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Jörg Bibow was recently interviewed by CJ Polychroniou in Kyriakatiki Eleftherotypia (Κυριακάτικη Ελευθεροτυπία).*  An English transcript of the interview follows: Since Mario Draghi’s announcement last fall that the ECB will intervene with the purchase of government bonds, the euro crisis is in a state of relative calm. Is it over? And if not, what developments could make the crisis resurface? Yes, Mr. Draghi’s promise of ECB support for government bond markets seems to have calmed fears of an imminent euro breakup, at least for the time being. That does not mean the euro crisis is over though. Not at all, as the underlying problems remain largely unresolved. Liquidity can buy time but it cannot solve the imbalances inside the euro area and related debt overhangs that are the deeper cause behind the euro crisis. It is important in this context that the ECB promise is for conditional support. As liquidity support comes along with mindless austerity and asymmetric adjustment pressures imposed on debtor countries, debt problems are bound to get worse rather than better. Markets are currently in complacency mode about these prospects. The crisis may resurface at any time. In several of your studies, you point to Germany as the main culprit behind the euro crisis.  Why is that? Yes, Germany is the culprit. Being the largest economy in… Read More

Here’s yet another way of representing the fact that to the extent the United States has a “spending problem,” it is a problem of too little spending.  From a speech by Janet Yellen, Vice Chair of the Federal Reserve: … discretionary fiscal policy hasn’t been much of a tailwind during this recovery. In the year following the end of the recession, discretionary fiscal policy at the federal, state, and local levels boosted growth at roughly the same pace as in past recoveries, as exhibit 3 [below] indicates. But instead of contributing to growth thereafter, discretionary fiscal policy this time has actually acted to restrain the recovery. State and local governments were cutting spending and, in some cases, raising taxes for much of this period to deal with revenue shortfalls. At the federal level, policymakers have reduced purchases of goods and services, allowed stimulus-related spending to decline, and have put in place further policy actions to reduce deficits. On this issue, the conventional wisdom is so far from the truth that it’s difficult to figure out how one might begin persuading anyone who isn’t acquainted with the data (lest one appear insane).  It would be one thing if current fiscal policy were merely in line with past expansionary practices in the wake of recessions (even arguing that much will get you some… Read More

Salim B. “Sandy” Lewis in conversation with Matt Taibbi Tuesday, February 19, 7 pm Bard College, Annandale-on-Hudson, NY Room 103, Reem-Kayden Science Building Lewis will explore “Why Fixing Wall Street and the Economy Is Critical to the World” in a discussion with Matt Taibbi, the renowned political and financial columnist for Rolling Stone. The discussion will be moderated by Roger Berkowitz, academic director of the Hannah Arendt Center for Politics and Humanities at Bard. Following the talk, Lewis will take questions. Some of Lewis’s criticisms of Wall Street appeared in an Op-Ed essay in the New York Times.  He has been featured as well in a Times profile in 2012.

Europe’s currency union is built on two key principles. The first is that the central bank must be independent of political control and its policies squarely focused on maintaining price stability. The second is that fiscal policy must be disciplined and never threaten price stability. Price stability, in turn, is the foundation for economic stability and prosperity. These principles and ideas are of German origin. And they distill the gist of Germany’s post WW2 economic history, an economic success story featuring both stability and growth. The German success story was meant to be replicated at the European level. The European Central Bank copycatted the Bundesbank. As Germany’s constitution featured a “golden rule” limiting public budget deficits to public investment, a fiscal pact was to safeguard the ECB by decreeing budget deficits in excess of three percent of GDP as excessive and prescribing their speedy reduction. That pact was named the “Stability and Growth Pact” reflecting the German belief – based on historical experience – that fiscal and monetary discipline go along with both stability and growth. Things have not played out according to script for Europe. … Continue reading at http://www.social-europe.eu/2013/02/europes-perilous-quest-for-stability/ In Spanish: http://elpais.com/elpais/2013/02/07/opinion/1360258562_755195.html

