The purpose of this symposium, held September 24, 1998, at the Levy Institute’s research and conference center on the campus of Bard College in Annandale-on-Hudson, New York, was to explore the causes and consequences of the persistence of poverty, and to examine policies that might rectify the inequitable distribution of the gains of economic success.

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Asia presents a cumulation of apparently rational decisions that produced disastrous results—a textbook illustration of “financial instability” developing from the economics of euphoria. A combination of factors produced the crisis as enormous capital inflows were drawn to the “Asian miracle”-pegged exchange rates with fluctuating interest rates, integrated economies, moral hazard created by central banks, and short-term lending and derivatives trade without sufficient evaluation of risk and credit analysis of borrowers. The Asian tragedy demonstrates the need for improved regulation of cross-border interbank lending, improved accounting for both borrowers and lenders, and separation of the close links between governments and their banking sector.

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Investment in infrastructure is necessary for a strong, flexible, and growing economy. However, the relationship between public capital and economic growth is not linear. At a certain level, the tax burden associated with financing and maintaining public capital reduces the returns to private industry, which in turn reduces growth; also, different types of spending have different effects on growth. The short- and long-term growth-maximizing effects of public investment increase as the ratio of public to private capital stock rises to an optimal level (found to be about 61 percent); above that level, the growth effects decrease. The public-to-private ratio is below the optimal level throughout much of the country and government spending is not always directed toward the types of investment that have the most positive effects on growth. Good economic policy requires both increasing the public capital stock and reorienting government spending from consumption to investment in physical capital stock.

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The fact that every change in the minimum wage requires an act of Congress means that debate over the wisdom of having a minimum is repeatedly returned to the political arena. As inflation continues to erode the value of the minimum wage, each legislative delay means that a larger increase is required. The larger the increase, the more resistance to its passage, so that by the time Congress acts, the political compromise is an increase that is too little and too late to be of much help in lifting workers out of poverty. Automatic adjustment of the wage, with increases keyed to measures of private sector productivity, would eliminate this problem. With the institution of a mechanism that provides regular and incremental increases, Congress will no longer be forced to revisit the issue, employers will not be confronted by sudden and large increases, and the value of the wage will be maintained.

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In this issue, Senator Daniel Patrick Moynihan talks with Sanjay Mongia about Social Security, tax reform, income inequality, and trade. Moynihan argues that Social Security should return to a pay-as-you-go system that allows participants to invest part of their contribution in a savings plan.

 

Contents: Symposium on Employment Policy and Labor Markets: Is There a Shortage of Information Technology Workers? * Editorial: Toward Full Employment without Inflation: The Job Opportunity Program (Dimitri B. Papadimitriou, L. Randall Wray, and Mathew Forstater) * The Levy Report Interview: Senator Daniel Patrick Moynihan Discusses Social Security, Tax Reform, Income Inequality, and Trade * New Working Papers: The Hierarchy of Money * The Asian Disease: Plausible Diagnoses, Possible Remedies * Public Capital and Economic Growth: Issues of Quantity, Finance, and Efficiency * Yes, ‘It’ Did Happen Again—A Minsky Crisis Happened in Asia * East Asia Is Not Mexico: The Difference between Balance of Payments Crises and Debt Deflations * An Important Inconsistency at the Heart of the Standard Macroeconomic Model * Speed of Technical Progress and Length of the Average Interjob Period * The Macroeconomics of Industrial Strategy * New Public Policy Brief: Overcoming America’s Infrastructure Deficit * New Policy Notes: Welfare Graduates: College and Financial Independence * How Should the Surpluses Be Spent? * Levy Institute News: Lectures and Seminars * New Scholars

 

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Why does a dynamic growing economy have a persistent long-term unemployment problem? Research Associates Baumol and Wolff have isolated one cause. Although technological change, the engine of growth and economic progress, may not affect or may even increase the total number of jobs available, the fact that it creates a demand for new skills and makes other skills obsolete can cause an increase in the overall rate of unemployment and the length of time during which an unemployed worker is between jobs. It goes without saying that society will not choose to slow technical innovation, but the task for policy is to find ways to offset the problems caused by this rising level and duration of unemployment.

Download Public Policy Brief Highlights No. 41A, 1998 PDF (105.75 KB)

This symposium examined the claim by information technology companies that the industry faced a shortage of qualified workers, and considered policy approaches to meeting current and future demands for qualified labor. The symposium was held on June 12, 1998, 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 Fall 1998 Summary.

