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An upcoming Levy Institute conference: From November 26 to 27, the Levy Economics Institute of Bard College will gather top policymakers, economists, and analysts at the Hyman P. Minsky Conference on Financial Instability to gain a better understanding of the causes of financial instability and its implications for the global economy. The conference will address the challenge to global growth affected by the eurozone debt crisis; the impact of the credit crunch on economic and financial markets; the larger implications of government deficits and the debt crisis for U.S., European, and Asian economic policy; and central bank independence and financial reform.  Organized by the Levy Economics Institute and ECLA of Bard with support from the Ford Foundation, The German Marshall Fund of the United States, and Deutsche Bank AG, the conference will take place Monday and Tuesday, November 26 to 27, in Frederick Hall, 4th fl., Deutsche Bank AG, Unter den Linden 13–15, Berlin. A full schedule and list of participants can be found here.

Last month, numbers from the Bureau of Labor Statistics suggested that the years-long decline in public employment had finally halted, but Friday’s BLS report revealed that we moved back into negative territory in October:  the public sector as a whole (federal, state, and local) shrank by 13,000 jobs.  This should serve as another reminder that a significant part of this jobs crisis is self-inflicted.  There is a lot of policy work that needs to be done to help bring the economy back to full employment, but one of the baby steps the government can take in dealing with the crisis is this:  stop firing so many people. Here’s Floyd Norris back in August, writing about a fact that has received far too little attention in our civic dialogue: Employment in state and local government peaked at a seasonally adjusted 19.8 million workers in August 2008. Since then, the total is down by 697,000, or 3.5 percent. Since World War II, the only comparable decline was in 1950 and 1951, when payrolls fell by 3.7 percent. The recession left state and local governments, where most government jobs are located, in a very real budget bind, leading to a rate of layoffs unprecedented in over half a century.  While the federal government also saw its revenues drop precipitously when the recession hit,… Read More

Many of the themes in fiscal policy, economic growth, and distribution that we have been working on here have been in the news lately. Scholars from many fields are weighing in. One common theme is dynamics and their importance: 1)      Evidence of a self-reinforcing fiscal trap in operation in Britain, forwarded by the NIESR, a British think tank:  Dawn Holland and Jonathan Portes argue today in Vox that in the UK austerity has led to higher debt-to-GDP ratios, defying the predictions of orthodox macro models. For something from our Institute on the topic of fiscal traps, including the UK example, you might take a look at this public policy brief from Dimitri Papadimtriou and me, posted just last week. It is important to keep in mind, as the authors of the British study point out, that fiscal austerity is hardly the only cause of the economic crises now underway in much of the world. For example, they get at the problem of coordinating macro policies in a group of open economies. Above this paragraph is a diagram from our brief, illustrating, among other things, the role of Minskyan financial fragility in generating crises in many places in the world. This role is shown by the light green arrows in the diagram, which show how rising numbers of “Ponzi units,” (firms… Read More

Research associate Stephanie Kelton made an appearance on Harry Shearer’s “Le Show” over the weekend.  In the interview they managed to cover just about all of the major themes related to the debt and deficit anxiety that commands our civic dialogue (solvency constraints, inflation, interest rates, the gold standard, and so on; all the greatest hits). Kelton gave a particularly concise response to the claim that we are leaving ourselves at the mercy of China when we run up public debt.  Kelton explained that the Chinese are not the main holders of US government debt (not by a long shot), and that their holdings are not some nefarious long-term blackmail setup, but basically a function of China’s export-led growth strategy (this segment begins around the 21:40 mark): [W]hen the Chinese send us more goods and services than we send them, they end up with US dollars. … So, we get the stuff, and they get the credit to their bank accounts.  Now, what they do is they say “we have all these US dollars in our bank account, but they don’t pay us any interest, so why don’t we flip these out of our checking account into our savings account,” which is basically what the US Treasury is to them …  They get interest, and because the US government is… Read More

An announcement from the Levy Institute: Starting in fall 2013, the Levy Economics Institute will begin offering the Master of Science in Economic Theory and Policy, a two-year degree program designed to meet the preprofessional needs of undergraduates in economics and finance. Headed by Senior Scholar and Program Director Jan Kregel, this innovative program draws on the expertise of Institute scholars and select Bard College faculty, and emphasizes empirical and policy analysis through specialization in one of four key research areas: macroeconomic theory, policy, and modeling; monetary policy and financial structure; distribution of income, wealth, and well-being, including gender equality and time poverty; and employment and labor markets. The Levy Economics Institute Master of Science in Economic Theory and Policy degree program offers students a marketable set of skills and a strong understanding of economic and policy models at both the macro and micro levels, with direct application to a broad range of career paths. Thanks to the close links between our research agenda and the program’s core curriculum, students experience graduate education as a practicum, and all students participate in a graduate research assistantship at the Institute. There is also a 3+2 dual-degree option for undergraduates that leads to both a BA and the MS in five years. For more information, visit www.bard.edu/levyms.

