Publications

1657 publications found

• Working Paper No.245 01 July 1998

  Reciprocity and the Guaranteed Income

  Karl Widerquist
  Abstract

  This paper argues that a guaranteed income is not only consistent with the principle of reciprocity but is required for reciprocity. This conclusion follows from a three-part argument. First, if a guaranteed income is in place, all individuals have the same opportunity to live without working. Therefore, those who choose not to work do not take advantage of a privilege that is unavailable to everyone else. Second, in the absence of an unconditional income, society is, in effect, applying the principle “He who does not work, will not eat.” If the application of this principle is to be consistent with reciprocity, it must be applied to everyone. Most modern industrial societies exempt many citizens from that choice. For example, the owners of external assets do not face the work-or-starve choice and do take advantage of a privilege that is not available to others. An unconditional guaranteed income is one way to eliminate that violation of reciprocity. Third, this paper addresses the criticism that the guaranteed income exploits middle-class workers by demonstrating that a basic income will have a positive effect on wages, which will at least partially counteract the effect of the taxes needed to pay for it.

  Download Working Paper No. 245 PDF (54.86 KB)
• Working Paper No.244 01 July 1998

  Can Taxes and Bonds Finance Government Spending?

  Stephanie A. Kelton
  Abstract

  This paper investigates the commonly held belief that government spending is normally financed through a combination of taxes and bond sales. The argument is a technical one and requires a detailed analysis of reserve accounting at the central bank. After carefully considering the complexities of reserve accounting, it is argued that the proceeds from taxation and bond sales are technically incapable of financing government spending and that modern governments actually finance all of their spending through the direct creation of high-powered money. The analysis carries significant implications for fiscal as well as monetary policy.

  Download Working Paper No. 244 PDF (1.65 MB)
• Working Paper No.243 01 July 1998

  State Type and Congressional Voting on the Minimum Wage

  Oren Levin-Waldman
  Abstract

  How members of Congress vote on increases in the minimum wage is a function of several factors, most notably party affiliation and constituent interest. But also among those factors is the existence of “right-to-work” laws in the representative’s state and the presence of labor unions, especially as they represent a voting constituency. This paper examines congressional voting patterns on the minimum wage from 1949, when the first vote to increase the wage occurred, to 1996, when the last vote occurred, and finds a relationship between union strength and positive voting, a relationship between “right-to-work” states and negative voting, and a decline in the significance of unions as a factor affecting congressional voting as unionism has declined.

  Download Working Paper No. 243 PDF (66.76 KB)
• Working Paper No.242 01 July 1998

  Money and Credit in a Keynesian Model of Income Determination

  Wynne Godley
  Abstract

  This paper formally integrates the theory of money and credit derived ultimately from Wicksell into the Keynesian theory of income determination, with assets allocated according to Tobinesque principles. The model deployed has much in common with the modern “endogenous money” school initiated by Kaldor which emphasizes the essential role played by credit in any real life economy, since production takes time and the future is always uncertain. New ground is broken methodologically because all the propositions are justified by simulations of a rigorous (60-equation) model, making it possible to pin down exactly why the results come out as they do. One conclusion of the paper is that there is no such thing as a supply of money distinct from the money which agents wish to hold or find themselves holding. This finding is inimical, possibly in the end lethal, to the way macroeconomics is currently taught as well as to the neoclassical paradigm itself.

  Download Working Paper No. 242 PDF (2.18 MB)
• Working Paper No.241 01 July 1998

  Optimal Financing by Money and Taxes of Productive and Unproductive Government Spending

  David Alan Aschauer
  Abstract

  This paper contains an investigation of the effects of different means of financing government spending on economic growth, inflation, and welfare. In this setting, two different types of government spending are considered: productive expenditures that provide services to the private sector in its production activities, and unproductive expenditures that have no direct influence on the private economy. In turn, two different
  forms of finance are considered: proportional income taxation; and money creation.

  Download Working Paper No. 241 PDF (753.69 KB)
• Working Paper No.238 01 June 1998

  The Macroeconomics of Industrial Strategy

  Philip Arestis and Malcolm Sawyer
  Abstract

  This paper explores some of the links between macroeconomic policy and industrial strategy. The perspective of the present paper is to emphasize the role of the output and investment activities of enterprises rather than the general focus on the labor market in the determination of economic performance. We have explored this aspect in some detail in connection with the inflation barrier, and argue that such a barrier should be viewed in terms of a lack of capacity. We briefly review the balance of trade constraint on growth and employment. The overall implications of those two sets of analyses is that macroeconomic performance would be enhanced by appropriate industrial strategy, and that inappropriate macroeconomic policies will damage industrial performance. Policies designed to restrain inflation by lowering the level of aggregate demand will tend to depress investment and harm capacity. Improved industrial performance requires a climate conducive to investment and research and development, which in turn depends on, inter alia, high and stable levels of aggregate demand.

