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1657 publications found
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Research Project Report
01 December 2004
How Much Does Public Consumption Matter for Well-Being?
AbstractThis report supplements previous findings of the Levy Institute Measure of Economic Well-Being (LIMEW) research project within our program on the distribution of income and wealth. Some readers have questioned the sensitivity of our estimates in view of our imputation techniques. Therefore, the authors explore the sensitivity of their key findings to changes in the set of assumptions that they use to impute public consumption, which is a major component of the LIMEW.
The authors consider alternative assumptions regarding three components of public consumption: general public consumption, highways, and schooling. New calculations for 1989 and 2000 show that their initial major findings remain intact using alternative estimation procedures: there is a positive correlation between public consumption and the LIMEW, overall inequality is higher in 2000 than 1989, and public consumption reduces inequality. The results show that their measure of economic well-being is robust under alternative assumptions of public consumption. They conclude that government provisioning of amenities plays an important role in sustaining living standards and should be included in a measure of economic well-being.
Download LIMEW Report, December 2004 PDF (417.17 KB) -
Working Paper No.415
19 November 2004
Measuring Capacity Utilization in OECD Countries
AbstractThis paper derives measures of potential output and capacity utilization for a number of OECD countries, using a method based on the cointegration relation between output and the capital stock. The intuitive idea is that economic capacity (potential output) is the aspect of output that co-varies with the capital stock over the long run. We show that this notion can be derived from a simple model that allows for a changing capital-capacity ratio in response to partially exogenous, partially embodied, technical change. Our method provides a simple and general procedure for estimating capacity utilization. It also closely replicates a previously developed census-based measure of US manufacturing capacity-utilization. Of particular interest is that our measures of capacity utilization are very different from those based on aggregate production functions, such as the ones provided by the IMF.
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Working Paper No.414
10 November 2004
Household Wealth Distribution in Italy in the 1990s
AbstractThis paper describes the composition and distribution of household wealth in Italy. First, the evolution of household portfolios over the last 40 years is described on the basis of newly reconstructed aggregate balance sheets. Second, the characteristics and quality of the main statistical source on wealth distribution, the Bank of Italy’s Survey of Household Income and Wealth, are examined together with the statistical procedures used to adjust for nonresponse, nonreporting and underreporting. The distribution of household net worth is then studied using both adjusted and unadjusted data. Wealth inequality is found to have risen steadily during the 1990s. The increased concentration of financial wealth was an important factor in determining this path. Download Working Paper No. 414 PDF (513.03 KB) -
Working Paper No.413
05 October 2004
Visions and Scenarios
AbstractEcological economics is a transdisciplinary alternative to mainstream environmental economics. Attempts have been made to outline a methodology for ecological economics and it is probably fair to say that, at this point, ecological economics takes a “pluralistic” approach. There are, however, some common methodological themes that run through the ecological economics literature. This paper argues that the works of Adolph Lowe and Robert Heilbroner can inform the development of some of those themes. Both authors were aware of the environmental challenges facing humanity from quite early on in their work, and quite ahead of time. In addition, both Lowe’s Economics and Sociology (and related writings) and Heilbroner’s “Worldly Philosophy” (itself influenced by this work of Lowe) recognized the endogeneity of the natural environment, the impact of human activity on the environment, and the implications of this for questions of method. Lowe and Heilbroner also became increasingly concerned with issues related to the environment over time, such that these issues became of prime importance in their frameworks. This work deals directly with ecological and environmental issues; both authors also dealt with other issues that relate to the environmental challenge, such as technological change. But it is not only their work that explicitly addresses the environment or relates to environmental challenges that is relevant to the concerns of ecological economists. Both Heilbroner’s “Worldly Philosophy” and Lowe’s “Political Economics” offer insights that may prove useful in developing a methodology of ecological economics. Ecological economists have taken a pluralistic approach to methodology, but the common themes in this work regarding the importance and nature of vision, analysis (including structural analysis), scenarios, implementation, the necessity of working backwards, the role for imagination, rejecting the positive/normative dichotomy, and so on, all are issues that have been elaborated in Lowe’s work, and in ways that are relevant to ecological economics. The goal of the paper is actually quite modest: to make ecological economists aware of the work of the two authors, and get them interested enough to explore the possible contribution of these ideas to their methodological approach. Download Working Paper No. 413 PDF (279.58 KB) -
Working Paper No.412
01 October 2004
The Transmission Mechanism of Monetary Policy
AbstractRecently, many economists have credited the late-1990s economic boom in the United States for the easy money policies of the Federal Reserve. On the other hand, observers have noted that very low interest rates have had very little positive effect on the chronically weak Japanese economy. Therefore, some theory of how money affects the economy when it is endogenous would be useful. This paper pursues several such explanations, including the effects of interest rate changes on (1) investment; (2) consumer spending; (3) the exchange rate; and (4) financial markets. The theories of such authors as Kalecki, Keynes, Minsky, and J. K. Galbraith are discussed and evaluated, with an emphasis on the role of cash flow. Some of these theories turn out to be stronger than others when subjected to tests of logic and empirical evidence.