Is the era of the “grand bargain” over?  That was the implication of a number of news stories that pre-framed last night’s speech.  “When President Obama delivers his State of the Union address Tuesday evening,” wrote the Washington Post‘s Lori Montgomery, “here’s one thing you won’t hear: an ambitious new plan to rein in the national debt. In recent weeks, the White House has pressed the message that, if policymakers can agree on a strategy for replacing across-the-board spending cuts set to hit next month, Obama will pretty much have achieved what he has called ‘our ultimate goal’ of halting the rapid rise in government borrowing.” There was indeed a small change in emphasis in this year’s SOTU.  The president began by highlighting how much deficit reduction had already been achieved ($2.5 trillion, not including the ACA) and downplayed how much remains to be done to stabilize the debt.  He then spent the bulk of his address on job creation and other national priorities that have been languishing for years, including proposals to raise the minimum wage, invest in infrastructure repairs, create wider access to quality pre-kindergarten, reduce carbon emissions, and so on.  The key line, rhetorically, was this one:  “deficit reduction alone is not an economic plan.” The deficit-reduction industry isn’t going to close up shop after this speech.  You’ll… Read More

Are your student advisees looking for an opportunity to advance their career goals with a graduate degree? The Levy Economics Institute Master of Science in Economic Theory and Policy can help them prepare themselves for responsible positions in government, business, education and research. The M.S. in Economic Theory and Policy degree is designed to meet the preprofessional needs of undergraduates in economics and related fields. The terminal nature of the M.S. degree provides a strong signal that the graduate is pursuing career-stage posts and not simply transitional employment. All students participate in a graduate research assistantship at the Levy Economics Institute of Bard College—an economic policy think tank with more than 25 years of public policy research experience. With the “deadline season” for graduate school applications approaching, please advise your students to consider our program. Click here to find out more. Application deadline: March 30, 2013 Sincerely, Office of the Director Master of Science in Economic Theory and Policy Levy Economics Institute of Bard College 845-758-7776 [email protected]

Over the last few years, there have been significant changes to the federal government’s finances—changes that have had barely any perceptible impact on the budget debate.  The federal deficit has been shrinking (from 2009 to 2012) at a faster rate than in any other period since 1937.  Most Americans have never lived through more rapid budget tightening.  A lot of this has to do with the fact that the budget deficit is automatically stabilizing as the economy recovers, just as it automatically grew due to the Great Recession, but it’s not all automatic changes.  You wouldn’t know it from the Sunday news shows, but policy changes over the last two years alone have resulted in roughly $2.4 trillion in scheduled deficit reduction—and that doesn’t even include the budget savings from the Affordable Care Act (“Obamacare”). These facts have had a difficult time breaking through to the public consciousness.  Last week, the genuinely level-headed Michael Kinsley wrote an article in Bloomberg that proceeded on the basis of the (common) assumption that while we’ve had “plenty of stimulus,” the political system is incapable of delivering significant budget tightening: We’ve all done a great job of barely cutting spending, barely raising taxes, not reforming entitlements, and all told spending about a trillion dollars a year more than we bring in. Plenty of stimulus…… Read More

Part 2 of a special event on Greece and the eurozone crisis, featuring top leadership of the official opposition party in Greece, SYRIZA: (1:30) Yiannis Milios, Economic Advisor, SYRIZA, Member of the Political Secretariat of Synaspismos and Professor of Political Economy, National Technical University of Athens (10:15) Rania Antonopolous, Senior Scholar and Director, Gender Equality and the Economy Program, Levy Economics Institute of Bard College (18:55) Helen Ginsburg, Professor Emeritus of Economics, Brooklyn College, City University of New York and Co-Founder, National Jobs for All Coalition (29:00) Mark Weisbrot, Co-Director, Center for Economic and Policy Research (37:15) Panelist Q&A (101:30) Q&A with Alexis Tsipras, Leader of the Opposition in Greek Parliament, SYRIZA For more background on some of the issues covered by Rania Antonopoulos’ discussion of direct social service job creation programs, see “Direct Job Creation for Turbulent Times in Greece” (Antonopoulos, Papadimitriou, and Toay). The Levy Institute also released an interim report on the Greek economy that uses the Institute’s macroeconomic model (inspired by Wynne Godley) to identify the causes and consequences of the current Greek recession and to assess the likely results of the policy status quo: “Current Prospects for the Greek Economy” (Papadimitriou, Zezza, and Duwicquet). A final report will be issued shortly.

