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1657 publications found
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Research Project Report
17 April 2018
Public Service Employment
AbstractDespite reports of a healthy US labor market, millions of Americans remain unemployed and underemployed, or have simply given up looking for work. It is a problem that plagues our economy in good times and in bad—there are never enough jobs available for all who want to work. L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, and Stephanie A. Kelton examine the impact of a new “job guarantee” proposal that would seek to eliminate involuntary unemployment by directly creating jobs in the communities where they are needed.
Download Research Project Report, April 2018 PDF (2.04 MB)
The authors propose the creation of a Public Service Employment (PSE) program that would offer a job at a living wage to all who are ready and willing to work. Federally funded but with a decentralized administration, the PSE program would pay $15 per hour and offer a basic package of benefits. This report simulates the economic impact over a ten-year period of implementing the PSE program beginning in 2018Q1.
Unemployment, hidden and official, with all of its attendant social harms, is a policy choice. The results in this report lend more weight to the argument that it is a policy choice we need no longer tolerate. True full employment is both achievable and sustainable. -
Working Paper No.903
16 April 2018
The Economics of Instability
AbstractThe dominant postwar tradition in economics assumes the utility maximization of economic agents drives markets toward stable equilibrium positions. In such a world there should be no endogenous asset bubbles and untenable levels of private indebtedness. But there are.
Download Working Paper No. 903 PDF (76.58 KB)
There is a competing alternative view that assumes an endogenous behavioral propensity for markets to embark on disequilibrium paths. Sometimes these departures are dangerously far reaching. Three great interwar economists set out most of the economic theory that explains this natural tendency for markets to propagate financial fragility: Joseph Schumpeter, Irving Fisher, and John Maynard Keynes. In the postwar period, Hyman Minsky carried this tradition forward. Early on he set out a “financial instability hypothesis” based on the thinking of these three predecessors. Later on, he introduced two additional dynamic processes that intensify financial market disequilibria: principal–agent distortions and mounting moral hazard. The emergence of a behavioral finance literature has provided empirical support to the theory of endogenous financial instability. Work by Vernon Smith explains further how disequilibrium paths go to asset bubble extremes.
The following paper provides a compressed account of this tradition of endogenous financial market instability. -
Strategic Analysis
13 April 2018
“America First,” Fiscal Policy, and Financial Stability
AbstractThe US economy has been expanding continuously for almost nine years, making the current recovery the second longest in postwar history. However, the current recovery is also the slowest recovery of the postwar period.
This Strategic Analysis presents the medium-run prospects, challenges, and contradictions for the US economy using the Levy Institute’s stock-flow consistent macroeconometric model. By comparing a baseline projection for 2018–21 in which no budget or tax changes take place to three additional scenarios, the authors isolate the likely macroeconomic impacts of: (1) the recently passed tax bill; (2) a large-scale public infrastructure plan of the same “fiscal size” as the tax cuts; and (3) the spending increases entailed by the Bipartisan Budget Act and omnibus bill. Finally, Nikiforos and Zezza update their estimates of the likely outcome of a scenario in which there is a sharp drop in the stock market that induces another round of private-sector deleveraging.
Although in the near term the US economy could see an acceleration of its GDP growth rate due to the recently approved increase in federal spending and the new tax law, it is increasingly likely that the recovery will be derailed by a crisis that will originate in the financial sector.
Download Strategic Analysis, April 2018 PDF (1.30 MB)
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Working Paper No.902
02 April 2018
The Job Guarantee
AbstractThe job guarantee (JG) is a public option for jobs. It is a permanent, federally funded, and locally administered program that supplies voluntary employment opportunities on demand for all who are ready and willing to work at a living wage. While it is first and foremost a jobs program, it has the potential to be transformative by advancing the public purpose and improving working conditions, people’s everyday lives, and the economy as a whole.
Download Working Paper No. 902 PDF (716.25 KB)
This working paper provides a blueprint for operationalizing the proposal. It addresses frequently asked questions and common concerns. It begins by outlining some of the core propositions in the existing literature that have motivated the JG proposal. These propositions suggest specific design and implementation features. (Some questions are answered in greater detail in appendix III). The paper presents the core objectives and expected benefits of the program, and suggests an institutional structure, funding mechanism, and project design and administration. -
Policy Notes No.2
19 March 2018
Guaranteed Jobs through a Public Service Employment Program
AbstractAmid a recent upsurge in support for a national job guarantee program, L. Randall Wray, Stephanie A. Kelton, Pavlina R. Tcherneva, Scott Fullwiler, and Flavia Dantas outline a new proposal for a federally funded program with decentralized administration. Their Public Service Employment (PSE) program would offer a job—paying a uniform living wage with a basic benefits package—to all who are ready and willing to work. In advance of an upcoming report detailing the economic impact of the PSE, this policy note presents an overview of the goals and structure of the program in the context of current labor market trends and the prospects of poverty reduction.