Download Working Paper No. 412 PDF (320.12 KB) -
Research Project Report
22 September 2004
How Much Does Wealth Matter for Well-Being?
AbstractEconomic well-being refers to the command or access by members of a household over the goods and services produced in a modern market economy during a given period of time.The Levy Institute Measure of Economic Well-Being (LIMEW) is a comprehensive measure that is constructed as the sum of the following components: base money income (gross money income minus property income and government cash transfers), employer contributions for health insurance, income from wealth, net government expenditures (transfers and public consumption, net of taxes), and the value of household production.
Our previous work provided estimates of the LIMEW and its components for households in the United States, estimates of the LIMEW for some key demographic groups, and estimates of overall economic inequality. These estimates were compared with those based on the official measures (see Wolff, Zacharias, and Caner 2004 for more information regarding our concepts, sources, and methods). Some readers have questioned the sensitivity of our estimates to the particular types of imputation techniques that we use. This document explores the sensitivity of the LIMEW to the underlying assumptions on imputing income from wealth, a major component of the LIMEW. We provide new calculations for 1989 and 2000 that show that our initial major findings using the LIMEW hold up, generally, using alternative estimation procedures: mean income from wealth increases by decile, the share of mean income from wealth rises between 1989 and 2000, and inequality is higher in 2000 than 1989.
Download LIMEW Report, September 2004 PDF (424.32 KB) -
Strategic Analysis
01 August 2004
Prospects and Policies for the US Economy
AbstractThe American economy has grown reasonably fast since the second half of 2003, and the general expectation seems to be that satisfactory growth will continue more or less indefinitely. This paper argues that the expansion may indeed continue through 2004 and for some time beyond. But with the government and external deficits both so large and the private sector so heavily indebted, satisfactory growth in the medium term cannot be achieved without a large, sustained, and discontinuous increase in net export demand. It is doubtful whether this will happen spontaneously, and it certainly will not happen without a cut in domestic absorption of goods and services by the United States which would impart a deflationary impulse to the rest of the world. We make no short-term forecast. Instead, using a model rooted in a consistent system of stock and flow variables, we trace out a range of possible medium term scenarios in order to evaluate strategic predicaments and policy options without being at all precise about timing.
Download Strategic Analysis, August 2004 PDF (668.60 KB) -
Public Policy Brief No.79
01 August 2004
The Case for Rate Hikes
AbstractFor a time, the Federal Open Market Committee (FOMC) seemed to have learned from the mistakes of the past. Instead of taking good economic performance as a sign of incipient inflation, Chairman Alan Greenspan kept interest rates relatively low in the late 1990s, even as unemployment plummeted. Many commentators worried that the FOMC’s unusually easy stance would usher in a period of runaway inflation, but inflation stayed in the 2 to 3 percent range.
Now, with scant evidence of an inflationary threat, Greenspan and his committee seem intent on raising interest rates. Greenspan argues that the current anemic expansion is “self-sustaining” and no longer needs the support of low interest rates.
In this new brief, Levy Institute Senior Scholar L. Randall Wray evaluates the Fed’s concern about a coming inflation and its decision to begin raising interest rates. He begins with an examination of key market developments that might signal inflation. Most economists worry about inflation when labor markets begin to tighten and employees gain the bargaining power necessary to demand pay raises. Wray marshals an array of evidence demonstrating that workers can only wish for such conditions. The economy has created no net new jobs since the beginning of the current presidential term. To match the 64.4 percent proportion of adults who held jobs during the Clinton era, the economy would have to generate four million new positions. It is clear that the job market will not be a source of inflation any more than it was during the Clinton boom.
