The 11th annual Minsky conference, held April 26–27, 2001, at the Levy Institute’s research and conference center on the campus of Bard College in Annandale-on-Hudson, New York, centered on the slowdown in the United States and its
implications for world economic growth, options for stabilization policy, and the dynamics of global financial crises. The conference was

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This brief provides a detailed description of the Stability and Growth Pact, an agreement entered into by the member states of the European Union that has far-reaching implications for the long-run value of the euro, and therefore, on the real economy in terms of output growth and employment. Yet despite the fact that the pact underpins the adoption of the single currency and has fundamentally redefined the scope and nature of economic policymaking in the member states, public discussion about it is relatively scant, especially on our side of the Atlantic, even though the economic health of the European Union does matter to the economic and strategic position of the United States. The authors provide propose a critique of the pact that focuses on the shortcomings induced by the its regime of mandatory fiscal austerity, the separation between fiscal and monetary policy, the undemocratic structure and lack of accountability of the European Central Bank, and the paramount importance attached to price stability at the expense of other policy objectives. According to the authors, these shortcomings will have serious negative effects on the current and future economic performance of the member states and the material well-being of its citizens.

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In this issue’s editorial, Senior Scholar James K. Galbraith predicts that the recent rise in wage inequality will lead to an economic slowdown in the United States.

Contents: Editorial: "Inequality Ticks Up, Bringing Bad News for the Economy" (James K. Galbraith) * New Public Policy Briefs: Is There a Skills Crisis? * The Future of the Euro * New Working Papers include: Harrod versus Thirwall: A Reassessment of Export-led Growth * Origins of the GATT * Testing Profit Rate Equalization in the US Manufacturing Sector * Will the Euro Bring Economic Crisis to Europe?

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A special project report by Senior Scholar Joel Perlmann outlines research he has been conducting on immigration, ethnic assimilation, and social mobility in America. Summaries of the sessions held at a related conference on multiraciality also appear in this issue.

 

Contents: Conference on multiraciality and the 2000 Census · Project Report: Ethnicity, Assimilation, and Social Mobility in America · Racial wealth disparities · Asset ownership across generations · A reassessment of export-led growth · Demographic outcomes of ethnic intermarriage in American history · Call for papers · Announcement of upcoming conferences

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In a new Strategic Analysis, Distinguished Scholar Wynne Godley and Research Scholar Alex Izurieta provide an explanation for the recent economic slowdown in the United States, examine policy options, and discuss alternative scenarios for medium-term economic performance. In a related Policy Note, Phillips & Drew economist Bill Martin forecasts a post-bubble trauma for the United States that will have global consequences.

 

Contents: Strategic Analysis: As The Implosion Begins…? Prospects and Policies for the US Economy: A Strategic View * New Policy Notes: The New Old Economy * The Backward Art of Tax Cutting * Killing Social Security Softly with Faux Kindness * Project Summary: Quality of Life * New Working Papers: The Role of Institutions and Policies in Creating High European Unemployment: The Evidence * Reflections on the Current Fashion for Central Bank Independence * Can Countries under a Common Currency Conduct Their Own Fiscal Policies? * Toward a Population History of the Second Generation: Birth Cohorts of Southern- , Central- , and Eastern-European Origins, 1871-1970 * Young Mexican Americans, Blacks, and Whites in Recent Years: Schooling and Teen Motherhood as Indicators of Strengths and Risks * Institute News: New Research Staff

 

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Summaries of the speeches and sessions at the 11th Annual Hyman P. Minsky Conference on Financial Structure include the remarks of Thomas Hoenig, president of the Federal Reserve Bank in Kansas City, who discussed the broad policy lessons that can be learned from the recent proliferation of financial crises in developed nations and their implications for the Fed’s role in crisis management.

 

Contents: Conference Summaries: Quality of Life Indicators; Education Reform outside the School; 11th Annual Minsky Conference · Policy Notes: Put Your Chips on 35 (James K. Galbraith) and Financing Health Care (Walter M. Cadette) · Working Papers include "Euro Instability," "Making EMU Work," and "Will the Euro Bring Economic Crisis to Europe?"

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A special feature by Senior Scholar Edward N. Wolff focuses on the inequality in the distribution of income and wealth—and what can be done about it.

 

Contents: The Rich Get Richer (Special feature by Edward N. Wolff) · Is there a Skills Crisis? · Testing Profit Rate Equalization · The Markets versus the ECB · Origins of the GATT · Race or People · Productivity in Manufacturing and Length of the Working Day

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Despite seven years of economic growth a large gap exists in the wages earned by workers at the top of the earnings scale and those at the bottom. The leading explanation for this growth in wage inequality continues to be the skills-mismatch theory. This theory in part posits that gains in technology have resulted in jobs having highly technical skill requirements that have outpaced growth in worker skills; demand for highly skilled workers therefore rises more swiftly than that for less-skilled workers, creating upward pressure on wages for those with the most skills. The empirical evidence is examined here and shows that there is little evidence to support the mismatch theory as there has been little sign of a shortage of workers with computer or general technical skills. If the analysis is correct, then policies currently used to close the wage gap, such as improved education and training, will not alone solve the inequality problem. Rather, the solution may require macroeconomic policies aimed at maintaining economic growth and full employment, and labor policies, such as the minimum wage, that support the earnings of workers at the lower end of the wage scale.