Download Policy Note 2018/2 PDF (248.94 KB) -
Working Paper No.901
06 March 2018
Income Distribution, Household Debt, and Aggregate Demand
AbstractDuring the period leading up to the recession of 2007–08, there was a large increase in household debt relative to income, a large increase in measured consumption as a fraction of GDP, and a shift toward more unequal income distribution. It is sometimes claimed that these three developments were closely linked. In these stories, the rise in household debt is largely due to increased borrowing by lower-income households who sought to maintain rising consumption in the face of stagnant incomes; this increased consumption in turn played an important role in maintaining aggregate demand. In this paper, I ask if this story is consistent with the empirical evidence. In particular, I ask five questions: How much household borrowing finances consumption spending? How much has monetary consumption spending by households increased? How much of the rise in household debt-income ratios is attributable to increased borrowing? How is household debt distributed by income? And how has the distribution of consumption spending changed relative to the distribution of income? I conclude that the distribution-debt-demand story may have some validity if limited to the housing boom period of 2002–07, but does not fit the longer-term rise in household debt since 1980.
Download Working Paper No. 901 PDF (703.23 KB) -
Book Series
01 March 2018
Classical Economics Today: Essays in Honor of Alessandro Roncaglia
AbstractEdited by Marcella Corsi, Sapienza University of Rome, Levy Institute Director of Research Jan Kregel, and Carlo D’Ippoliti, Sapienza University of Rome, this new collection of 16 essays is dedicated to Alessandro Roncaglia and deals with the themes that “have characterized his work or represent expressions of his personality, his interests and method," particularly his contributions to the interpretation of classical political economists as a means for informing present-day policy.
Published by: Anthem Press
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One Pager No.54
06 February 2018
Why the United States Will Beat China to the Next Minsky Moment
AbstractThe outgoing governor of the People’s Bank of China recently warned of a possible Chinese “Minsky moment”—Paul McCulley’s term, most recently applied to the 2007 US real estate crash that reverberated around the world as a global financial crisis. Although Western commentators have weighed in on both sides of the debate about the likelihood of China’s debt bubble bursting, Senior Scholar L. Randall Wray argues that too little attention is being paid to the far more probable repeat of a US Minsky moment. US prospects for growth, as well as for successfully handling the next financial meltdown, are dismal, he concludes.
Download One-Pager No. 54 PDF (80.80 KB)
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Policy Notes No.1
06 February 2018
Does the United States Face Another Minsky Moment?
AbstractIt is beginning to look a lot like déjà vu in the United States. According to Senior Scholar L. Randall Wray, the combination of overvalued stocks, overleveraged banks, an undersupervised financial system, high indebtedness across sectors, and growing inequality together should remind one of the conditions of 1929 and 2007. Comparing the situations of the United States and China, where the outgoing central bank governor recently warned of the fragility of China’s financial sector, Wray makes the case that the United State is far more likely to “win” the race to the next “Minsky moment.” Instead of sustainable growth, we have “bubble-ized” our economy on the back of an overgrown financial sector—and to make matters worse, he concludes, US policymakers are ill-prepared to deal with the coming crisis.
Download Policy Note 2018/1 PDF (334.91 KB) -
Research Project Report
06 February 2018
The Macroeconomic Effects of Student Debt Cancellation
AbstractAmong the more ambitious policies that have been proposed to address the problem of escalating student loan debt are various forms of debt cancellation. In this report, Scott Fullwiler, Research Associate Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum examine the likely macroeconomic impacts of a one-time, federally funded cancellation of all outstanding student debt.
The report analyzes households’ mounting reliance on debt to finance higher education, including the distributive implications of student debt and debt cancellation; describes the financial mechanics required to carry out the cancellation of debt held by the Department of Education (which makes up the vast majority of student loans outstanding) as well as privately owned student debt; and uses two macroeconometric models to provide a plausible range for the likely impacts of student debt cancellation on key economic variables over a 10-year horizon.
