraints to which currency-issuing nations are not subject; the kind of constraints that can generate a sovereign debt crisis if, for instance, the country’s fiscal authority is forced to handle the fallout from a large banking crisis. This is a drum that many people affiliated with the Levy Institute have been banging for some time (well before the eurozone fell into its current mess). Recently, both Paul Krugman and Martin Wolf  have written columns in which they make similar arguments in the context of Scottish independence (and the SNP’s ostensible plan to retain the pound). Philip Pilkington wrote a policy brief a few months ago in which he also argued, with the aid of an analysis of Scotland’s financial balances, that retaining the pound would leave… Read More

The following clips are from the Mission-Oriented Finance for Innovation conference held in London, organized by Mariana Mazzucato as part of a research project with L. Randall Wray on “Financing Innovation.” L. Randall Wray, “Financing the Capital Development of the Economy: A Keynes-Schumpeter-Minsky Synthesis” (slides) [iframe width=”512″ height=”288″ src=”//www.youtube.com/embed/Uo2XzWsniqM?feature=player_detailpage” frameborder=”0″ allowfullscreen></iframe]   Pavlina Tcherneva, “Full Employment, Value Creation and the Public Purpose” (slides) [iframe width=”512″ height=”306″ src=”//www.youtube.com/embed/17RCIeH4enU?start=737″ frameborder=”0″ allowfullscreen></iframe]

  [WolframCDF source=”http://multiplier-effect.org/files/2014/09/alternative-fiscal-policies.cdf” width=”397″ height=”448″ altimage=”https://levyweb.bard.edu/wp-content/uploads/2014/09/alternative-fiscal-policies.png” altimagewidth=”397″ altimageheight=”448″] Here is a new Wolfram CDF, which I have constructed based on a macro model. The assumptions behind the model–other than the exact parameter values–are loosely stated in this list: 1) industries dominated by a handful of firms, rather than perfect competition 2) production technology that requires capital and labor inputs 3) chronic underemployment and less-than-full capacity utilization (percent of capital stock in use at a given time) 4) sovereign money and a policy-determined interest rate 5) two groups of households, only one of which has money to save 6) net investment a function of the profit and capacity utilization rates 7) budget deficits offset by the issuance of treasury bills and sovereign money 8) a government that employs workers to produce free public services 9) a fiscal policy rule with (a) a balanced budget target (labeled “0” in the CDF above) or (b) public production and capacity utilization targets (labeled “1” in the CDF above) 10) nonlinear functions that result in endogenous cycles in this figure for some parameter values and policy functions (try different parameter values with policy rule “1” for example) 11) gradual adjustment of public and private-sector output toward levels indicated by one of the two fiscal policy rules and output demand, respectively. The arrows in the CDF… Read More

It has been pretty clear since at least the spring of this year that the ECB was keen to see the euro weakening. At the time the euro stood near to $1.40. Policymakers in a number of euro area member states issued calls for a more competitive exchange rate, directing barely hidden criticisms in this regard at the ECB. The ECB itself ever more forcefully asserted that international factors, including euro strength, were largely responsible as the bank’s price stability misses got ever crasser. Either through direct references to the euro’s exchange rate expressing discomfort about its strengthening, or by highlighting that the prospective monetary policy stances on either side of the Atlantic were on diverging paths, inviting the markets to bet on the dollar and against the euro, Mr. Draghi applied his magic in talking the euro down. The latest package of ECB easing measures introduced in early June steered the euro overnight rate closer to zero, raising the euro’s attractiveness as a funding currency for carry trades. All along Mr. Draghi has held out the prospect of some kind of quantitative easing even beyond the credit easing measures promised to be unleashed in the fall. As inflation has declined even more and the so-called recovery stalled once again, the beggaring for a weaker euro has brought some visible… Read More

In a recent interview, C. J. Polychroniou asked Dimitri Papadimitriou about the idea that Greece is on the verge of economic recovery: Both the International Monetary Fund (IMF) and the European Commission (EC), in their assessments of the performance of the Greek economy, appear more optimistic on the future of Greece because of the deceleration of the negative growth and a very slight decline of the unemployment rate, even though this was due to using statistics based on the new census that has resulted in demographic adjustments, and not due to growth in employment. An artificial positive sign on Greece that indicates nothing about Greece’s economic condition, yet it was celebrated as a sign of recovery, was the primary budget surplus and “going back to the financial markets” for a new issue of bonds. The budget surplus was achieved at the cost of creating many damaged lives. On the other hand, going back to the markets was purely a public relations exercise, since the interest cost of almost 5 percent of the new bonds was much higher than that paid on the bailout funds. Moreover, the bonds were implicitly guaranteed by the ECB because they could be used as collateral to the ECB for lower-cost bank borrowing. Finally, the demand for these bonds reflected the current state of excess global liquidity available and not… Read More

Dimitri Papadimitriou, after noting the ongoing failure of austerity policies in Greece, shares the results of a recent study led by Rania Antonopoulos on the effects of implementing direct job creation programs of various sizes in the beleaguered country. In one scenario, a 300,000-job program (in the low-to-medium-sized range of the  policy options examined) would have reduced the ranks of the unemployed, once the likely multiplier effects are taken into account, by 30 percent if the program had been implemented in 2012, and GDP would have been increased by 4 percent. And the cost? To run this impressive game-changer, Greece would have to net spend a little over 1 percent of its GDP. That’s a relatively modest stimulus. Other nations, when faced with hard times that didn’t come close to the distress in Greece today, have launched stimulus programs that were far larger. Germany and Brazil invested 4 percent of GDP, the U.S. 5 percent, and China invested 13 percent of GDP. The program could feasibly be funded by a dedicated EU employment fund, the issuance of special-purpose tax-backed zero coupon bonds, or a temporary suspension of sovereign debt interest payments. Even if the government borrowed the funds, the debt-to-GDP ratio, the measure of health most important to European leadership and financial markets, would improve. In case you didn’t catch that: investing in a… Read More