  Download Working Paper No. 238 PDF (1.65 MB)
• Policy Notes No.6 01 June 1998

  What to Do with the Surplus

  Dimitri B. Papadimitriou and L. Randall Wray
  Abstract

  Neither Congress nor the president is on the right track. Rather than protecting the surplus, we should be increasing spending and cutting taxes to contain the looming world recession.

  Download Policy Note 1998/6 PDF (120.12 KB)
• Public Policy Brief No.40 02 May 1998

  Overcoming America’s Infrastructure Deficit

  Walter M. Cadette and S. Jay Levy
  Abstract

  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.

  Download Public Policy Brief No. 40, 1998 PDF (5.25 MB)
• Public Policy Brief No.39 01 May 1998

  The Unmeasured Labor Force

  Barry Bluestone and Stephen Rose
  Abstract

  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.

  Download Public Policy Brief No. 39, 1998 PDF (388.31 KB)
• Working Paper No.237 01 May 1998

  Speed of Technical Progress and Length of the Average Interjob Period

  Edward N. Wolff
  Abstract

  The mean duration of unemployment approximately doubled in the United States between the early 1950s and the mid-1990s, with most of the increase occurring since the early 1970s. Using a simple model linking the average duration of unemployment with the speed of technical change, and aggregate time-series data, the authors find strong evidence that both the rate of total-factor productivity growth and investment in office, computing, and accounting equipment (OCA) per employee have a significant positive effect on mean unemployment duration. Moreover, literally all of the two-thirds rise in mean unemployment duration between 1971 and 1994 (two similar points in the business cycle) can be attributed to increases in OCA investment.

  Download Working Paper No. 237 PDF (2.60 MB)
• Policy Notes No.5 01 May 1998

  The Fed Should Lower Interest Rates More

  Dimitri B. Papadimitriou and L. Randall Wray
  Abstract

  Some analysts have argued against monetary ease, fearing that it might fuel a speculative boom. Alas, given the recent substantial “market correction,” this objection may safely be put away.

  Download Policy Note 1998/5 PDF (71.24 KB)
• Working Paper No.236 01 May 1998

  An Important Inconsistency at the Heart of the Standard Macroeconomic Model

  Wynne Godley and Anwar M. Shaikh
  Abstract

  The standard neoclassical model is the foundation of most mainstream macroeconomics. Its basic structure
  dominates the analyis of macroeconomic phenomena, the teaching of the subject, and even the formation of
  economic policy. And, of course, the modern quantity theory of money and its attendant monetarist
  prescriptions are grounded in the model’s strict separation between real and nominal variables.
  It is quite curious, therefore, to discover that this model contains an inconsistency in its treatment of the
  distribution of income. And when this seemingly small discrepancy is corrected, without any change in all of
  the other assumptions, many of the model’s characteristic results disappear.

  Two instances are of particular
  interest. First, the strict dichotomy between real variables and nominal variables breaks down, so that, for
  example, an increase in the exogenously given money supply changes real variables such as household income,
  consumption, investment, the interest rate, and hence real money demand. Secondly, since the price level
  depends on the interaction of real money demand and the nominal money supply, and since the former is now
  affected by the latter, price changes are no longer proportional to changes in the money supply. Indeed, we will
  demonstrate that prices can even fall when the money supply rises. The link to the quantity theory of money,
  and to monetarism, is severed.

  Download Working Paper No. 236 PDF (58.43 KB)
• Working Paper No.235 01 May 1998

  East Asia Is Not Mexico

  Jan Kregel
  Abstract

  What was different about the collapse of the Asian emerging markets in 1997? The free fall
  of the Mexican peso and the collapse of the Mexican Bolsa produced a “Tequila effect” that spread
  through most of South America. But it did not create a sell-off in the global financial markets similar
  to that which occurred on 27 October 1997. Normally, sharp declines in prices in emerging equity
  markets produce a “flight to quality,” in which international investors shift their funds back into
  developed-country markets and local investors seek to protect their wealth by diversifying into
  developed-country assets. Yet the collapse in the Asian emerging markets, that started in Thailand,
  spread to the other second-tier Newly Industrialising Economies (NIEs), and eventually extended to
  the first-tier NIEs produced the largest absolute declines ever experienced in the major developed-country equity markets. If equity markets can suffer from what Alan Greenspan has called “irrational
  exuberance,” the Asian crisis suggests that they may also suffer from “irrational pessimism.” Yet
  there is much to indicate that in this case the financial markets in Japan, Europe, and the United States were
  quite rational in assessing the global implications of the financial crisis in Asia.