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Condemned bridges, dilapidated school buildings, contaminated water supplies, and other infrastructure shortcomings threaten American growth, productivity, and prosperity. The authors of this brief propose a plan for financing infrastructure projects that is designed to have minimal effect on the federal budget and to promote sound fiscal operation. Federal zero-interest mortgage loans to state and local governments for capital projects specified by Congress can cut the cost of such projects, achieve needed improvements in the nation’s infrastructure, and thereby contribute to the American economy’s future.

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Is the current labor market as tight as official statistics would seem to indicate? If incumbent workers increase their hours of work, it is irrelevant to the unemployment rate, but hardly irrelevant to the level of labor supply. The authors of this brief find that job insecurity and stagnating wages have made Americans willing to work those extra hours to build a financial cushion, and a 1 percent increase in hours worked per worker for a fixed labor supply is equivalent in terms of labor supply to a 1 percent increase in the number of workers. This more realistic picture of labor supply has important implications for expectations that welfare recipients can easily find jobs, for reforms in labor market statistics to provide better information, and for the direction of monetary policy.

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Alice M. Rivlin, vice chair of the Board of Governors of the Federal Reserve System, and other participants at the Levy Institute’s annual Minsky conference on financial structure discuss the causes and worldwide effects of the Asian crisis and policies to prevent similar crises in the future.

Contents: Editorial Can We Grow Faster? (Stephanie Bell and L. Randall Wray) * New Working Papers: Employment Policy, Community Development, and the Underclass * Policy Innovation as a Discovery Procedure: Exploring the Tacit Fringes of the Policy Formulation Process * Money and Taxes: The Chartalist Approach * The Kaleckian Analysis and the New Millennium * The Diagnostic Imaging Equipment Industry: What Prognosis for Good Jobs? * The Development and Reform of the Modern International Financial System * The Political Economy of Corporate Governance in Germany * The Japanese Financial Crisis, Corporate Governance, and Sustainable Prosperity * Education’s Hispanic Challenge * E Pluribus Unum: Bilingualism and Language Loss in the Second Generation * The Romance of Assimilation: Studying the Demographic Outcomes of Ethnic Intermarriage in American History * Levy Institute News

 

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The Asian financial crisis has indeed brought the globalization of financial markets home to policymakers, academics, and the American public. In his editorial, Visiting Senior Scholar Jan Kregel questions the appropriateness of IMF policies in managing recent crises and also calls for democratic accountability in an institution of global financial governance.

Contents: The Levy Report Interview: Paula Stern Discusses Global Trade Policy * Editorial: The Strong Arm of the IMF (Jan Kregel) * Symposium: The Second Generation Then and Now: Education and Early Job Market Experiences * New Working Papers: On Budget Deficits and Capital Expenditure * Cumulative Regional Decline, Institutional Inadequacy, and the Democratic Deficit: Is European Monetary Union Economically and Politically Sustainable? * The Effects of Immigrants on African-American Earnings: A Jobs-Level Analysis of the New York City Labor Market, 1979-1989 * Income Distribution, Macroeconomic Analysis, and Barriers to Full Employment * An Efficiency Argument for the Guaranteed Income * Government as Employer of Last Resort: Full Employment without Inflation * The School to Work Transition of Second Generation * Immigrants in Metropolitan New York: Some Preliminary Findings * Achievement and Ambition among Children of Immigrants in Southern California * The Impact of Racial Segregation on the Education and Work Outcomes of Second Generation West Indians in New York City * The Economic Contributions of Hyman Minsky: Varieties of Capitalism and Institutional Reform * Selective Use of Discretionary Public Employment and Economic Flexibility * Linking the Minimum Wage to Productivity * Levy Institute News: David A. Levy Appointed to Presidential Capital Budget Commission * Scholars Brief Members of Congress * Levy Institute Conducts National Survey

 

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In this issue, a new Working Paper by Research Associates William J. Baumol and Edward N. Wolff finds a relationship between accelerating technological change and increased duration of unemployment.

Contents: Speed of Technical Progress and Length of the Average Interjob Period · “Inability to Be Self-reliant” as an Indicator of Poverty · Symposium: Is There a Shortage of Information Technology Workers? · Derivatives and Global Capital Flows: Application to Asia · Long-Term Determinants of Real Exchange Rates · The Macroeconomics of Industrial Strategy

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The fragility of the international financial system continues as a topic of discussion in worldwide policy circles. Alice Rivlin, Martin Mayer, Jan Kregel, and others discuss the causes of and recovery from the Asian crisis in remarks at a Levy Institute conference and in working papers.