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The Federal Reserve has raised interest rates six times over the past 12 months in an effort to slow economic growth, arguing that the economy is overheated and that the low unemployment rate will lead to inflation as workers in scant supply begin to demand higher salaries. A new Levy Institute Policy Note, summarized in this issue, argues that there is little evidence that low unemployment leads to inflation, and that the Fed’s actions will merely hasten a downturn that will impose huge costs on society’s most disadvantaged.

Contents: Conference on multiraciality and the 2000 Census * New Policy Note: Why Does the Fed Want Slower Growth? * New Working Papers include: Race and the Value of Owner-occupied Housing, 1940-1990 * Racial Wealth Disparities * Demographic Outcomes of Ethnic Intermarriage in American History * CRA Grade Inflation * Levy Institute News: Report Issued by US Trade Deficit Review Commission * Announcement of upcoming conferences

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The idea that saving is the force driving private investment and economic growth has become ever more entrenched in mainstream economic thought as well as in the minds of policymakers and the general public. Even though the empirical evidence that increased household saving will directly stimulate private investment and economic growth is scant, the idea remains prominent and underlies policy debates on topics ranging from Social Security to a balanced federal budget to reducing the national debt. The popular theory underlying these cuts is countered by evidence that private sector investment is financed primarily out of business retained earnings, not household saving, which explains why current policies aimed at raising household saving via cuts to social spending programs have been unsuccessful at raising saving rates. Moreover, government spending on social programs does not necessarily reduce economic growth. Higher government spending could be supported, and a greater degree of investment spending stimulated, through a combination of lower taxes on business income and higher taxes on personal incomes of upper-income households.

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Undertaken in conjunction with the University of Texas Inequality Project and supported by the Ford Foundation, this conference afforded participants an opportunity to exchange new ideas and research results on the measurement of inequality, and the relationship between inequality and unemployment, economic growth, and economic development. The conference was held October 28–29, 2000, at the Levy Institute’s research and conference center on the campus of Bard College, Annandale-on-Hudson, New York.

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As part of its research program into the causes of, and solutions to, income inequality, the Levy Institute held a conference in June 2000 on the distribution of wealth. Participants’ remarks are summarized in this issue of the Report.

Contents: Conference on Saving, Intergenerational Transfers, and the Distribution of Wealth * Workshop on Earnings Inequality * Editorial on the Death of Monetarism * New Working Papers include: Trends in Direct Measures of Job Skill Requirements * A Minskian Analysis of Japan’s Lost Decade * New Policy Notes: Welfare College Students and Welfare Reform * Health Care Finance in Need of Rethinking * Can the Expansion Be Sustained * Drowning in Debt

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Coordinated by Senior Scholar Edward N. Wolff of the Levy Institute and New York University, this conference examined wealth trends, and extremes, in the United States in the 1990s. The conference was held June 7–9, 2000, at the Levy Institute’s research and conference center at Blithewood on the campus of Bard College, Annandale-on-Hudson, New York.

These proceedings were published as part of the September 2000 Report.

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The Federal Reserve currently has two legislated goals—price stability and full employment—but a debate continues about making price stability the Fed’s primary and overriding goal. Evidence from the recent history of monetary policy contradicts arguments in favor of assigning primacy to inflation fighting and supports giving full employment equal importance. Economic performance under the dual mandate has been excellent, with low unemployment and low inflation, while many European countries whose central banks focus solely on inflation are experiencing double-digit unemployment. The costs of unemployment are high, but the costs of even moderate inflation are estimated to be low. Central bankers, who tend to be inflationaverse, need to be prodded to consider goals other than inflation. And, if the Fed pursues price stability exclusively, the price level is not free to increase in the event of an adverse supply shock to prevent large increases in unemployment. A dual mandate allows the Fed to focus on one goal or the other as conditions demand and to balance policy effects.

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Proponents of globalization have expressed frustration with the reluctance of some members of Congress to support it. At the Levy Institute’s annual Minsky conference in April, summarized in this issue, Representative Barney Frank explained that it is not globalization per se that he and other members oppose, but globalization absent safety nets for those who are harmed by it.

Contents: Tenth Annual Hyman P. Minsky Conference on Financial Structure * New Working Paper topics include: Recent Trends in Wealth Ownership * Why Inflation Won’t Bring Recovery in Japan * The Public Commodities Problem * New Policy Noes: Explaining the US Trade Deficit * Is the New Economy Rewriting the Rules? * Lectures on: Phoenician Port Power * The Views of Jerome Levy and Michal Kalecki * International Banking Regulation in the 21st Century

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Minsky’s research, writing, and speeches focused on the causes and consequences of the financial vulnerabilities inherent in advanced and complex capitalist economies and on the policy implications emanating from this systemic fragility. This conference—the Institute’s 10th such gathering—commemorated Minsky by addressing issues related to the need to continuously assess the fragility and structure of the financial sector. The papers and presentations focused on a variety of issues: the liberalization of financial markets, the financial and regulatory landscape evolving in the wake of the passage of the Gramm-Leach-Bliley act, the continued controversy over how to build a global financial architecture, and the dangerous reliance of the New Economy on the irrational exuberance that permeated the equities market.