Breezily blaming the eurozone crisis on government profligacy is a widely-used journalistic shortcut, but by now it should be clear that it’s a shortcut that doesn’t help us understand what went wrong with the euro project.  It has been repeated often, though evidently not often enough, that Spain, one of the hardest hit countries, had a public debt-to-GDP ratio that was a mere 27 percent before the crisis hit.  And there is reason to believe that even in the case of Greece, the bogeyman of government profligacy, the popular narrative should be treated with a little more skepticism. In a new report, Dimitri Papadimitriou, Gennaro Zezza, and Vincent Duwicquet use the “financial balances” approach pioneered by Wynne Godley to look at the recent history and future prospects of growth for the Greek economy.  Their analysis of the government accounts includes this graph:

This old post on the question of how to make sense of the claim that government debt places a net “burden” on future generations—the question of whether there’s an economic case to be made that supports the common claim that today’s public debt levels are an immoral burden on our children and grandchildren—generated a fair amount of discussion here.  The issue has been revived again in a recent back-and-forth that some of our readers might find interesting.  The latest round began with a post by Dean Baker, who said this: A moment’s reflection shows why the debt is not a measure of inter-generational equity. At some point everyone alive today will be dead. At that point, the bonds that comprise the debt will be held entirely by our children or grandchildren. The debt will be an asset for the members of future generations that hold these bonds. This can raise distributional issues within a generation. For example, if Bill Gates’ grandchildren own the entire U.S. debt there will be important within generation distributional consequences, however this says nothing about inter-generational distribution. … As a generational matter, we pass a whole economy, society and environment to our children. Unless we have given them a really bad education, they would be crazy to opt for a government with a lower national debt… Read More

In a 90-minute debate, I’m not sure it’s possible to cover every single issue of pressing national importance and to do so in coherent detail.  So the following is a complaint one could make about a number of issues that were missing from last Thursday’s VP debate, but it was a little eyebrow-raising that financial reform was absent from the conversation. Sure, the collapse of Lehman is ancient history as far as the political news cycle is concerned, and regulatory details can sometimes come off as unbearably technical to the average viewer.  However, we are still living through the real-world economic consequences of a massive global financial crash; the ink on the 2010 Dodd-Frank Act is not yet dry (key regulations are still being finalized); and recent scandals should have reminded us that the soundness of the financial system cannot be taken for granted. Hopefully, tonight’s presidential debate will feature a little more recognition of the catastrophic regulatory failure we’re still living with.  We’ll see.  At this year’s Minsky conference, Gillian Tett of the Financial Times joined a panel discussion (with Louis Uchitelle, Jeff Madrick, and Yalman Onaran) on the role of the press in the financial crisis and financial reform efforts (audio here).  Tett commented on the failure of the press to focus on what was really going in… Read More

We expect the unexpected at the Levy Institute. As followers of Keynes, most economists here, including this author, believe that one cannot assign exact probabilities to most important economic outcomes even, say, six months into the future. On the other hand, thinking about the economic debate on job creation, and the recent release of new jobs data, I have not been very surprised at the gradual pace of progress in reducing the unemployment rate. In fact, we on the macro team have consistently called for more fiscal stimulus rather than less. The reason is that unemployment is a relatively slow-moving variable. As the chart at the top of this post shows, the unemployment rate (shown as a blue line) fell only rather gradually after each of the previous three recessions (shown as shaded areas in the figure). (Here, we count the double-dip recessions of 1980 and 1981–82 as one.) Hence, once the recovery began, we knew that with the unemployment rate at very high levels, it needed to fall unusually fast to be at reasonable levels by this point in the Obama administration.  Hence, since 2007, the team has advocated an easing of fiscal policy. Instead, especially after the 2009 ARRA, little action was taken by the government to stimulate the economy. Partly as a result of inaction on fiscal… Read More

On the surface, the data from Argentina look awfully good—among the top performers in the world over the past decade. And she’s apparently done it without a run-up of either private sector or government sector debt. In other words, Argentineans have bucked the trend among developed countries, that saw (mostly) tepid growth fueled almost entirely by debt. And that seems to be at least in part due to a policy choice. Argentina had been the poster child for Neoliberal policies all through the 1990s—they adopted virtually the whole Neolib agenda lock-stock-and-barrel. They even adopted a currency board. And unlike Euroland (which also adopted something like a currency board as each member adopted a foreign currency—the euro), Argentina would have consistently met the tight Maastricht criteria on budget deficits and debts over that period. The main purpose of the austere budgets and currency board constraints was to kill high inflation. It worked. But, over that period unemployment grew and GDP growth was moderate. I won’t go further into the problems encountered at the turn of the new decade but the whole thing collapsed into a severe economic, financial, and political crisis. In a last desperation move, the government abandoned the currency board (or, you could say the currency board abandoned the government!), defaulted on its debt, and created a Jobs Guarantee… Read More

Levy Institute scholars James Galbraith and Randall Wray presented at the annual conference held by the Central Bank of Argentina last week. Galbraith’s presentation began with the issue of the flexibility of central bank mandates and then turned to an account of the long-term evolution in the economy that prepared the groundwork for the recent global financial crisis. Randall Wray spoke on the theoretical and policy implications of a government’s ability to issue a sovereign currency.  Video and slides below the fold (full list of speakers here).

I returned to the Levy Institute yesterday after the International Post Keynesian Conference in beautiful Kansas City. I will mention some of the news from the conference, for readers who are interested in the kinds of events that Levy Institute scholars attend. At such conferences, ideas are taken very seriously, and many interesting debates were simmering at this one.  Theories and models abounded. Many of them went right to the heart of the causes of the financial crisis. Speaking of interesting, students were among those attending and helped to organize the conference. Some were selling official conference t-shirts as well as used books in the vendors’ area. I haven’t had a chance to try my shirt on, having returned home only Sunday night on a delayed flight. Many of the giants in the field were there.  A surprise event in honor of the Institute’s Jan Kregel took place last Thursday night, the first night of the conference.  Kregel recently joined Paul Davidson as an editor of the Journal of Post Keynesian Economics. A new Post Keynesian economic policy forum is online, and many from the Institute are editors. This new paperback from Eckhard Hein and Englebert Stockhammer, also on display at the conference, explains some of the ideas and history of this school of economists, including their conferences. Post Keynesian… Read More