Contents: New Working Papers: The Political Economy of Corporate Governance in Germany * The Japanese Financial Crisis, Corporate Governance, and Sustainable Prosperity * Education’s Hispanic Challenge * E Pluribus Unum: Bilingualism and Language Loss in the Second Generation * The Romance of Assimilation: Studying the Demographic Outcomes of Ethnic Intermarriage in American History * The Development and Reform of the Modern International Financial System * The Hierarchy of Money * The Asian Disease: Plausible Diagnoses, Possible Remedies * East Asia Is Not Mexico: The Difference between Balance of Payments Crises and Debt Deflations * Public Capital and Economic Growth: Issues of Quantity, Finance, and Efficiency * An Important Inconsistency at the Heart of the Standard Macroeconomic Model * Seminars: The Emergence of a National Labor Market in the United States * Fashion, Immigration, and the Economics of Ready-to-Wear * Help or Hindrance: The Economic Implications of Immigration for African Americans * Money and National Sovereignty in the Global * Money and National Sovereignty in the Global Economy * From Hammarapi to Leviticus: Who Shall Collect the Land’s Rent—the Palace or the Creditors? * Workshop on Monetary Theory and Policy * Eighth Annual Hyman P. Minsky Conference on Financial Structure

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Of special interest in this issue is a summation of a congressional policy briefing by Wynne Godley and Jan Kregel. Also of note are summaries of working papers on an assessment of the contributions of Hyman Minsky to economic theory, the relevance of Kaleckian analysis to today’s capitalist economies, and policy formulation as a discovery process.

Contents: New Working Paper topics include: Government as Employer of Last Resort: Full Employment without Inflation * The School to Work Transition of Second Generation
Immigrants in Metropolitan New York * Selective Use of Discretionary Public Employment and Economic Flexibility * Linking the Minimum Wage to Productivity * The Economic Contributions of Hyman Minsky * Employment Policy, Community Development, and the Underclass * Money and Taxes: The Chartalist Approach * Policy Innovation as a Discovery Procedure * The Kaleckian Analysis and the New Millennium * Institute News

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Scholars take different approaches to the questions of the possibility and desirability of attaining full employment. Barry Bluestone and Stephen Rose explore the effects of labor market slack on the inflation-unemployment trade-off, Malcom Sawyer and Philip Arestis advocate a return to Keynesian policies to secure full employment, and Beth Almeida looks to corporate strategies to explain the loss of good jobs that threatens sustainable prosperity in the United States.

Contents: New Working Papers include: The Growth in Work Time and the Implications for Macro Policy * The Effects of Immigrants on African-American Earnings * Income Distribution, Macroeconomic Analysis, and Barriers to Full Employment * Is European Monetary Union Economically and Politically Sustainable? * Are Good Jobs Flying Away? US Aircraft Engine Manufacturing and Sustainable Prosperity * On Budget Deficits and Capital Expenditure * Seminar: The Mixing of Peoples: Intermarriage and the Making of Americans—History, Prospects, Policy * Symposium: The Second Generation Then and Now: Education and Early Job Market Experience * Selection from New Book: Using Figures to Guide Macroeconomic Policy * Institute News: Congressional Policy Briefings

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Using theoretical predictions, econometric results, and the example of the Volcker disinflation, Willem Thorbecke establishes that through disinflation’s burden on the durable goods and construction industries, small firms, and low-wage workers and its benefits to bond market investors, it effects a redistribution of wealth from the poor to the rich. Because of this distributional consequence, he argues, engineering a disinflationary recession now to wring more inflation out of the economy would be inappropriate. On the contrary, with inflation as low as it is and with upward pressure on wages that could trigger a rise in inflation also low, now is the time for the Federal Reserve to let the economy grow—to seek policies that promote distributive justice and that help those individuals most at risk for shrinking income.

Download Public Policy Brief Highlights No. 38A, 1997 PDF (51.62 KB)

Since the 1970s corporate America has become obsessed with shedding employees to cut costs and with distributing revenue to stockholders. However, the way for it to regain its competitive edge and thus to restore the promise of secure and remunerative employment for its workers is to reform its system of governance. It must reject organizational segmentation and extraction of short-term returns and instead emphasize organizational integration and long-term value creation through financial commitment to investment in the collective and cumulative learning that is the foundation of industrial innovation.

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Distinguished Scholar Wynne Godley warns of the "headless monster" that might be created if European nations plunge into monetary union before establishing new political processes and institutions to replace the powers the nations surrender. In the Levy Report Interview, Congressman Tom Campbell discusses the Federal Reserve, tax reform, immigration, and affirmative action.