• Policy Notes No.4 01 April 1998

  Small Business and the New Welfare

  Oren Levin-Waldman and George W. McCarthy
  Abstract

  To what extent have small businesses hired former welfare recipients and what might induce them to hire more? The Levy Institute conducts a national survey of small firms in many industries to find out.

  Download Policy Note 1998/4 PDF (64.21 KB)
• Working Paper No.234 01 April 1998

  Yes, “It” Did Happen Again

  Jan Kregel
  Abstract

  The title of Visiting Senior Scholar Jan Kregel’s working paper is a reference to Hyman P. Minsky’s book Can “It” Happen Again? The Minskian “it” is the debt deflation scenario that led to the Great Depression, and Kregel makes the case that the recent Asian crisis is just such a scenario.

  Minsky defined three types of financing. Hedge financing is a position in which a firm’s expected cash flow always exceeds the financing costs and operating expenses by a wide margin of safety. Speculative financing is a position in which a firm has a positive net present value, but the expected cash flow will not be sufficient to meet all financial commitments in all periods. Ponzi financing is a position in which a firm has to borrow funds just to meet its current cash flow commitments. According to Minsky, a change in macroeconomic variables, such as the interest rate, can change a firm’s financial position from hedge to speculative or even to Ponzi by reducing the present value of the firm’s current cash flow and increasing its cash flow commitments. A bank will respond to a deterioration of the financial position of its debtors by reducing lending and attempting to recall lending. If so, firms will find themselves in Ponzi positions and will be forced to sell assets just to meet their current cash flow commitments. Selling assets creates a generalized downward pressure on output and asset prices. Thus, the term “debt deflation.”

  According to Kregel, the above scenario could also result from a depreciation in the exchange rate if firms have a high proportion of imported inputs or foreign debt—and this is precisely what happened in Asia in 1997.

• Working Paper No.233 01 April 1998

  Public Capital and Economic Growth

  David Alan Aschauer
  Abstract

  Empirical research largely suggests that there is a positive role for public capital and a negative role for taxation and debt, and the effectiveness of public capital depends critically on its efficiency. Research Associate David Alan Aschauer develops a common framework to investigate the importance of three aspects of public capital: how much you
  have, how you pay for it, and how you use it.

• Working Paper No.232 01 April 1998

  The Asian Disease

  Martin Mayer
  Abstract

  The Asian crisis is a textbook case of the “financial instability hypothesis” first expressed in 1966 by the late Hyman P. Minsky.

  Minsky’s “hypothesis” was proposed to explain instability in a large, insulated, developed economy. Despite its intuitive appeal, it was not widely accepted among financial economists (Charles Kindleberger being a notable exception) because, they said, they could not find historical illustrations to fit the theory. The financial economist’s machine runs smoothly in the best of all possible worlds. What makes trouble in the financial economist’s world is the exogenous shock that affects everyone (war, oil prices) or government error (fiscal imbalance, monetary policy). “Financial distress,” Barry Eichengreen and Richard Portes write in their study of sovereign debt rescheduling, “normally results from a real shock or bad policies.” But Asia presents a cumulation of apparently rational decisions that are precisely those Minsky predicted.

  Download Working Paper No. 232 PDF (79.58 KB)
• Working Paper No.231 01 April 1998

  The Hierarchy of Money

  Stephanie A. Kelton
  Abstract

  This paper attempts to bring together several of Hyman P. Minsky’s insights in order to suggest a relationship between the state’s ability to tax and the money of the economy. Minsky recognized that money represents an IOU or promise to pay and that “acceptability” is its important feature. He further recognized that the State can play an important role in determining whose IOUs will be accepted (both publicly and privately). I will argue that support for the Chartalist vision of money as a ‘creature of the State’ can be found in Minsky. Finally, I will apply the Chartalist theory to Minsky’s notion of a ‘hierarchy of money’ in order to suggest that the State determines not only the unit in which all of the monies in the hierarchy are denominated but also influences the positioning of certain monies within the hierarchy.

  Download Working Paper No. 231 PDF (60.16 KB)
• Working Paper No.228 01 March 1998

  Education’s Hispanic Challenge

  Georges Vernez
  Abstract

  Two family characteristics are consistently associated with educational attainment: the level of education of
  parents and the material resources available to support the education of the children. Hispanic parents have a
  lower level of education than any other group, and Hispanic income is lower than any other group except
  African Americans. Hispanic children are underrepresented in preschool. On average, by age 13 Hispanic
  children are two years behind non-Hispanic white students in English and four years behind in science.
  Hispanic high school students are less likely to be enrolled in college preparatory courses. The cumulative
  effect is that Hispanics, especially those of Mexican ancestry, are less likely to attend and complete college than
  any other ethnic group. Only 7 percent of Mexicans aged 25 to 37 have completed college.
  The reduced likelihood that native-born Hispanics will complete college does not point to a rapid assimilation
  into the American economic mainstream.

  The cause of the disparity is a combination of school, parental, cultural, and
  structural factors, including inadequate school financing, school segregation, low socioeconomic status of
  parents, and low educational level of parents. According to the author, the upgrading of the educational
  attainment of Hispanic children will require intervening beyond the classroom, and probably will require
  experimenting with more involvement of parents and communities—an effort that will have to be sustained over the
  long term.

  Download Working Paper No. 228 PDF (1.83 MB)
• Working Paper No.227 01 March 1998

  The Japanese Financial Crisis, Corporate Governance, and Sustainable Prosperity

  William H. Lazonick
  Abstract

  Before the Japanese stock market crash of 1990, Japanese industry was a phenomenal success. A recent
  unemployment rate of under 4 percent, although low by world standards, is the highest Japan has experienced since
  the current mode of calculation began in 1953. Japan’s industrial dominance, sustained prosperity, and
  commitment to lifetime employment seem to be in danger. Research Associate William Lazonick, of INSEAD
  and the Center for Industrial Competitiveness at the University of Massachusetts–Lowell, takes issue with this
  perception. He finds that the Japanese economy is in a better position than the United States to achieve
  sustainable prosperity, which he defines as “the spreading of the benefits of economic growth to more and
  more people over a prolonged period of time.”

  Download Working Paper No. 227 PDF (162.66 KB)
• Policy Notes No.3 01 March 1998

  Small Business and the Minimum Wage

  Oren Levin-Waldman and George W. McCarthy
  Abstract

  To what extent have small businesses hired former welfare recipients and what might induce them to hire more? Do small businesses change their hiring and employment practices in response to an increase in the minimum wage? The Levy Institute conducts a national survey of small firms in many industries to find out.

  Download Policy Note 1998/3 PDF (93.68 KB)
• Working Paper No.230 01 March 1998

  The Romance of Assimilation?

  Joel Perlmann
  Abstract

  Little research has been done on the role of intermarriage in the blending of peoples in the American past, and
  even less has been done on the effect of past intermarriage on the ethnic identity of today’s Americans. Senior
  Scholar Joel Perlmann sees value in studying intermarriage to show fault lines in society (social distance is
  larger across some divisions than others) and to examine the effect intermarriage ultimately has on
  assimilation. Perlmann asks, Is it assimilation that causes intermarriage or intermarriage that causes
  assimilation? As he sees it, the causality works in both directions: weakened ethnic allegiances are a source of
  intermarriage and intermarriage weakens ethnic allegiances./P>

  Download Working Paper No. 230 PDF (97.84 KB)
• Working Paper No.229 01 March 1998

  E Pluribus Unum

  Lingxin Hao and Alejandro Portes
  Abstract

  Knowledge of English is near universal, and preference for that language is dominant among most immigrant nationalities. However, only a minority remain fluent in the parental languages, and there are wide variations among immigrant groups in the extent of their parental linguistic retention. These variations are important for theory and policy because they affect the speed of acculturation and the extent to which sizable pools of fluent bilinguals will be created by today’s second generation.

   

  The authors examine patterns of language adaptation in a sample of over 5,000 second-generation students in South Florida and Southern California, employing multivariate and multilevel analyses to identify the principal factors accounting for variation in foreign language maintenance and bilingualism. While a number of variables emerge as significant predictors, they do not account for differences across immigrant nationalities which become even more sharply delineated. A clear disjuncture exists between children of Asian and Hispanic backgrounds whose parental language maintenance and bilingual fluency vary significantly. Reasons for this divergence are explored and their policy implications are discussed.

   

  Download Working Paper No. 229 PDF (2.83 MB)
• Working Paper No.226 01 February 1998

  The Political Economy of Corporate Governance in Germany

  Mary O'Sullivan
  Abstract

  Research Associate Mary O’Sullivan, of INSEAD and the Center for Industrial Competitiveness at the
  University of Massachusetts–Lowell, is investigating systems of corporate governance to find which lead to
  successful decisions for individual firms and for an economy as a whole. She believes that success requires a
  form of corporate governance that generates conditions that permit cumulative and collective learning, provides
  financial commitment to innovative investment, and integrates human and physical resources in the
  development and use of technology. She warns that because both the real and financial sectors are in a
  continual process of change, a successful system of governance cannot be determined in the abstract. Strategies
  that work at one time may not work at another. In her examination of corporate governance in Germany, she
  therefore makes a detailed study of postwar German economic history.
  According to O’Sullivan, financial commitment to innovative investment in

  Download Working Paper No. 226 PDF (5.05 MB)