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The eurozone has been in crisis since 2008. By the end of 2015 domestic demand was still 3 percent below its pre-crisis peak. Throughout, the European Central Bank (ECB) has acted as the eurozone’s prime crisis manager.  As capital flows reversed and inter-bank lending seized up, the ECB provided emergency liquidity to keep banking systems afloat. However, for legal and political reasons, the ECB was restrained in supporting sovereign debt. But, given that there are close linkages between banks and sovereigns, supporting only one party in the duo proved insufficient. From 2011–2012, interest rate differentials between eurozone members soared and credit dried up, as the risk of default on national debt and currency redenomination became investors’ foremost concern. In the end, Mario Draghi’s famous promise to “do what it takes” calmed the markets – at least for now. The ECB’s monetary policy course was rather less helpful. The ECB is legendary for its reluctance to ease interest rates in the face of downside risks, and it even prematurely hiked rates in 2011. And so it took the ECB until the summer of 2014 to finally contemplate unconventional monetary policy measures to counter deflation risks, which were by then acute. Meanwhile, the ECB has indeed adopted a negative interest rate policy, pushing short-term money market rates below zero. It has also… Read More

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Servaas Storm means well. He is alarmed that the eurozone’s official strategy of “internal devaluation” might do more harm than good by unnecessarily forcing countries that have lost their competitiveness into deflation (see here, here, and here). This is a very real concern indeed and Storm should be applauded for raging against the colossal folly that is wrecking Europe. Unfortunately, Storm goes astray in seemingly dismissing any role for unit labor cost competitiveness and German wage moderation in causing the still unresolved eurozone crisis in the first place. Referring to bits and pieces of evidence derived from mostly partial-equilibrium empirics of one type or another, Storm fails to notice that no coherent macroeconomic analysis of the eurozone crisis emerges unless German wage moderation gets assigned a prominent role in the play. At the heart of the whole confusion is Storm’s attempt to attribute to those who emphasize German wage moderation as a key causal factor in the eurozone crisis the view that “expenditure switching” would explain 100 percent of the eurozone’s internal current account imbalances (and related balance sheet troubles). This would be a very peculiar view indeed – and I am not aware of anyone who actually holds it. Certainly the proponents of the “wage moderation hypothesis” that I know, including those who responded to Storm’s “critical analysis” (see… Read More

The deadline to apply for this year’s Hyman P. Minsky Summer Seminar is approaching: Organized by the Levy Economics Institute of Bard College with support from the Ford Foundation Levy Institute Blithewood Annandale-on-Hudson, New York June 10–18, 2016 The seventh Minsky Summer Seminar will be held at the Levy Economics Institute in June 2016. The annual Summer Seminar provides a rigorous discussion of both the theoretical and applied aspects of Minsky’s economics, with an examination of meaningful prescriptive policies relevant to the current economic and financial crisis. Organized by Jan Kregel, Dimitri B. Papadimitriou, and L. Randall Wray, the Seminar program is geared toward graduate students and those at the beginning of their academic or professional careers. The teaching staff includes well-known economists concentrating on and expanding Minsky’s work. Applications may be made to Kathleen Mullaly at the Levy Institute ([email protected]), and should include a current curriculum vitae. Admission to the Summer Seminar includes provision of room and board on the Bard College campus. Due to limited space availability, the deadline for applications is March 1, 2016. A user name and password are required for the Summer Seminar webpage; participating students may log in by clicking here.

Senior Scholar Nancy Folbre was interviewed by Woman’s Work on the wage gap and women’s underrepresentation in economics: Folbre: [M]arket logic doesn’t apply to care of dependents, a more traditionally feminine obligation. Children, the sick, and the frail elderly don’t fit the preconditions for consumer sovereignty in market exchange. Most care of dependents takes place outside the market. Women generally take more responsibility for this care than men do. … The whole concept of concern for other people or interdependent utilities or obligations for other people, these are largely absent from the market paradigm. The textbook assumption is that participants in the market don’t care about other people, they have independent preferences. They are basically making decisions based on prices and income. It’s a very narrow, stripped down characterization. In some instances, it may be accurate. But a lot of the work that women, in particular, do doesn’t involve impersonal transactions. We live in a world shaped by a moral division of labor that is highly gendered. Read the rest here.

