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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 The message it conveys—of something fast, temporary, quickly withdrawn—is wrong.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!

I seem to remember that there used to be a column in a magazine featuring contradictory newspaper headlines. One headline might say, “Fed Chair Says Interest Rates Likely to Rise,” while another in a different newspaper from the very same day would insist, “Fed Chair Says Interest Rates Likely to Fall.” Something like this appears to have occurred in blogs and articles that have published lists of prognosticators who predicted the financial crisis, the Great Recession, and/or the housing crisis. In fact, some pairs of these lists have very few names in common. For example, David Warsh’s often-fascinating online column, “Economic Principals” published the following “Pantheon of Prescients” two days ago: Raghuram Rajan Kenneth Rogoff Nouriel Roubini Robert Shiller William White On the other hand, here are the winners of the heterodox Revere Award, “for the economist who first and most cogently warned the world of the coming Global Financial Crisis”: Dean Baker Steve Keen Nouriel Roubini All of the economists on both lists have had some very interesting things to say about the financial crisis, recession, and/or various other developments since 2007 or so. A major concern of mine with the first list is that, in my view, some on the list have greatly underestimated the role of weak financial regulation as a factor in the crisis. (Another intriguing… Read More

A number of prominent economists have signed a letter calling for more economic stimulus from the United States government in order to put people back to work. Levy senior scholar James K. Galbraith and two other well-known Keynesians chose not to participate, and issued this comment explaining why. A statement from Paul Davidson, James Galbraith and Lord Skidelsky We three were each asked to sign the letter organized by Sir Harold Evans and now co-signed by many of our friends, including Joseph Stiglitz, Robert Reich, Laura Tyson, Derek Shearer, Alan Blinder and Richard Parker. We support the central objective of the letter — a full employment policy now, based on sharply expanded public effort. Yet we each, separately, declined to sign it. Our reservations centered on one sentence, namely, “We recognize the necessity of a program to cut the mid-and long-term federal deficit… ” Since we do not agree with this statement, we could not sign the letter. Why do we disagree with this statement?  The answer is that apart from the effects of unemployment itself the United States does not in fact face a serious deficit problem over the next generation, and for this reason there is no “necessity [for] a program to cut the mid-and long-term deficit.” On the contrary: If  unemployment can be cured, the deficits we presently… Read More

A recent New York Times article highlighted the inadequacy of job training programs in the face of massive unemployment. The programs do not reflect the demand for highly skilled workers, such as those who can handle high-tech equipment and service jet engines. Even highly regarded programs have less than a 60 percent job placement rate. It is hard to predict the economy’s next great job-producing sectors and develop programs that train for them. We’ve reached the point, moreover, where the experience that come with age has become a roadblock to successful job hunting, and almost 39 percent of the long-term unemployed are men in their mid-40s or older. Unemployment checks barely covers their living expenses. Sometimes families break up or people move in with their elderly parents. It’s a sad story. When passive labor policies are not working and the end of recession seems too far away, it’s time to consider more active steps, including public employment programs. Once upon a time in America, the Civilian Conservation Corps reached out to jobless young people. Perhaps we need another large-scale jobs program, only this time for older workers. Just as the Fed is our lender of last resort, government could take on the role of employer of last resort. It’s paying the jobless anyway, in the form of unemployment insurance (about… Read More

That’s the headline for a defense of Modern Money Theory by Levy senior scholar L. Randall Wray, who complains that “even deficit doves like Paul Krugman, who favor more stimulus now, are fretting about “structural deficits” in the future.” Wray goes on to say: There is an alternative view propounded by economists following what has been called “Modern Money Theory”, which emphasizes the difference between a currency-issuing sovereign government and currency users (households, firms, and nonsovereign governments) (See here and here). They insist that the notion of “fiscal sustainability” or “solvency” is not applicable to a sovereign government — which cannot be forced into involuntary default on debts denominated in its own currency. Such a government spends by crediting bank accounts or issuing paper currency. It can never run out of the “keystrokes” it uses to credit bank accounts, and so long as it can find paper and ink, it can issue paper currency. These, we believe, are simple statements that should be completely noncontroversial. And this is not a policy proposal — it is an accurate description of the spending process used by all currency-issuing sovereign governments. Regular readers of this blog will recall the earlier debate on these issues between Krugman and Levy senior scholar James K. Galbraith.

Aside from the new symbol adopted for the rupee, the big economic news in India lately is the national government’s deregulation of petroleum prices. In the face of rising food prices, naturally there are concerns about whether deregulated (read: higher) oil prices will fuel inflation. Is this policy not anti-poor? What will happen if oil prices keep rising? How will the growing economy of India, with its growing energy demand, adjust to a future of oil-price volatility? The success of Bhart Bandh (All-India Strike) on July 5th shows that the Aaam Admi (common man) did not take this new price deregulation kindly. People like having their energy subsidized, particularly people who are struggling financially. What’s more, administered prices—with their resulting distortion in the use of resources and corresponding economic loss—are not a visible, measurable macroeconomic variable like the inflation or interest rates. So no one cares if the distortion continues doing great harm to the economy for the simple reason that it’s invisible. It’s the old story: the costs are spread widely and hard to perceive, while the benefits are focused and tangible. But one needs to take a dispassionate view to examine this new policy of energy deregulation and its implications for everyone. What you discover, when you take such a view, is that energy price regulation in India… Read More