The authors find that cancellation would have a meaningful stimulus effect, characterized by greater economic activity as measured by GDP and employment, with only moderate effects on the federal budget deficit, interest rates, and inflation (while state budgets improve). These results suggest that policies like student debt cancellation can be a viable part of a needed reorientation of US higher education policy.
Download Research Project Report, February 2018 PDF (1.59 MB)
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Working Paper No.900
29 January 2018
Functional Finance
AbstractThis paper examines the views of Hyman Minsky and Abba Lerner on the functional finance approach to fiscal policy. It argues that the main principles of functional finance were relatively widely held in the immediate postwar period. However, with the rise of the Phillips curve, the return of the Quantity Theory, the development of the notion of a government budget constraint, and accelerating inflation at the end of the 1960s, functional finance fell out of favor. The paper compares and contrasts the evolution of the views of Minsky and Lerner over the postwar period, arguing that Lerner’s transition went further, as he embraced a version of Monetarism that emphasized the use of monetary policy over fiscal policy. Minsky’s views of functional finance became more nuanced, in line with his Institutionalist approach to the economy. However, Minsky never rejected his early beliefs that countercyclical government budgets must play a significant role in stabilizing the economy. Thus, in spite of some claims that Minsky should not be counted as one of the “forefathers” of Modern Money Theory (MMT), this paper argues that it is Minsky, not Lerner, whose work remains essential for the further development of MMT.
Download Working Paper No. 900 PDF (150.98 KB) -
Working Paper No.899
12 January 2018
Gender Pay Gaps in the Former Soviet Union: A Review of the Evidence
AbstractThe goal of this paper is to examine the patterns and movements of the gender pay gaps in the countries of the former Soviet Union (FSU) and to place them in the context of advanced economies. We survey over 30 publications and conduct a meta-analysis of this literature. Gender pay gaps in the region are considerable and above the levels observed in advanced economies. Similar to advanced economies, industrial and occupational segregation widens the gaps in the FSU countries, whereas gender differences in educational attainment tend to shrink them. However, a much higher proportion of the gaps remain unexplained, pointing toward the role of unobserved gender differences related to actual and perceived productivity. Over the last 25 years, the gaps contracted in most FSU countries, primarily due to the reduction in the unexplained portion. Underlying the contraction at the mean are different movements in the gap across the pay distribution. Although the glass-ceiling effect has diminished in some FSU countries, it has persisted in others. We investigate the reasons underlying these findings and argue that the developments in the FSU region shed new light on our understanding of the gender pay gaps.
Download Working Paper No. 899 PDF (212.79 KB) -
Policy Notes No.4
09 November 2017
How Time Deficits and Hidden Poverty Undermine the Sustainable Development Goals
AbstractThe predominant framework for measuring poverty rests on an implicit assumption that everyone has enough time available to devote to household production or enough resources to compensate for deficits in household production by purchasing market substitutes. Senior Scholar Ajit Zacharias argues that this implicit bias in our official poverty statistics threatens to undermine the Sustainable Development Goals (SDGs).
The SDGs include the following targets: (1) reduce the incidence of poverty by 50 percent by 2030, and (2) recognize and provide support to the unpaid provision of domestic services and care of persons undertaken predominantly by women in their households. This policy note suggests that a closer link exists between poverty reduction and support for household production activities than is commonly acknowledged. Failure to recognize the link in policy design can contribute to failure on both fronts. To obtain a more accurate assessment of poverty, time deficits in household production must be taken into account.
Download Policy Note 2017/4 PDF (282.68 KB)
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Working Paper No.898
12 October 2017
Corporate Tax Incidence in India
AbstractThe paper attempts to measure the incidence of corporate income tax in India under a general equilibrium setting. Using seemingly uncorrelated regression coefficients and dynamic panel estimates, we tried to analyze both the relative burden of corporate tax borne by capital and labor and the efficiency effects of corporate income tax. The data for the study is compiled from corporate firms listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) for the period 2000–15. Our empirical estimates suggest that in India capital bears more of the burden of corporate taxes than labor. Though it is contrary to the Harberger (1962) hypothesis that the burden of corporate tax is shifted to labor rather than capital, it confirms the existing empirical results in the context of India.