Download Public Policy Brief No. 79, 2004 PDF (426.03 KB) -
Book Series
01 August 2004
Induced Investment and Business Cycles
AbstractThis unique volume presents, for the first time in publication, the original doctoral thesis of Hyman P. Minsky, one of the most innovative thinkers on financial markets. Dimitri B. Papadimitriou’s introduction places the thesis in a modern context, and explains its relevance today. The thesis explores the relationship between induced investment, the constraints of financing investment, market structure, and the determinants of aggregate demand and business cycle performance. Forming the basis of his subsequent development of financial Keynesianism and his “Wall Street” paradigm, Minsky investigates the relevance of the accelerator-multiplier models of investment to individual firm behavior in undertaking investment dependent on cost structure. Uncertainty, the coexistence of other market structures, and the behavior of the monetary system are also explored.
In assessing the assumptions underlying the structure and coefficient values of the accelerator models frequently used, the book addresses their limitations and inapplicability to real-world situations where the effect of financing conditions on the balance sheet structures of individual firms plays a crucial and determining role for further investment. Finally, Minsky discusses his findings on business cycle theory and economic policy.
This book will greatly appeal to advanced undergraduate and graduate students in economics, as well as to policymakers and researchers. In addition, it will prove to be valuable supplementary reading for those with an interest in advanced microeconomics.
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Working Paper No.411
25 July 2004
Financial Liberalization and Poverty
AbstractFinancial development and its effects on the economic development of a country has recently been one of the most prolific areas of research in the fields of development, finance, and international economics. So far, however, very little work has been done to analyze comprehensively the relationship between financial liberalization and poverty. There is still controversy about the exact role and the effectiveness of financial liberalization on improving economic conditions in developing countries. This paper aims to contribute to this debate by critically reviewing the relevant literature and looking closely at the channels through which financial liberalization can affect poverty.
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Working Paper No.410
22 July 2004
Gibson’s Paradox, Monetary Policy, and the Emergence of Cycles
AbstractMany empirical studies have found that interest rate increases have a positive effect on the price level. This paper pursues an obvious, but neglected explanation: interest payments are a cost of production that is at least in part passed on to customers. A model shows that the cost-push effect of inflation, long known as Gibson’s paradox, intensifies destabilizing forces and can be involved in the generation of cycles. An empirical investigation finds that the positive association of interest rates with inflation or the log of the price level is present in data from the 1950s to present.
Download Working Paper No. 410 PDF (673.21 KB) -
Working Paper No.409
01 July 2004
Assessing the ECB’s Performance since the Global Slowdown
AbstractThis paper assesses the ECB’s performance, which the author finds to be seriously lacking but which is of paramount importance to understanding euroland’s ongoing stagnation and fragility. A main finding is that the series of policy blunders which characterized the bank’s conduct features a bias. Institutions as well as personalities appear to be behind the bank’s tendency to err systematically in one direction. Curiously, this bias is adverse not only to growth, but to price stability. The author shows that viewing the ECB through inflation-targeting lenses is very misleading, since that view does not reflect the bank’s perspective at all, and that standard Taylor rule exercises are superfluous. The ECB’s words and deeds may be far more consistent than is widely held, without making them any less detrimental to economic performance.
Download Working Paper No. 409 PDF (671.34 KB) -
Public Policy Brief No.78
03 June 2004
The War on Poverty after 40 Years
AbstractTwenty to 25 years ago, a debate was under way in academe and in the popular press over the War on Poverty. One group of scholars argued that the war, initiated by Presidents Kennedy and Johnson, had been lost, owing to the inherent ineffectiveness of government welfare programs. Charles Murray and other scholars argued that welfare programs only encouraged shiftlessness and burdened federal and state budgets.
In recent years, despite the fact that the extent of poverty has not significantly diminished since the early 1970s, the debate over poverty has seemingly ended. In a country in which middle-class citizens struggle to afford health insurance and other necessities, the problems of the worst-off Americans seem to many remote and less than pressing. Moreover, the welfare reform bill of 1996 has deflected much of the criticism of the welfare state by ending the individual-level entitlement to Aid to Families with Dependent Children benefits (now known as Temporary Assistance to Needy Families) and putting time limits on welfare recipiency, among other measures.
Download Public Policy Brief No. 78, 2004 PDF (345.93 KB) -
Public Policy Brief No.77
02 June 2004
The Sustainability of Economic Recovery in the United States
AbstractA rebound of consumption, investment, and consumer confidence in the second half of 2003 has raised hopes that the United States’ recovery from the 2001 recession is on a sustainable course. According to this brief by Philip Arestis and Elias Karakitsos, however, the trend in the short-term factors affecting the economy has changed for the better, but long-term factors remain at risk. Slow, rather than rapid, economic growth is better in 2004, the authors say, as rapid growth would result in higher long-term interest rates, which would threaten the property market boom and weaken investment in 2005 and beyond. The authors are sure, however, that the current administration will find it difficult to refrain from additional procyclical fiscal stimulus in light of the upcoming presidential election. The result could lead to a rapidly declining US economic growth rate following the election in November.