A conference organized by the Levy Economics Institute of Bard College with support from the Ford Foundation. April 17–19, 2013 Ford Foundation 320 East 43 Street, New York City In 2008–09, the world experienced its worst financial and economic crisis since the Great Depression. Global employment and output collapsed, and an estimated 84 million people fell into extreme poverty. Given the fragility and uneven progress of the economic recovery, social conditions are expected to improve only slowly. Meanwhile, austerity measures in response to high government debt in some of the advanced economies are making the recovery even more uncertain. It’s time to put global finance back in its proper place as a tool to achieving sustainable development. This means substantial downsizing, careful reregulation, universal social protections, and an active, permanent employment-creation program. Therefore, the 2013 Minsky Conference will address both financial reform and poverty in the context of Minsky’s work on financial instability and his proposal for a public job guarantee. Panels will focus on the design of a new, more robust, and stable financial architecture; fiscal austerity and the sustainability of the US economic recovery; central bank independence and financial reform; the larger implications of the eurozone debt crisis for the global economic system; improving governance of the social safety net; the institutional shape of the future financial system;… Read More

Since the outbreak of the global financial crisis and recession, we’ve seen some renewed interest (and angst) regarding the role of the central bank and of treasury-central bank cooperation.  (The most recent example comes out of Japan, in which Japanese PM Shinzo Abe has been pushing for the Bank of Japan to accommodate his relatively ambitious fiscal stimulus program.) In the US context, many of these issues bring us back to the 1951 Treasury-Federal Reserve Accord, establishing the parameters of the Fed’s independence.  In a new working paper and one-pager, Thorvald Grung Moe of Norges Bank (and a research associate at the Levy Institute) offers an alternative reading of the history and significance of the ’51 Accord—and of central bank independence in general—through an analysis of the career and views of Fed Chairman Marriner Eccles, and of his supporting role in the events leading up to the Accord in particular. Moe stresses that Eccles’ support for the Accord has to be understood in the inflationary context of the time, and that a portrait of Eccles’ views that doesn’t also include his 1930s-era support for deficit financing and accommodative monetary policy is seriously incomplete.  “The history of the Accord,” Moe writes, “should teach central bankers that independence can be crucial for fighting inflation, but also encourage them to be more supportive… Read More

Below is the video from the first part of last week’s event at Columbia University that featured key leadership figures from the official Greek opposition party (SYRIZA). (3:29) Alexis Tsipras, Leader of the Opposition in Greek Parliament, Leader of SYRIZA, and President of Synaspismós. (46:40) Panel discussion, featuring Rena Dourou, Member of Greek Parliament (SYRIZA); Critic of the Opposition for the Foreign Relations and European Issues, Yiannis Milios, Economic Advisor, SYRIZA, Member of the Political Secretariat of Synaspismos and Professor of Political Economy, National Technical University of Athens, Mathew Forstater, Professor of Economics and Director, Center for Full Employment and Price Security, University of Missouri – Kansas City, and Research Associate, Levy Economics Institute, Katharina Pistor, Professor of Law and Director, Center for Global Legal Transformation, Columbia Law School, and Thomas Ferguson Director of Research Programs, the Institute for New Economic Thinking (INET).

[This is the fourth part of a series (1, 2, 3) on sovereign deficits and debt.  The series was started in response to Ed Dolan’s original post detailing agreements and possible disagreements with the MMT approach.] To recap very quickly, we agreed that sovereign government cannot become “insolvent” and forced to involuntarily default on commitments in its own currency. We moved on to “math sustainability” and agreed that so long as the interest rate paid on sovereign debt is below the GDP growth rate, then government does not necessarily face explosive growth of deficits and debts. And we agreed that the overnight interest rate is a policy variable, so that the central bank could keep it below the growth rate if desired. And we agreed that Treasury could use a “debt management” strategy to ensure that its average rate paid would be “low”—near to the Fed’s target rate, and if the Fed was pursuing a low rate strategy then on likely growth rates usually used in these types of models then the Treasury’s rate paid could be kept below the growth rate. (Of course in recession the growth rate can go below zero but the interest rate would remain at zero or above; however this argument about sustainability is about the long term, not about cyclical problems.) Now that always… Read More