Download Working Paper No. 898 PDF (252.12 KB) -
Working Paper No.897
20 September 2017
Quantitative Easing and Asset Bubbles in a Stock-flow Consistent Framework
AbstractEver since the Great Recession, central banks have supplemented their traditional policy tool of setting the short-term interest rate with massive buyouts of assets to extend lines of credit and jolt flagging demand. As with many new policies, there have been a range of reactions from economists, with some extolling quantitative easing’s expansionary virtues and others fearing it might invariably lead to overvaluation of assets, instigating economic instability and bubble behavior. To investigate these theories, we combine elements of the models in chapters 5, 10, and 11 of Godley and Lavoie’s (2007) Monetary Economics with equations for quantitative easing and endogenous bubbles in a new model. By running the model under a variety of parameters, we study the causal links between quantitative easing, asset overvaluation, and macroeconomic performance. Preliminary results suggest that rather than being pro- or countercyclical, quantitative easing acts as a sort of phase shift with respect to time.
Download Working Paper No. 897 PDF (385.26 KB)
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Public Policy Brief No.144
08 September 2017
A Two-Tier Eurozone or a Euro of Regions?
AbstractIn light of the problems besetting the eurozone, this policy brief examines the contributions of John Maynard Keynes and Richard Kahn to early debates over the design of the postwar international financial system. Their critical engagement with the early policy challenges associated with managing international settlements offers a perspective from which to analyze the flaws in the current euro-based financial system, and Keynes’s clearing union proposal offers a template for a better approach. A system of regional federations employing a clearing system in which members either retained their own currency or used a common currency as a unit of account in registering debits and credits for settlement purposes would preserve domestic policy independence and retain regional diversity.
Download Public Policy Brief No. 144, 2017 PDF (165.35 KB)
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Working Paper No.896
04 September 2017
Minsky’s Financial Fragility
AbstractThe present paper applies Hyman P. Minsky’s insights on financial fragility in order to analyze the behavior of electricity distribution companies in Brazil from 2007 to 2015. More specifically, it builds an analytical framework to classify the firms operating in this sector into Minskyan risk categories and assess how financial fragility evolved over time, in each firm and in the sector as a whole. This work adapts Minsky’s financial fragility indicators and taxonomy to the conditions of the electricity distribution sector and applies them to regulatory accounting data for more than 60 firms. This empirical application of Minsky’s theory for analyzing firms engaged in the provision of public goods and services is a novelty. The results show an increase in the financial fragility of those firms (as well as the sector) throughout the period, especially between 2008 and 2013, even though the number of firms operating at the highest level of financial risk hardly changed.
Download Working Paper No. 896 PDF (348.46 KB) -
Working Paper No.895
23 August 2017
Unemployment: The Silent Epidemic
AbstractThis paper examines two key aspects of unemployment—its propagation mechanism and socioeconomic costs. It identifies a key feature of this macroeconomic phenomenon: it behaves like a disease. A detailed assessment of the transmission mechanism and the existing pecuniary and nonpecuniary costs of unemployment suggests a fundamental shift in the policy responses to tackling joblessness. To stem the contagion effect and its outsized social and economic impact, fiscal policy can be designed around two criteria for successful disease intervention—preparedness and prevention. The paper examines how a job guarantee proposal uniquely meets those two requirements. It is a policy response whose merits include much more than its macroeconomic stabilization features, as discussed in the literature. It is, in a sense, a method of inoculation against the vile effects of unemployment. The paper discusses several preventative features of the program.
Download Working Paper No. 895 PDF (397.21 KB)
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Working Paper No.894
04 August 2017
An Inquiry Concerning Long-term US Interest Rates Using Monthly Data
AbstractThis paper undertakes an empirical inquiry concerning the determinants of long-term interest rates on US Treasury securities. It applies the bounds testing procedure to cointegration and error correction models within the autoregressive distributive lag (ARDL) framework, using monthly data and estimating a wide range of Keynesian models of long-term interest rates. While previous studies have mainly relied on quarterly data, the use of monthly data substantially expands the number of observations. This in turn enables the calibration of a wide range of models to test various hypotheses. The short-term interest rate is the key determinant of the long-term interest rate, while the rate of core inflation and the pace of economic activity also influence the long-term interest rate. A rise in the ratio of the federal fiscal balance (government net lending/borrowing as a share of nominal GDP) lowers yields on long-term US Treasury securities. The short- and long-run effects of short-term interest rates, the rate of inflation, the pace of economic activity, and the fiscal balance ratio on long-term interest rates on US Treasury securities are estimated. The findings reinforce Keynes’s prescient insights on the determinants of government bond yields.
