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Public Policy Brief No.135
12 August 2014
The Euro Treasury Plan
AbstractContrary to German chancellor Angela Merkel’s recent claim, the euro crisis is not nearly over but remains unresolved, leaving the eurozone extraordinarily vulnerable to renewed stresses. In fact, as the reforms agreed to so far have failed to turn the flawed and dysfunctional euro regime into a viable one, the current calm in financial markets is deceiving, and unlikely to last.
The euro regime’s essential flaw and ultimate source of vulnerability is the decoupling of central bank and treasury institutions in the euro currency union. In this public policy brief, Research Associate Jörg Bibow proposes a Euro Treasury scheme to properly fix the regime and resolve the euro crisis. The Euro Treasury would establish the treasury–central bank axis of power that exists at the center of control in sovereign states. Since the eurozone is not actually a sovereign state, the proposed treasury is specifically designed not to be a transfer union; no mutualization of existing national public debts is involved either. The Euro Treasury would be the means to pool future eurozone public investment spending, funded by proper eurozone treasury securities, and benefits and contributions would be shared across the currency union based on members’ GDP shares. The Euro Treasury would not only heal the euro’s potentially fatal birth defects but also provide the needed stimulus to end the crisis in the eurozone.
Download Public Policy Brief No. 135, 2014 PDF (203.54 KB) -
Working Paper No.813
06 August 2014
Economic Policy in India
AbstractThe implementation of economic reforms under new economic policies in India was associated with a paradigmatic shift in monetary and fiscal policy. While monetary policies were solely aimed at “price stability” in the neoliberal regime, fiscal policies were characterized by the objective of maintaining “sound finance” and “austerity.” Such monetarist principles and measures have also loomed over the global recession. This paper highlights the theoretical fallacies of monetarism and analyzes the consequences of such policy measures in India, particularly during the period of the global recession. Not only did such policies pose constraints on the recovery of output and employment, with adverse impacts on income distribution; but they also failed to achieve their stated goal in terms of price stability. By citing examples from southern Europe and India, this paper concludes that such monetarist policy measures have been responsible for stagnation, with a rise in price volatility and macroeconomic instability in the midst of the global recession.
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Working Paper No.812
01 August 2014
Time Use of Parents in the United States
AbstractFeminist and institutionalist literature has challenged the “Mancession” narrative of the 2007–09 recession and produced nuanced and gender-aware analyses of the labor market and well-being outcomes of the recession. Using American Time Use Survey (ATUS) data for 2003–12, this paper examines the recession’s impact on gendered patterns of time use over the course of the 2003–12 business cycle. We find that the gender disparity in paid and unpaid work hours followed a U-shaped pattern, narrowing during the recession and widening slightly during the jobless recovery. The change in unpaid work disparity was smaller than that in paid work, and was short-lived. Consequently, mothers’ total workload increased under the hardships of the Great Recession and declined only slightly during the recovery.
Download Working Paper No. 812 PDF (544.96 KB) -
Research Project Report
29 July 2014
Co-operative Banking in Greece
AbstractThe crisis in Greece is persistent and ongoing. After six years of deepening recession, real GDP has shrunk by more than 25 percent, with total unemployment now standing at 27.2 percent. Clearly, reviving growth and creating jobs should be at the top of the policy agenda.Download Research Project Report, April 2014 PDF (3.89 MB)But banks remain undercapitalized, and lending has been restricted to only the most creditworthy businesses and households. Many start-ups and small- and medium-size enterprises (SMEs) have almost no access to development loans, and for those to whom credit can be extended, it is at disproportionally high interest rates.
The success of micro-lending institutions in developing nations (such as the Grameen Bank in Bangladesh) has highlighted the positive economic performance of community-based credit, and such lending models have proven to be an important poverty policy alternative in areas where transfer payments are limited. Community or co-operative financial institutions (CFIs) can fill the gap when existing institutions cannot adequately perform critical functions of the financial system for SMEs, entrepreneurs, and low-income residents seeking modest financing and other banking services.
We propose expanding the reach and services of CFIs within Greece, drawing upon lessons from the US experience of community development banking and various co-operative banking models in Europe. The primary goals of this nationwide system would be to make credit available, process payments, and offer savings opportunities to communities not well served by the major commercial Greek banks.