Download Public Policy Brief No. 77, 2004 PDF (547.07 KB) -
Book Series
01 June 2004
What Has Happened to the Quality of Life in the Advanced Industrialized Nations?
AbstractThroughout the 1990s the United States expanded its lead over other advanced industrial nations in terms of conventionally measured per capita income. However, it is not clear that welfare levels in America have grown concomitantly with per capita income, nor that Americans are necessarily better off than citizens of other advanced countries. The contributors to this volume investigate the extent to which welfare has increased in the United States over the post-WWII period and provide a rigorous examination of conventional measures of the standard of living, as well as more inclusive indices.
The chapters cover such topics as race, home ownership, and family structure; the status of children; the consumer price index; a historical perspective on the standard of living; and worker rights and labor strength in advanced economies. In addition, they explore two economic systems for delivering goods: the free enterprise system of the United States and the European social welfare state. They then present international comparisons and highlight the relative advantages and disadvantages of these two systems.
Wolff has included essays by Dimitri B. Papadimitriou; Ajit Zacharias; David S. Johnson; Christopher Jencks, Susan E. Mayer, and Joseph Swingle; Dean Baker; Lars Osberg and Andrew Sharpe; Timothy M. Smeeding and Lee Rainwater; William J. Collins and Robert A. Margo; Seymour Spilerman and Florencia Torche; Richard H. Steckel; Thomas L. Hungerford and Maria S. Floro; Robert Buchele and Jens Christiansen; and Daphne T. Greenwood.
This provocative and accessible volume answers the intriguing question posed by the title and will be of interest to economists, sociologists, policymakers, and policy analysts, as well as students of these fields.
The publication of this collection of essays is the direct outgrowth of a 2001 Levy Institute conference organized by Wolff under the Institute’s distribution of income and wealth program. The purpose of the conference was to better understand the many economic aspects of well-being that help define the “quality of life.”
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Working Paper No.408
25 May 2004
Keynesian Theorizing during Hard Times
AbstractThis paper argues that the Stock-Flow Consistent Approach to macroeconomic modeling can be seen as a natural outcome of the path taken by Keynesian macroeconomic thought in the 1960s and 1970s, a theoretical frontier that remained largely unexplored with the end of Keynesian academic hegemony. The representative views of Davidson, Godley, Minsky, and Tobin as different closures of the same SFC accounting framework are presented, and similarities and problems discussed.
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Policy Notes No.2
01 May 2004
Those “D” Words
AbstractRecent economic commentary has been filled with “D” words: deficits, debt, deflation, depreciation. Deficits—budget and trade—are of the greatest concern and may be on an unsustainable course, as federal and national debt grow without limit. The United States is already the world’s largest debtor nation, and unconstrained trade deficits are said to raise the specter of a “tequila crisis” if foreigners run from the dollar. Federal budget red ink is expected to imperil the nation’s ability to care for tomorrow’s retirees. While public concern with deflationary pressures has subsided, concern continues regarding America’s ability to compete in a global economy in which wages and prices are falling. In fact, the current situation is far more “sustainable” than that at the peak of the Clinton boom, which had federal budget surpluses but record-breaking private sector deficits. Nevertheless, it is time to take stock of the dangers faced by the US economy.
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Research Project Report
01 May 2004
Levy Institute Measure of Economic Well-Being
AbstractThis report presents the latest findings of the Levy Institute Measure of Economic Well-Being (LIMEW) research project within our program on the distribution of income and wealth. It enhances previous findings about economic well-being and inequality in the United States by extending our analysis to include additional years, 1995 and 2001, and by comparing our results with the Census Bureau’s most comprehensive measure of a household’s command over commodities, which we refer to as extended income (EI).
Download LIMEW Report, May 2004 PDF (450.31 KB) -
Working Paper No.407
01 May 2004
Changes in Household Wealth in the 1980s and 1990s in the US
AbstractI find that despite slow growth in income over the 1990s, there have been marked improvements in the wealth position of average families. Both mean and median wealth grew briskly in the late 1990s. The inequality of net worth leveled off even though income inequality continued to rise over this period. Indebtedness also fell substantially during the late 1990s. However, the concentration of investment type assets generally remained as high in 2001 as during the previous two decades. The racial disparity in wealth holdings, after stabilizing during most of the 1990s, widened in the years between 1998 and 2001, and the wealth of Hispanics actually declined in real terms between 1998 and 2001. Wealth also shifted in relative terms away from young households (under age 45) toward elderly ones (age 65 and over).