Download Working Paper No. 894 PDF (2.22 MB)
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Working Paper No.893
26 July 2017
The Neoclassicals’ Conundrum
AbstractNeoclassical economists of the current era frequently pay lip service to Adam Smith’s theories to certify the validity of natural-laws-based, laissez-faire policies. However, neoclassical theories are fundamentally disconnected from Adam Smith’s notion of value, his understanding of the economic individual and their interactions in society, his methodology, and the field of study he afforded to political economy. Instead, early neoclassical economists parted ways with the theories of Adam Smith in an effort to construct economic laws that would validate the existing capitalist order as universal, natural, and harmonious.
Download Working Paper No. 893 PDF (210.08 KB)
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Policy Notes No.3
21 July 2017
Why the Compulsive Shift to Single Payer?
AbstractThe growing political momentum for a universal single-payer healthcare program in the United States is due in part to Republican attempts to repeal and replace the Affordable Care Act (Obamacare). However, according to Senior Scholar L. Randall Wray, it is Obamacare’s successes and its failures that have boosted support for a single-payer system. Even after Obamacare, the US healthcare system still has significant gaps in coverage—all while facing the highest healthcare bill in the world. In this policy note, Wray argues that the underlying challenge for a system based on private, for-profit insurance is that basic healthcare is not an insurable expense. It is time to abandon the current, overly complex and expensive payments system and reconsider single payer for all. Social Security and Medicare provide a model for reform.
Download Policy Note 2017/3 PDF (252.09 KB) -
Policy Notes No.2
07 July 2017
The Concert of Interests in the Age of Trump
AbstractIf the Trump administration is to fulfill its campaign promises to this age’s “forgotten” men and women, Director of Research Jan Kregel argues, it should embrace the broader lesson of the 1930s: that government regulation and fiscal policy are crucial in addressing changes in the economic and financial structure that have exacerbated the problems faced by struggling communities.
In this policy note, Kregel explains how overcoming the economic and financial challenges we face today, just as in the 1930s, requires avoiding what Walter Lippmann identified as an “obvious error”: the blind belief that reducing regulation and the role of government will somehow restore a laissez-faire market liberalism that never existed and is inappropriate to the changing structure of production of both the US and the global economy.
Download Policy Note 2017/2 PDF (190.65 KB)
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Working Paper No.892
21 June 2017
Understanding Financialization
AbstractSince the death of Hyman Minsky in 1996, much has been written about financialization. This paper explores the issues that Minsky examined in the last decade of his life and considers their relationship to that financialization literature. Part I addresses Minsky’s penetrating observations regarding what he called money manager capitalism. Part II outlines the powerful analytical framework that Minsky used to organize his thinking and that we can use to extend his work. Part III shows how Minsky’s observations and framework represent a major contribution to the study of financialization. Part IV highlights two keys to Minsky’s success: his treatment of economics as a grand adventure and his willingness to step beyond the world of theory. Part V concludes by providing a short recap, acknowledging formidable challenges facing scholars with a Minsky perspective, and calling attention to the glimmer of hope that offers a way forward.
Download Working Paper No. 892 PDF (368.51 KB) -
Working Paper No.891
24 May 2017
Stock-flow Consistent Macroeconomic Models
AbstractThe stock-flow consistent (SFC) modeling approach, grounded in the pioneering work of Wynne Godley and James Tobin in the 1970s, has been adopted by a growing number of researchers in macroeconomics, especially after the publication of Godley and Lavoie (2007), which provided a general framework for the analysis of whole economic systems, and the recognition that macroeconomic models integrating real markets with flow-of-funds analysis had been particularly successful in predicting the Great Recession of 2007–9. We introduce the general features of the SFC approach for a closed economy, showing how the core model has been extended to address issues such as financialization and income distribution. We next discuss the implications of the approach for models of open economies and compare the methodologies adopted in developing SFC empirical models for whole countries. We review the contributions where the SFC approach is being adopted as the macroeconomic closure of microeconomic agent-based models, and how the SFC approach is at the core of new research in ecological macroeconomics. Finally, we discuss the appropriateness of the name “stock-flow consistent” for the class of models we survey.
Download Working Paper No. 891 PDF (460.48 KB)