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After its last meeting, the Federal Open Market Committee, which makes decisions about Federal Reserve monetary policy, decided to keep its holdings of long-term securities constant. The Fed was forced to look again at this issue because borrowers have been paying off the long-term debt securities already in its portfolio. This maturing debt consists mostly of Treasury bonds, mortgage-backed securities, and Fannie Mae and Freddie Mac bonds, most of which were acquired quite recently. The Fed will reinvest the repayments in more long-term Treasury bonds instead of allowing its balance sheet to shrink. Some have referred to the Fed’s acquisition of certain assets not normally seen on its balance sheet by the special term “quantitative easing,” or QE. This term is perhaps somewhat misleading, because it implies a sharp distinction between the recent policies to which it refers and the Fed’s more typical manipulations of the federal funds and discount rates. But, surprise, the new policy actions also involve interest rates, albeit ones that the Fed had not attempted to directly influence in many years when it began QE in 2008. Let’s hear what Ben Bernanke said at a conference last week: ….changes in the net supply of an asset available to investors affect its yield and those of broadly similar assets. Thus, our purchases of Treasury, agency debt, and… Read More

You may already know that women’s workforce participation has increased and gender wage gaps have been closing gradually, although we still have a long way to go. Work-life balance can be costly, and raising children is rewarding yet financially challenging. A new report by the congressional Joint Economic Committee gives an excellent description on the status of women and challenges they have faced in the labor market over the last 25 years (ht to Catherine Rampell at Economix). As a researcher of the care economy, I couldn’t help noticing the following two graphics. First, Figure 10 in the original report: The opportunity cost of being a stay-at-home mom is high and grows as time goes by at the rate of 1.34 percent a year! Imagine how much worse off the family will be in 30 years with all the forgone income,  savings, and smaller social security checks to receive after retirement, and so on. Some of you may claim that it was their deliberate choice to stay at home, so the society should not come to the rescue. Well, if Paris Hilton becomes mom and decide to stay at home to take care of her kids, she probable won’t need any social support other than occasional photo-shoot opportunities to upkeep her celebrity status. For most of us with less financial freedom… Read More

In Paul Krugman’s blog, a bit of good news from the August 2010 Social Security Trustees’ Report on the finances of the Social Security entitlement programs (retirement, survivors, and disability): Given the apocalyptic rhetoric we’re hearing, once again, about Social Security finances, it comes as something of a shock—even to me—to look at the actual projections in the latest Trustees’ Report. OASDI [ed.: in plain English, Social Security spending] is projected to rise from 4.8 percent of GDP now to about 6 percent of GDP in 2030, and level off. That’s not trivial—but it’s not huge either. Hence, the intermediate forecast reported by Krugman seems to indicate that we can maintain current benefit levels, retirement ages, and other rules for the foreseeable future using existing payroll and benefit taxes plus only a modest increase in federal revenues dedicated to Social Security programs. Perhaps more Americans will be able to retire fairly comfortably and at a reasonable age than some have predicted. Coincidentally, not long after the report was released, a new exhibit marking the 75th anniversary of the signing of the Social Security Act opened here in the Hudson Valley, not far from the Levy Institute, at the Franklin D. Roosevelt Presidential Library and Museum. (The famous Roosevelt home is on the same site.) I hope to see the Social… Read More

Over the course of the summer, Levy senior scholar James K. Galbraith gave a series of lectures in Europe laying out his view of the financial crisis that originated on this side of the Atlantic. At the most recent of these, in July, he emphasized the role of fraud: It’s important to recognize that at the root of the financial crisis there was one of the greatest swindles of all economic history. The mortgages that were originated in the private sector in the United States which were then transformed into securities and sold through the financial markets around the world were in effect counterfeits. They were documents that looked like mortgages but were known by the people making them to be certain to fail. Links to the rest of Galbraith’s talks are listed below:

Scholars at the Levy Institute have supported the creation of an employer-of-last-resort (ELR) program in the United States for many years. Such a program would provide a government job to any American who needed one and met a few basic requirements. (This readable policy note, along with many other Levy publications, explains the case for ELR programs.) So far, the government has created many jobs since the passage of the stimulus package, but the unemployment rate remains at 9.5 percent. Many forecasters are now predicting that the overall unemployment rates for 2010 and 2011 will both exceed 9 percent Children are among the groups deeply affected by recessions. For example, a government report issued last November found that over one million children sometimes went hungry in 2008, which represented a large increase over the previous year.  Also, in a recent article, Katherine Newman and David Pedulla discuss how this recession has had an uneven impact, hitting groups like young people just entering the labor force especially hard. Programs that helped the poor in times like these were weakened greatly in 1996, when President Bill Clinton somewhat reluctantly signed a welfare reform bill that was not what he had hoped for, saying that it was the country’s “last best chance” for reform. The Personal Responsibility and Work Opportunity Reconciliation Act set… Read More

On The Daily Beast, Levy senior scholar James K. Galbraith urges action to get people working again, and smites deficit hawks who might oppose it. In the debate over stimulus versus austerity, he warns of two traps: The first is the idea that we need another “stimulus package.” How I hate that phrase! The message it conveys—of something fast, temporary, quickly withdrawn—is wrong. We’re not in an ordinary postwar recession. We’ve suffered a major collapse of the financial system. Repairing this, and working off household debt loads and the housing glut, will take years. Yes, the economy can recover without strong private credit, but the recovery will be slow and unemployment will not be cured. The second trap is the idea that we should undo it all later on. Even worse, many argue that we must make cuts today, effective at a later time, to offset the “stimulus.” Since the major programs which are authorized today for later effect are Social Security and Medicare, this translates to “cutting entitlements” in order to bring “long-term budget deficits under control.” Hogwash, says Galbraith, who advocates freeing up jobs by making it easier for older workers to retire. You can read the rest here.

In a New York Times column, Yale’s Robert Shiller calls for a federal effort to battle unemployment by creating precisely the kind of socially beneficial jobs that some Levy Institute scholars have been recommending: Why not use government policy to directly create jobs — labor-intensive service jobs in fields like education, public health and safety, urban infrastructure maintenance, youth programs, elder care, conservation, arts and letters, and scientific research? For deficit hawks, Shiller notes that the cost would be modest: Big new programs to create jobs need not be expensive. Suppose the cost of hiring a single employee were as high as $30,000 a year, several times typical AmeriCorps living allowances. Hiring a million people would cost $30 billion a year. That’s only 4 percent of the entire federal stimulus program, and 0.2 percent of the national debt. You can read more on this blog about the ideas of Levy scholars along these lines, or you can cut to the chase and read a Levy Policy Brief on this very subject for yourself. Another related Levy publication, this one a Policy Note on job creation and the lessons of the New Deal, is available here.

Are we a nation of property owners? Michael Barone, of the American Enterprise Institute, says we are: The fact is that we are once again, as in the days of the early republic and not in the heyday of the Progressives and the New Dealers, a republic of property owners. Most Americans have accumulated — or will, during the course of their working years, accumulate — significant amounts of wealth. And that is why, I believe, American voters seem to be rejecting the policies of the Obama Democrats. But Uwe Reinhardt in Are We a Nation of Property Owners?, uses research by Arthur Kennickell at the Federal Reserve and my colleague Ed Wolff of the Levy Insitute (and NYU) to argue that Barone is wrong. Reinhardt contends that most Americans own very little property, since almost half of families have a net worth of $10,000 or less–including their homes. So Barone is just wrong to claim that most Americans have or will accumulate “significant” amounts of wealth. Of course, if you believe that significant in this context should mean more than zero, I can’t help you. I think that Barone is onto something, though as is so frequently the case, it’s not what he intended. The definition of republic is: a state in which the supreme power rests in the… Read More

In the Wall Street Journal, Stanford’s Robert Hall tells Jon Hilsenrath that last year’s stimulus just about made up for the cuts in state and local government spending forced by the recession (most states have balanced budget requirements, so when tax revenues dip, as they do in a recession, spending must follow). So, there was no net stimulus from government spending last year! Still, it could have been worse. What David Leonhardt doesn’t say (in his take on the subject for the New York Times) is that the initial stimulus was too small. Certainly state fiscal support was too small. States have still had to cut their budgets, laying off teachers and police officers. These layoffs have not been helpful to recovery, to say the least.

With apologies to Isaiah Berlin, here is the link.

Writing for the New York Times Economix blog, Nancy Folbre of the University of Massachusetts cites the work of Levy Institute economists in suggesting that Uncle Sam fund more home-care jobs: Four economists at the Levy Economics Institute of Bard College – Rania Antonopoulos, Kijong Kim, Thomas Masterson and Ajit Zacharias – have published a policy brief, “Why President Obama Should Care About ‘Care’: An Effective and Equitable Investment Strategy for Job Creation.” There are many reasons this is a great way to battle unemployment. Check out the policy brief for the full story.

Two news articles from McClatchy that arrived back-to-back in my feed-reader make for an unfortunate combination. The first, detailing the Senate’s abdication of responsibility on global warming, is depressing enough. The second story is about increased Polar Bear sightings at the mouth of the Yukon River in Alaska. The irony speaks for itself. But I will help!