Update: see here for the complete conference schedule. There is still time to register for our upcoming Post Keynesian conference at the University of Missouri-Kansas City. Unfortunately, the program is full so we cannot accept paper proposals. However, there is still space for participants. The registration is very affordable, and includes all dinners and special events, some of which are listed below. For more information regarding registration, contact Avi Baranes: [email protected]   THE 12TH INTERNATIONAL POST KEYNESIAN CONFERENCE Kansas City, Missouri September 25–27, 2014 Cosponsored by the University of Missouri–Kansas City, Journal of Post Keynesian Economics, and Levy Economics Institute of Bard College, with support from the Ford Foundation   List of special events: Sept 24, Wed night 6:30-9:00 p.m.: Pre-Conference Presentation by Professor Bruce Greenwald Described as “the guru to wall street gurus,” Dr. Bruce Greenwald, the Robert Heilbrunn Professorship of Finance and Asset Management at Columbia Business School will kick off the event with a pre-conference lecture on “Value Investing and the Mismeasure of Modern Portfolio Theory,” Wednesday September 24th, 6pm. His lecture is free and is open to the public. Sept 25,Thurs 5:30—7:30 p.m.: Moderated Panel Discussion What Should We Have Learned from the Global Crisis (But Failed To Learn)? 1) Bruce Greenwald 2) Lord Robert Skidelsky, Keynes’s Biographer Moderator: Steve Kraske Sept 26, Fri 4:00—5:15 p.m.: Special Session in Honor… Read More

ElStat, the Greek statistical institute, has recently published a flash estimate for GDP in the second quarter of 2014. In current euro prices, GDP keeps falling by 2.5% against the same quarter of 2013. We already know many will claim this as a success of the austerity plans, since the fall is now slower than in previous quarters … but output is still falling. It is also interesting to note that the flash estimate has also revised GDP in the first quarter of 2014, lowering it by 1% against the previous GDP estimate (see chart). The revision is larger on the current price GDP, against constant price GDP, which implies that the new estimate of the fall in prices is larger than it was. Our last analysis of the Greek economy is available here

What will happen about fiscal policy after the tumultuous events beginning in 2010 or so in Europe and the end of Great-recession-era fiscal stimulus in the US? In the US, Paul Krugman and other economists debate the meaning of the CBO’s recent fiscal report, which, as Krugman points out, clearly show a drastic fall in the US deficit—to less than 3 percent of GDP at last check. This brings us to the main subject of our post: an interesting article that seems to be out in the July issue of the Cambridge Journal of Economics (abstract—rather technical). I happened to run across this new study last week. It may be one of those cases in which an academic article has some implications for macro policy. The authors consider an inflation-targeting fiscal rule: they explore the outcome when government spending is always adjusted upward or downward, depending upon the actual inflation rate, according to an algorithm of sorts set in advance. Before I go on, I should note the disclaimer that a paper of my own featuring fiscal targets also appeared last month in Metroeconomica, an international journal whose chief editors are based in Austria and Italy. I argue in the paper against deficit targets that restrict spending levels without regard to the strength of the economy. This notion that fiscal… Read More

Dimitri Papadimitriou introduces Jörg Bibow’s plan for the creation of a Euro Treasury: It was only a matter of time until the euro area was hit with the kind of crisis from which it is still struggling to recover—this was understood well in advance, by many at the Levy Institute and elsewhere. The problem has always stemmed from a structural weakness in the design of the currency union: member-states gave up control over their own currencies but retained responsibility for fiscal policy. This situation rendered them subject to sovereign debt runs—which occurred when the fallout from a banking crisis fell squarely on euro area national treasuries—of the sort that countries controlling their own currencies do not face. As we have pointed out previously, member-states are in some ways in the same situation as US states, which are forced to cut back when the economy contracts—that is to say, at the very moment when expanded public spending is required to place a floor under the economic collapse. But US states have the benefit of a treasury at the federal level that can spend without the same sovereign debt concerns (which the US federal government did, briefly, before succumbing in 2010 to a misguided notion of “fiscal responsibility,” not to mention congressional obstruction). The eurozone member-states, however, do not have the benefit of… Read More

Opinions heard on the subject of money and the economy often seem uninformed or absurd. For a great book about money and monetary theory, I would strongly recommend Money: The Unauthorized Biography by Felix Martin, a 2014 book from Alfred A. Knopf. This book might just please students of history and finance and others who might already be familiar with one theory or another about the origins of money and ways of managing a monetary system. These and other readers might benefit from a readable account of these theories up to the current time and what they might have to say about the recent financial crisis and its roots in theory and practice. Martin is critical of mainstream finance as well as orthodox macroeconomics, and friendly to points of view related to Hyman Minsky’s financial fragility hypothesis and other truly monetary forms of economics. The latter were introduced to the civilized world by John Maynard Keynes, Bagehot, Wynne Godley, James Tobin, our own Randy Wray, and others sometimes mentioned in this blog. But as the new book shows, their intellectual roots in monetary thought go deeper into the centuries. Martin’s accounts seems fair all around. I think it will be one of those books that offers almost everyone who reads it something surprising and of interest.  Nonetheless, the book is… Read More