 

The conference was held April 27–28, 2000, at the Levy Institute’s research and conference center at Blithewood on the campus of Bard College, Annandale-on-Hudson, New York.

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Senior Scholar James K. Galbraith discusses what is perhaps the most important economic question facing the United States today: Are President Clinton’s fiscal policies sustainable, or are changes needed to keep the current expansion going? A new Strategic Analysis by Distinguished Scholar Wynne Godley examines recent trends and prospects for the trade deficit, debt, and property income.

Contents: Editorial: "Full Employment and How to Keep It" (James K. Galbraith) * Strategic Analysis: Notes on the US Trade and Balance of Payments Deficits * New Public Policy Briefs: A New Approach to Tax-Exempt Bonds * A Dual Mandate for the Federal Reserve * New Policy Note: Social Security Privatization * New Working Paper topics include: Employment Inequalities * The History of Wage Inequality in America, 1820 to 1970 * Computers and the Wage Structure * New Perspectives on the Guaranteed Income

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The nation is not prepared to deal with the jump in expenditures for long-term care that will come with the aging of the baby-boom generation. Only a small part of that care is paid for privately (out-of-pocket or through private insurance). Most is financed through Medicaid, the program that is intended to ensure medical care for the indigent. This use of Medicaid comes at a high cost for individuals and society: the allotment of more than a third of the Medicaid budget to long-term care; a two-tier care system; and the commandeering of limited funds by middle- and high-income people through elaborate estate planning to circumvent eligibility requirements. These problems would be mitigated by replacing the welfare model with an insurance model—voluntary or compulsory private insurance, with subsidies through income-scaled tax credits to ensure affordability. An equitable and efficient system could be created with a blend of public money, private insurance, and other private saving, with a safety net for those in greatest need.

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New Policy Notes summarized in this issue argue that the interest policy pursued by the Federal Reserve is theoretically and empirically unjustifiable (L. Randall Wray, “Why Does the Fed Want Slower Growth?”), and that the current expansion in the United States is in serious danger without appropriate changes in fiscal and exchange rate policies (Wynne Godley, “Drowning in Debt”).

Contents: Conference on Saving, Intergenerational Transfers, and the Distribution of Wealth · Workshop on Earnings Inequality · New Working Paper topics include: Can European Banks Survive a Unified Currency? · Why Does the Fed Want Slower Growth? · Drowning In Debt · Kaleckian Models of Growth in a Stock-Flow Monetary Framework · New Policy Notes: Why Does the Fed Want Slower Growth? · Drowning in Debt

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Summaries of the sessions held at the 10th Annual Hyman P. Minsky Conference on Financial Structure examine the problems and prospects of the liberalization of financial markets.

 

Contents: Tenth Annual Hyman P. Minsky Conference on Financial Structure: Liberalization of Financial Markets · Is the New Economy Rewriting the Rules? · The Views of Jerome Levy and Michal Kalecki · History of Wage Inequality · Japan’s Lost Decade · Trends in Wealth Ownership · Can the Expansion Be Sustained? · Phoenician Port Power

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The Spring Summary leads off with Senior Scholar Edward N. Wolff’s report on his new research project: an in-depth empirical examination of the long-term effects of technological change on earnings, inequality, and employment in the United States.

 

Contents: New Research Project: Long-Term Effects of Technological Change on Earnings, Inequality, and Labor Demand · Notes on the US Trade and Balance of Payments Deficits · On Krugman and the Liquidity Trap · Is There a Skills Crisis? · A New Approach to Tax-Exempt Bonds · Explaining the US Trade Deficit · The Brazilian Crisis · The Social Wage, Welfare Policy, and the Phases of Capital Accumulation · What’s Behind the Recent Rise in Profitability?

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A special feature by Distinguished Scholar Wynne Godley focuses on the relationship between inventory investment and the American business cycle. Also in this issue: a new working paper by Federal Reserve Board Governor Laurence Meyer provides a central banker’s perspective on the Asian crisis.

 

Contents: Conference on Inequality in the Industrialized and Developing Countries · Special Feature on Inventories and the US Business Cycle · History of Wage Inequality in America · Finance in a Classical and Harrodian Cyclical Growth Model · Financing Long-Term Care · Rhetorical Evolution of the Minimum Wage · Seven Unsustainable Processes · Computers and the Wage Structure

 

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If the United States’s balance of trade does not improve, the country could eventually find itself in a “debt trap,” the author says. The aim of this paper, the second in a series offering Godley’s strategic analysis, is to display what seems reasonably likely to happen if world output recovers but otherwise past trends, policies, and relationships continue. The potential usefulness of the exercise is to warn policymakers of dangers that may exist and to help them think out what policy instruments are, or should be made, available to deal with worst cases, should they arise.

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