Our blueprint includes suggestions on the banks’ organization and a framework within which they would be chartered, regulated, and supervised by a newly created central co-operative bank. It also looks at the possible impact that such a network could have, especially in terms of start-ups, SMEs, and rural redevelopment (agrotourism)—all of which are critical to Greece’s exit from recession.
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Research Project Report
29 July 2014
Συνεταιριστικό τραπεζικό σύστημα στην Ελλάδα
AbstractΗ κρίση στην Ελλάδα είναι επίμονη και συνεχής. Μετά από έξι χρόνια βαθιάς ύφεσης, το πραγματικό ΑΕΠ έχει συρρικνωθεί κατά 25% και η ανεργία βρίσκεται κάπου στο 27%. Σαφώς, η αναζωογόνηση της ανάπτυξης και η δημιουργία θέσεων εργασίας πρέπει να βρίσκεται στην κορυφή της πολιτικής ατζέντας.
Αλλά οι τράπεζες παραμένουν υποκεφαλαιοποιημένες και ο δανεισμός έχει περιοριστεί και επεκτείνεται μόνο προς τις πιο αξιόπιστες επιχειρήσεις και νοικοκυριά. Πολλές νεοσύστατες επιχειρήσεις και μικρομεσαίες επιχειρήσεις δεν έχουν σχεδόν καμία πρόσβαση σε αναπτυξιακά δάνεια, ενώ ακόμη και εκείνοι που έχουν πρόσβαση στην πίστωση είναι αναγκασμένοι να πληρώνουν υψηλά επιτόκια.
Η επιτυχία των ιδρυμάτων μικρο-δανεισμού στις αναπτυσσόμενες χώρες (όπως η Grameen Bank στο Μπαγκλαντές) ανέδειξε τη θετική οικονομική επίδοση της κοινοτικά βασισμένης πίστωσης ενώ τέτοια μοντέλα δανεισμού έχουν αποδειχθεί ότι αποτελούν μια σημαντική εναλλακτική πολιτική για την αντιμετώπιση της φτώχειας σε περιοχές όπου είναι περιορισμένες οι μεταβιβαστικές πληρωμές. Τα κοινοτικά ή συνεταιριστικά χρηματοπιστωτικά ιδρύματα μπορεί να καλύψουν το κενό όταν τα υπάρχοντα ιδρύματα δεν μπορούν να εκτελέσουν επαρκώς κρίσιμες λειτουργίες του χρηματοπιστωτικού συστήματος για τις μικρομεσαίες επιχειρήσεις, τους επιχειρηματίες και τα άτομα με χαμηλό εισόδημα, που αναζητούν μικρές μορφές χρηματοδότησης και άλλες τραπεζικές υπηρεσίες.
Προτείνουμε την επέκταση της εμβέλειας και των υπηρεσιών των κοινοτικών χρηματοπιστωτικών ιδρυμάτων στην Ελλάδα, αντλώντας διδάγματα από την εμπειρία των ΗΠΑ με την κοινοτική αναπτυξιακή τραπεζική και των διαφόρων συνεταιριστικών τραπεζών που λειτουργούν στην Ευρώπη. Οι κύριοι στόχοι αυτού του πανεθνικού συστήματος θα είναι η πρόσβαση σε πίστωση και σε διαδικασίες πληρωμών, καθώς και η δυνατότητα ευκαιριών αποταμίευσης, προς τις κοινότητες που δεν εξυπηρετούνται από τις μεγάλες εμπορικές ελληνικές τράπεζες.
Το σχέδιο μας περιλαμβάνει προτάσεις για την οργάνωση των τραπεζών και ένα πλαίσιο εντός του οποίου θα πρέπει να πιστοποιούνται, να ρυθμίζονται και να εποπτεύονται από μια νεοσύστατη κεντρική συνεταιριστική τράπεζα. Επίσης, εξετάζει τις πιθανές επιπτώσεις που θα μπορούσε να έχει ένα τέτοιο δίκτυο, ιδίως όσον αφορά τις νεοσύστατες επιχειρήσεις, τις μικρομεσαίες επιχειρήσεις και την αγροτική ανάπλαση (αγροτουρισμός)—όλα από τα οποία είναι ζωτικής σημασίας για την έξοδο της Ελλάδας από την ύφεση.