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Working Paper No.406
01 May 2004
Investigating the Intellectual Origins of Euroland’s Macroeconomic Policy Regime
AbstractThis paper investigates the (re-)establishment of central banking in West Germany after 1945 and the history of the Bundesbank Act of 1957. The main focus is on the early emphasis on the “independence” of the central bank, which, together with a “stability-orientation” in monetary policy, proved a lasting German peculiarity. The paper inquires whether contemporary German economic thought may have provided a theoretical case for this peculiar tradition and scrutinizes the political calculus that motivated some key actors in the play. Contrary to a widespread presumption, Ordoliberalism–the dominant contemporary force within the German economics profession widely held to have shaped the new economic order of West Germany called “Soziale Marktwirtschaft” (social market economy)–is found to have had no such impact on the country’s emerging monetary order at all. In fact, important contradictions between the postulate of central bank independence and some key ideas underlying Ordoliberalism will be identified. Nor can an alternative (more Keynesian) policy regime and and its model of central bank independence that was developed in the mid 1950s by the Economic Advisory Council of Ludwig Erhard, West Germany’s famous first economics minister, claim any credit for the eventual legal status of the central bank that became enshrined in the Bundesbank Act of 1957; that policy regime subsequently remained untouched despite the (Keynesian) Stability and Growth Act of 1967. It appears that, while contemporary economic theory had no decisive influence on the outcome, the central bank’s role as a political actor in its own right and in carving public opinion should not be underestimated in explaining a peculiar German tradition that was finally exported to Europe in the 1990s.
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Working Paper No.405
01 April 2004
Some Simple, Consistent Models of the Monetary Circuit
AbstractWe address the finance motive and the determination of profits in the Monetary Theory of Production associated with the Circuitist School. We show that the “profit paradox” puzzle addressed by many authors who adopt this approach can be solved by integrating a simple Circuit model with a consistent set of stock-flow accounts. We then discuss how to reconcile some crucial differences between the Circuit approach and other Keynesian and post-Keynesian models.
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Strategic Analysis
01 April 2004
Is Deficit-financed Growth Limited?
AbstractWynne Godley, our Levy Institute colleague, has warned since 1999 that the falling personal saving and rising borrowing trends that had powered the US economic expansion were not sustainable. He also warned that when these trends were reversed, as has happened in other countries, the expansion would come to a halt unless there were major changes in fiscal policy.
Not long ago, official circles insisted that monetary policy was the most desirable tool, that fiscal deficits were not only unnecessary but also harmful (ERP 2000, pp.31–34; Greenspan 2000). Some economists, notably Edmund Phelps of Columbia University, went so far as to suggest that the economic expansion was not caused by rising demand, but rather because growth had become ‘structural’ (Financial Times, August 9, 2000).
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Working Paper No.404
01 April 2004
The “War on Poverty” after 40 Years
AbstractHyman Minsky is best known for his work in the area of financial economics, and especially for his financial instability hypothesis. In recent years, some authors have also recognized his advocacy of the “employer of last resort” as part of his “big government” intervention to help maintain stability. However, very little research has been undertaken regarding Minsky’s early involvement in the “War on Poverty.” This paper will trace the development of Minsky’s thinking on antipoverty policies to his support for welfare reform and federal job creation programs.
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Book Series
01 April 2004
After the Bell
AbstractSince the publication of the Coleman report in the United States many decades ago, it has been widely accepted that the evidence that schools are marginal in the grand scheme of academic achievement is conclusive. Despite this, educational policy across the world remains focused almost exclusively on schools. This volume focuses its searchlight on family background and its impact on educational success. That schools have an important role in education is beyond question, but this book demonstrates some of the crucial ways that nonschool factors matter covering such themes as: the impact of fathers on educational success, socioeconomic background and young children”s education, and school-community relationships. With contributions from such figures as Jeanne Brooks-Gunn, Doris Entwistle, and Richard Arum, this book is an important contribution to a debate that has implications across the board in social sciences and policymaking. It will be required reading for students and academics within sociology, economics and education and should also find a place on the bookshelves of education policymakers.