Contents: The Levy Report Interview: Tom Campbell Discusses the Federal Reserve, Tax Reform, Immigration, and Affirmative Action * Editorial: Is the Monetary Cart Leading the Political Horse? ( Wynne Godley) * New Working Papers: "Multiracials," Racial Classification, and American Intermarriage—The Public’s Interest * Skiki vono ko shtuvalo? The Seignorage Loss from Monetary Stabilization in Ukraine * Minimum Wage and Justice? * Earnings Inequality and the Quality of Jobs: The Status of Current Research and Proposals for an Expanded Research Agenda * Good Jobs and the Cutting Edge: The US Machine Tool Industry and Sustainable Prosperity * Second Generations: Past, Present, Future * Organizational Learning and International Competition: The Skill-Base Hypothesis * Aggregate Demand, Investment, and the NAIRU * The NAIRU: A Critical Appraisal * The Growth in Work Time and the Implications for Macro Policy * Macroeconomics without Equilibrium or Disequilibrium * Are Good Jobs Flying Away? US Aircraft Engine Manufacturing and Sustainable Prosperity * Reasserting the Role of Keynesian Policies for the New Millennium * Levy Institute News: A New Look for the Forecasting Center’s Publication

 

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The concept of a labor market, responding to familiar underpinnings of supply and demand, completely colors thought on the relationship between employment, wages, and inflation, according to James K. Galbraith. However, he asserts, wages are determined not by such market forces, but by what he calls the job structure—a complex set of status and pay relationships involving individual qualifications, job characteristics, and industry patterns. What is the meaning of the job structure for policy? Notions of natural rates of unemployment and inflationary barriers to full employment fade away. Supply-side measures can no longer been seen as adequate to deal with problems of unemployment and inequality. Questions of distribution of income and adjustment of the wage structure are returned to the political context. The active pursuit of full employment is returned to the list of respectable, and essential, policy goals.

Download Public Policy Brief Highlights No. 36A, 1997 PDF (53.78 KB)

On the United States’ census form, American citizens are told they may list any ethnic ancestries with which they identify, but are instructed to “mark one only” in the question on race. Joel Perlmann asserts that it is in the public interest to allow people to declare themselves as having origins in more than one race. To do otherwise is to deny that interracial marriages exist. This denial distorts our understanding of race data whether we are discussing projections of the composition of the American population or the definition of racial and minority status involved in discrimination legislation, affirmative action, and hiring and firing practices. If racial barriers are to be broken down, racial intermarriage should be treated in the same way any other form of ethnic intermarriage is treated, while ensuring that civil rights legislation, which rests on racial classification and counts, is not hobbled by ambiguities.

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The falling ratio of workers to retirees in the United States has raised concerns about Social Security’s ability to continue to provide a base level of support for all retired workers and to remain in balance with all of government’s other fiscal obligations. Of alternative plans that have been proposed to safeguard the system, Walter Cadette argues against radical revamping through privatization and suggests instead minor modifications in the existing tax and benefits structure.

Rebecca M. Blank considers how the flexibility of American labor markets and the regulation and redistribution policies of European labor markets may determine employers’ responses to worldwide economic transformations that result in increasing wage disparity in the United States and continuing high unemployment in Europe. She suggests that since the transformations will undoubtedly continue, governments should seek to develop plans to offset and reduce the adverse labor market effects.

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The recent enactment of a capital gains tax cut resulted, according to the authors, from the absence of a true appreciation or consideration of the real beneficiaries of such a cut, its probable actual effects, the distinction between productive and nonproductive sources of capital gains (two-thirds of capital gains accrue to real estate, which is a fixed, nonproductive asset), and distortions in our current income accounting system (which shield most real estate income from taxation). The across-the-board cut, which treats real estate appreciation and true capital gains as the same, is a giveaway to real estate and will steer capital and entrepreneurial resources to a search for unearned income.

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In an exploration of policy proposals to expand employment opportunities, participants at this year’s Levy Institute employment conference discuss workforce development, welfare-to-work, institutional and structural labor market changes, and economic growth. In an interview with Sanjay Mongia, author and editor William Grieder calls for a global perspective to save the worldwide economic system from its own contradictions.

Contents: The Levy Report Interview: William Greider Discusses Contradictions in the Global Economic System, Corporate Responsibility, and Progressive Policy * Editorial: Mend It, Don’t End It: A Case for a Skill-Based Immigration Policy (Sanjay Mongia) * New Working Papers: Do States Optimize? Public Capital and Economic Growth * Output and Employment Effects of Public Capital * Dynamic Output and Employment Effects of Public Capital * Social Security: The Challenge of Financing the Baby Boom’s Retirement * The Impact of Declining Union Membership on Voter Participation among Democrats * The Working Poor: Lousy Jobs or Lazy Workers? * Levy Institute News: Upcoming Symposium on Immigration

 

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