Download Έκθεση Ερευνητικού Προγράμματος, Απρίλιος 2014 PDF (4.95 MB) -
Working Paper No.811
14 July 2014
If Deficits Are Not the Culprit, What Determines Indian Interest Rates?
AbstractThis paper challenges two clichés that have dominated the macroeconometric debates in India. One relates to the neoclassical view that deficits are detrimental to growth, as they increase the rate of interest, and in turn displace the interest-rate-sensitive components of private investment. The second relates to the assumption of “stationarity”—which has dominated the statistical inference in time-series econometrics for a long time—as well as the emphasis on unit root–type testing, which involves detrending, or differencing, of the series to achieve stationarity in time-series econometric models. The paper examines the determinants of rates of interest in India for the periods 1980–81 and 2011–12, using the maximum entropy bootstrap (Meboot) methodology proposed in Vinod 1985 and 2004 (and developed extensively in Vinod 2006, Vinod and Lopez-de-Lacalle 2009, and Vinod 2010 and 2013). The practical appeal of Meboot is that it does not necessitate all pretests, such as structural change and unit root–type testing, which involve detrending the series to achieve stationarity, which in turn is problematic for evolutionary short time series. It also solves problems related to situations where stationarity assumptions are difficult to verify—for instance, in mixtures of I(0) and nonstationary I(d) series, where the order of integration can be different for different series.
What makes Meboot compelling for Indian data on interest rates? Prior to interest rate deregulation in 1992, studies to analyze the determinants of interest rates were rare in India. Analytical and econometric limitations to dealing with the nonvarying administered rates for a meaningful time-series analysis have been the oft-cited reason. Using high-frequency data, the existing attempts have focused on the recent financially deregulated interest rate regime to establish possible links between interest rates and macroeconomic variables (Chakraborty 2002 and 2012, Dua and Pandit 2002, and Goyal 2004). The results from the Meboot analysis revealed that, contrary to popular belief, the fiscal deficit is not significant for interest rate determination in India. This is in alignment with the existing empirical findings, where it was established that the interest rate is affected by changes in the reserve currency, expected inflation, and volatility in capital flows, but not by the fiscal deficit. This result has significant policy implications for interest rate determination in India, especially since the central bank has cited the high fiscal deficit as one of the prime constraints for flexibility in fixing the rates.
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Working Paper No.810
27 June 2014
When Good Intentions Pave the Road to Hell
AbstractWith the creation of the Economic and Monetary Union and the euro, the national government debt of eurozone member-states became credit sensitive. While the potentially destabilizing impact of adverse cyclical conditions on credit-sensitive debt was seriously underestimated, the design was intentional, framed within a Friedman-Fischer-Buchanan view that “no monetization” rules provide a powerful means to discipline government behavior. While most countries follow some kind of “no monetization” rule, the one embraced by the eurozone was special, as it also prevented monetization on the secondary market for debt. This made all eurozone public debt defaultable—at least until the European Central Bank (ECB) announced the Outright Monetary Transactionsprogram, which can be seen as an enhanced rule-based approach that makes governments solvent on the condition that they balance their budgets. This has further narrowed Europe’s options for policy solutions that are conducive to job creation. An approach that would require no immediate changes in the European Union’s (EU) political structure would be for the EU to fund “net government spending in the interest of Europe” through the issue of a eurobond backed by the ECB.
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Working Paper No.810
27 June 2014
Ο δρόμος προς την κόλαση είναι στρωμένος με καλές προθέσεις
AbstractΜε τη δημιουργία της Οικονομικής και Νομισματικής Ένωσης και του ευρώ, το εθνικό δημόσιο χρέος των κρατών-μελών της ευρωζώνης έγινε πιστωτικά ευαίσθητο (credit sensitive). Ενώ οι δυνητικά αποσταθεροποιητικές επιπτώσεις των δυσμενών κυκλικών συνθηκών στο πιστωτικά ευαίσθητο χρέος είχε σοβαρά υποτιμηθεί, ο σχεδιασμός ήταν εκ προθέσεως, διαμορφωμένος στο πλαίσιο της άποψης που πρέσβευαν οι Friedman-Fischer-Buchanan ότι κανένας κανόνας «νομισματοποίησης» δεν μπορεί να προσφέρει ένα ισχυρό μέσο για την πειθαρχεία της κρατικής συμπεριφοράς. Ωστόσο, παρά το γεγονός ότι οι περισσότερες χώρες ακολουθούν κάποιου είδους κανόνες «μη νομισματοποίησης», ο κανόνας που ασπάστηκε η ευρωζώνη ήταν ξεχωριστός, καθώς εμπόδισε επίσης τη νομισματοποίηση για το χρέος στη δευτερογενή αγορά. Ως αποτέλεσμα, όλο το δημόσιο χρέος της ευρωζώνης απέκτησε θετική πιθανότητα χρεοκοπίας (defaultable) μέχρι τη στιγμή τουλάχιστον που η Ευρωπαϊκή Κεντρική Τράπεζα (ΕΚΤ) ανακοίνωσε το πρόγραμμα της αγοράς κρατικών ομολόγων (Outright Monetary Transactions), το οποίο μπορεί να θεωρηθεί ως μια προσέγγιση ενίσχυσης του κανόνα που κάνει τις κυβερνήσεις φερέγγυες υπό την προϋπόθεση ότι θα ισοσκελίσουν τους προϋπολογισμούς τους. Αυτό περιόρισε περαιτέρω τις επιλογές της Ευρώπης για πολιτικές λύσεις που συμβάλλουν στη δημιουργία θέσεων εργασίας. Μια προσέγγιση που δεν θα απαιτούσε καμία άμεση αλλαγή στην πολιτική δομή της Ευρωπαϊκής Ένωσης είναι η χρηματοδότηση των «καθαρών κρατικών δαπανών προς το συμφέρον της Ευρώπης» από την ΕΕ μέσω της έκδοσης ενός ευρωομολόγου από την Ευρωπαϊκή Κεντρική Τράπεζα.
Download Επιστημονική Εργασία υπό Εξέλιξη (Working Paper) No. 810 PDF (534.47 KB) -
Working Paper No.809
23 June 2014
Causal Linkages between Work and Life Satisfaction and Their Determinants in a Structural VAR Approach
AbstractWork and life satisfaction depends on a number of pecuniary and nonpecuniary factors at the workplace and determines these in turn. We analyze these causal linkages using a structural vector autoregression approach for a sample of the German working populace collected from 1984 to 2008, finding that workplace autonomy plays an important causal role in determining well-being.
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Working Paper No.808
23 June 2014
Heterogeneity in the Relationship between Unemployment and Subjective Well-Being
AbstractUnemployment has been robustly shown to strongly decrease subjective well-being (or “happiness”). In the present paper, we use panel quantile regression techniques in order to analyze to what extent the negative impact of unemployment varies along the subjective well-being distribution. In our analysis of British Household Panel Survey data (1996–2008) we find that, over the quantiles of our subjective well-being variable, individuals with high well-being suffer less from becoming unemployed. A similar but stronger effect of unemployment is found for a broad mental well-being variable (GHQ-12). For happy and mentally stable individuals, it seems their higher well-being acts like a safety net when they become unemployed. We explore these findings by examining the heterogeneous unemployment effects over the quantiles of satisfaction with various life domains.
Download Working Paper No. 808 PDF (3.09 MB) -
Research Project Report
23 June 2014
Responding to the Unemployment Challenge: A Job Guarantee Proposal for Greece
AbstractThis report presents the findings from a study undertaken by the Levy Institute in 2013 in collaboration with the Observatory of Economic and Social Developments of the Labour Institute of the Greek General Confederation of Labour. It uses as background the 2011 Levy Institute study “Direct Job Creation for Turbulent Times in Greece,” which focused on the need for direct job creation to address rising unemployment. The focus in this report, however, is different. Here, the aim is to make available to policymakers and the broader public research-based evidence of the macroeconomic and employment effects of a large-scale program of direct job creation program—a cost-effective and proven policy response. The ultimate goal of this undertaking is to draw urgently needed attention to the worsening levels of unemployment in Greece, and to invite critical rethinking of the austerity-driven macro policy instituted in 2010.
Download Research Project Report, April 2014 PDF (2.04 MB) -
Policy Notes No.4
04 June 2014
A Decade of Flat Wages?
AbstractIn the late 1990s low unemployment rates, increases in the minimum wage, and improvements in labor productivity contributed to a boost in wages, which translated into 12.4 percent cumulative growth in real wages from the late ‘90s until 2002. Real wages then stagnated despite continued growth in labor productivity. This period between 2002 and 2013 has become known as the decade of flat wages. However, over the same period there were significant changes in the composition of the labor market. In particular, the labor force has aged and become more educated. Increases in age, experience, and education could in fact be propping up observed real wages—meaning that wages of workers with a specific age and education profile may have actually declined over the decade. This is exactly what we uncover in this policy note: what appears to have been a decade of flat real wages was actually a decade of declining real wages within age/education worker profiles.Download Policy Note 2014/4 PDF (316.68 KB) -
Policy Notes No.4
04 June 2014
Μια δεκαετία στασιμότητας των μισθών
AbstractΣτα τέλη της δεκαετίας του 1990, τα χαμηλά ποσοστά ανεργίας, οι αυξήσεις του κατώτατου μισθού και οι βελτιώσεις στην παραγωγικότητα της εργασίας συνέβαλαν στην άνοδο των μισθών, που μεταφράστηκε σε μια αθροιστική αύξηση των πραγματικών μισθών της τάξης του 12,4% από τα τέλη της δεκαετίας του 1990 μέχρι το 2002. Οι πραγματικοί μισθοί έμειναν στάσιμοι στη συνέχεια, παρά την συνεχιζόμενη αύξηση της παραγωγικότητας της εργασίας. Η περίοδος μεταξύ 2002 και 2013 έχει γίνει γνωστή ως η δεκαετία της στασιμότητας των μισθών. Ωστόσο, την ίδια χρονική περίοδο υπήρξαν σημαντικές αλλαγές στη σύνθεση της αγοράς εργασίας. Συγκεκριμένα, το εργατικό δυναμικό γερνάει και γίνεται πιο ειδικευμένο. Η αύξηση ηλικίας, εργασιακής εμπειρίας και μορφωτικού επιπέδου θα μπορούσαν κάλλιστα να οδηγήσουν στην αύξηση των πραγματικών μισθών, πράγμα που σημαίνει ότι οι μισθοί των εργαζομένων μιας συγκεκριμένης ηλικιακής διάρθρωσης και ενός συγκεκριμένου μορφωτικού προφίλ μπορεί στην πραγματικότητα να μειώθηκαν κατά τη διάρκεια της δεκαετίας. Κι αυτό ακριβώς αποκαλύπτει το παρόν σημείωμα πολιτικής: μια δεκαετία φαινομενικά στάσιμων μισθών ήταν στην πραγματικότητα μια δεκαετία πτωτικής τάσης των πραγματικών μισθών για τους εργαζόμενους ενός συγκεκριμένου ηλικιακού και μορφωτικού προφίλ.
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Working Paper No.807
04 June 2014
Income Distribution Macroeconomics
AbstractRecent research stresses the macroeconomic dimension of income distribution, but no theory has yet emerged. In this note, we introduce factor shares into popular growth models to gain insights into the macroeconomic effects of income distribution. The cost of modifying existing models is low compared to the benefits. We find, analytically, that (1) the multiplier is equal to the inverse of the labor share and is about 1.4; (2) income distribution matters mostly in the medium run; (3) output is wage led in the short run, i.e., as long as unemployment persists; (4) capacity expansion is profit led in the full-employment long run, but this is temporary and unstable.
Download Working Paper No. 807 PDF (706.57 KB) -
Public Policy Brief No.134
03 June 2014
Ένα βιώσιμο νομισματικό πλαίσιο μιας ανεξάρτητης Σκωτίας
AbstractΟι ψηφοφόροι στη Σκωτία θα αποφασίσουν το Σεπτέμβριο αν θα παραμείνουν στο Ηνωμένο Βασίλειο. Αν ψηφίσουν υπέρ της ανεξαρτησίας, θα πρέπει να γίνουν στρατηγικής σημασίας επιλογές που αφορούν την έκταση της οικονομικής κυριαρχίας της Σκωτίας και τη μελλοντική της σχέση με το Ηνωμένο Βασίλειο. Με φόντο την καταστροφή στην ευρωζώνη, είναι σημαντικό να γίνουν οι σωστές διευθετήσεις.
Στο παρόν κείμενο πολιτικής, ο Philip Pilkington σκιαγραφεί ένα νομισματικό πλαίσιο σχεδιασμένο να ανταπεξέλθει τις μακροοικονομικές προκλήσεις που θα συναντήσει η ανεξάρτητη Σκωτία. Η κατάληξή του είναι ότι είναι προς το συμφέρον της Σκωτίας να συνεχίσει να χρησιμοποιεί τη στερλίνα στον βραχυπρόθεσμο χρονικό ορίζοντα καθώς θα προετοιμάζεται για η μετάβαση στην έκδοση του δικού της νομίσματος, ένα ελεύθερο κυμαινόμενο νόμισμα που θα θέσει σε σταθερά θεμέλια τη χώρα.
Download Κείμενο Δημόσιας Πολιτικής No. 134 PDF (782.35 KB) -
Public Policy Brief No.134
03 June 2014
A Sustainable Monetary Framework for an Independent Scotland
AbstractThis September, voters in Scotland will decide whether to break away from the United Kingdom. If supporters of independence carry the day, pivotal choices that affect the scope of Scotland’s economic sovereignty and its future relationship to the UK will need to be made, particularly with respect to the question of its currency. As the disaster in the eurozone makes clear, it is essential to get these arrangements right.
In this policy brief, Philip Pilkington outlines a monetary framework designed to meet the macroeconomic challenges that would be faced by a newly separate Scotland. His conclusion: while it would be in Scotland’s best interests to continue using the sterling in the short run, making the transition to issuing its own, freely floating currency would place the country on a more stable economic footing.
Download Public Policy Brief No. 134, 2014 PDF (547.26 KB) -
Working Paper No.806
30 May 2014
The Great Recession and Unpaid Work Time in the United States
AbstractPoverty status is an important factor influencing household production and the unpaid work time associated with it due to the role of household production as a coping strategy in mitigating the impact of economic downturns. In this paper, we examine the presence of poverty-based asymmetries in the unpaid work time changes of men and women during the Great Recession. Using the 2003–12 American Time Use Survey, we find that these changes indeed varied by poverty status. In particular, nonpoor women drove the reduction in unpaid work time among women. Among men, the lack of the change in unpaid work time masked the increase in poor men’s time and the decrease in nonpoor men’s time. Oaxaca-Blinder decompositions of the changes in the unpaid work time reveal that shifts in own and spousal employment status largely account for the gender-based differences in these changes, while shifts in the household structure partially explain the poverty-based differences. Nevertheless, sizable portions of the changes in time use remain unexplained by the shifting individual and household characteristics. The latter finding supports the hypothesis of poverty-based variation in the unpaid work time adjustments in that poor and nonpoor individuals appeared to have responded to the recession in different ways.
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Working Paper No.805
30 May 2014
What Do We Know About the Labor Share and the Profit Share? Part III
AbstractEconomic theory frequently assumes constant factor shares and often treats the topic as secondary. We will show that this is a mistake by deriving the first high-frequency measure of the US labor share for the whole economy. We find that the labor share has held remarkably steady indeed, but that the quasi-stability masks a sizable composition effect that is detrimental to labor. The wage component is falling fast and the stability is achieved by an increasing share of benefits and top incomes. Using NIPA and Piketty-Saez top-income data, we estimate that the US bottom 99 percent labor share has fallen 15 points since 1980. This amounts to a transfer of $1.8 trillion from labor to capital in 2012 alone and brings the US labor share to its 1920s level. The trend is similar in Europe and Japan. The decrease is even larger when the CPI is used instead of the GDP deflator in the calculation of the labor share.
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Working Paper No.804
21 May 2014
What Do We Know About the Labor Share and the Profit Share? Part II
AbstractIn this second part of our study we survey the rapidly expanding empirical literature on the determinants of the functional distribution of income. Three major strands emerge: technological change, international trade, and financialization. All contribute to the fluctuations of the labor share, and there is a significant amount of self-reinforcement among these factors. For the case of the United States, it seems that the factors listed above are by order of increasing importance. We conclude by noting that the falling US wage shares cointegrates with rising inequality and a rising top 1 percent income share. Thus, all measures of income distribution provide the same picture. Liberalization and financialization worsen economic inequality by raising top incomes, unless institutions are strongly redistributive.
The labor share has also fallen, for structural reasons and for reasons related to economic policy. Such explanations are left to parts III and IV of our study, respectively. Part I investigated the theories of income distribution.
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Working Paper No.803
21 May 2014
What Do We Know About the Labor Share and the Profit Share? Part I
AbstractThis series of working papers explores a theme enjoying a tremendous resurgence: the functional distribution of income—the division of aggregate income by factor share. This first installment surveys some landmark theories of income distribution. Some provide a technology-based account of the relative shares while others provide a demand-driven explanation (Keynes, Kalecki, Kaldor, Goodwin). Two questions lead to a better understanding of the literature: is income distribution assumed constant?, and is income distribution endogenous or exogenous? However, and despite their insights, these theories alone fail to fully explain the current deterioration of income distribution.
Subsequent installments are dedicated to analyzing the empirical literature (part II), to the measurement and composition of the relative shares (part III), and to a study of the role of economic policy (part IV).
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Working Paper No.802
21 May 2014
Shadow Banking
AbstractCentral banks responded with exceptional liquidity support during the financial crisis to prevent a systemic meltdown. They broadened their tool kit and extended liquidity support to nonbanks and key financial markets. Many want central banks to embrace this expanded role as “market maker of last resort” going forward. This would provide a liquidity backstop for systemically important markets and the shadow banking system that is deeply integrated with these markets. But how much liquidity support can central banks provide to the shadow banking system without risking their balance sheets? I discuss the expanding role of the shadow banking sector and the key drivers behind its growing importance. There are close parallels between the growth of shadow banking before the recent financial crisis and earlier financial crises, with rapid growth in near monies as a common feature. This ebb and flow of shadow-banking-type liabilities are indeed an ingrained part of our advanced financial system. We need to reflect and consider whether official sector liquidity should be mobilized to stem a future breakdown in private shadow banking markets. Central banks should be especially concerned about providing liquidity support to financial markets without any form of structural reform. It would indeed be ironic if central banks were to declare victory in the fight against too-big-to-fail institutions, just to end up bankrolling too-big-to-fail financial markets.
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Working Paper No.801
21 May 2014
The Political Economy of Shadow Banking
AbstractThis paper describes the political economy of shadow banking and how it relates to the dramatic institutional changes experienced by global capitalism over past 100 years. We suggest that the dynamics of shadow banking rest on the distributive tension between workers and firms. Politics wedge the operation of the shadow financial system as government policy internalizes, guides, and participates in dealings mediated by financial intermediaries. We propose a broad theoretical overview to formalize a stock-flow consistent (SFC) political economy model of shadow banking (stylized around the operation of money market mutual funds, or MMMFs). Preliminary simulations suggest that distributive dynamics indeed drive and provide a nest for the dynamics of shadow banking.
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Public Policy Brief No.133
14 May 2014
Dead Economic Dogmas Trump Recovery: The Continuing Crisis in the Eurozone Periphery
AbstractThe “happy talk” emanating from eurozone officials regarding the economic crises in the periphery deserves some vigorous pushback. Focusing on the four bailed-out countries of Greece, Ireland, Portugal, and Spain, Research Associate and Policy Fellow C. J. Polychroniou argues in this policy brief that, contrary to the burgeoning optimism in official communications, these countries’ economies are still not on track for vigorous, sustainable recoveries in growth and employment—and that there is nothing surprising in this result.
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Working Paper No.800
08 May 2014
Autonomy-enhancing Paternalism
AbstractBehavioral economics has shown that individuals sometimes make decisions that are not in their best interests. This insight has prompted calls for behaviorally informed policy interventions popularized under the notion of “libertarian paternalism.” This type of “soft” paternalism aims at helping individuals without reducing their freedom of choice. We highlight three problems of libertarian paternalism: the difficulty of detecting what is in the best interest of an individual, the focus on freedom of choice at the expense of a focus on autonomy, and the neglect of the dynamic effects of libertarian-paternalistic policy interventions. We present a form of soft paternalism called “autonomy-enhancing paternalism” that seeks to constructively remedy these problems. Autonomy-enhancing paternalism suggests using insights from subjective well-being research in order to determine what makes individuals better off. It imposes an additional constraint on the set of permissible interventions highlighting the importance of autonomy in the sense of the capability to make critically reflected (i.e., autonomous) decisions. Finally, it acknowledges that behavioral interventions can change the strength of individual decision-making anomalies over time as well as influence individual preference learning. We illustrate the differences between libertarian paternalism and autonomy-enhancing paternalism in a simple formal model in the context of optimal sin nudges.
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