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The Levy Institute has completed its most recent medium-term projections for the Greek economy. The outlook, unsurprisingly, isn’t reassuring. The baseline simulation, which assumes the continuation of current policy, shows the GDP growth rate turning positive in 2017 and reaching 2 percent in 2018. Yet, in a reflection of how much damage has been done by the crisis, even if Greece managed a growth rate around that pace (2.1 percent per year), it would take until 2030 for real GDP to return to its 2006 level. It’s fair to wonder whether such a delayed recovery — with little relief on the horizon for the elevated numbers of poor and unemployed in Greece — is politically and socially sustainable. And there’s worse news in the report. The baseline generated by the authors’ model for Greece reflects a scenario in which future growth would be export-driven. But this increase in Greek exports would not be generated primarily by price competitiveness (“the price elasticity of Greek exports is low while the income elasticity is high”). That is, the decline of Greek wages — the centerpiece of the official “internal devaluation” strategy — isn’t projected to produce much of a payoff in terms of net exports. Instead, the rise of exports in this scenario is almost entirely due to assumptions about the economic health of Greece’s trading partners; assumptions taken from the IMF. And as the authors caution, the IMF is likely overstating European growth prospects. So this lost decade-and-a-half for… Read More

Lamenting that intellectual inertia is responsible for slow progress in economics, Servaas Storm sets out to teach a lesson to everyone who may still be foolish enough to believe that relative labor costs matter for international competitiveness and that diverging unit labor cost trends – specifically persistent wage moderation in Europe’s largest economy, Germany – may have played a rather critical role in sinking Europe’s monetary union. It is a dangerous myth, Storm proclaims, that labor costs drive competitiveness. He suggests that the eurozone crisis originated from a different set of causes altogether; German wages are little more than trivia. I fear that Servaas Storm will further add to existing confusions about both German wages and the widely misdiagnosed and never-ending eurozone crisis more generally. His blog of January 8, 2016 titled “German wage moderation and the eurozone crisis: a critical analysis” (see here) is hardly a masterpiece in analytical coherence. I will focus on some key issues. Storm appears to be making three big points. First, German wage moderation is a mere fiction. If Germany’s competitiveness improved at all under the euro, that was the result of nothing else but its engineering ingenuity: “It was German engineering ingenuity, not nominal wage restraint or the Hartz ‘reforms’, which reduced its unit labor costs. Any talk of Germany deliberately undercutting its… Read More

L. Randall Wray’s recently published book on the work of Hyman Minsky (Why Minsky Matters: An Introduction to the Work of a Maverick Economist) was reviewed by Victoria Bateman for Times Higher Education. Here’s a taste: Having experienced the pain of a new Great Depression, the very least we should expect is that economists try to learn from it. Unfortunately, still too few of them understand the importance of what Minsky had to say …. While Minsky is now quite well known, his contributions are still widely ignored or misunderstood. In terms of name recognition or casual citation, there’s been a lot of progress made in raising Minsky’s profile. As for comprehension of his vision of economics and public policy (or the influence of that vision on policymaking), there’s a tremendous amount of work ahead. Here’s hoping the book helps us move a little further along that path. Read the entire review here.

by Daniel Alpert A practically unnoticed phenomenon underpins the negative U.S. economic data trends we saw in Q4 2015 and the enormous increase in market volatility in the first week of 2016: the United States’ global competitors are—once again—using vast pools of low-wage, underutilized labor, a huge excess of domestic production capacity, and/or the ever-stronger U.S. dollar, to grab whatever share of demand they can in order to maintain/recover growth in a sluggish global economy. While the plummeting price of energy—the result of insufficient global demand and huge new oversupply from North America itself—has cut America’s energy deficit to a level less than 20 percent of its 2008 peak, the overall current account deficit of the U.S. grew rapidly in 2014 and, more alarmingly, in 2015.  The nation’s current account is the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers. But here’s the brutal bottom-line: the non-energy portion of the U.S. current account deficit, relative to GDP, has ballooned by 236 percent since its low in December 2013, during which period the energy deficit fell by 57 percent. The U.S. economy is showing weakness in Nearly Everything But Employment (“NEBE”) and even its salutary pace of job formation is plagued by an unusual level of temporary and low… Read More

The 2016 Minsky Conference will address whether what appears to be a global economic slowdown will jeopardize the implementation and efficiency of Dodd-Frank regulatory reforms, the transition of monetary policy away from zero interest rates, and the “new” normal of fiscal policy, as well as the use of fiscal policies aimed at achieving sustainable growth and full employment. Is economic policy leading to another Minsky moment? Organized by the Levy Economics Institute of Bard College with support from the Ford Foundation Levy Economics Institute of Bard College Blithewood Annandale-on-Hudson, New York 12504 April 12–13, 2016 The attendance fee is $75 and due upon registration. To register, click here. Visit the conference website for more information about accommodations and directions to the Levy Institute. (Program details will be posted as they become available.) A list of participants is below the fold: