Publications

1657 publications found

• Working Paper No.724 17 May 2012

  Post-Keynesian Institutionalism after the Great Recession

  Charles J. Whalen
  Abstract

  This paper surveys the context and contours of contemporary Post-Keynesian Institutionalism (PKI). It begins by reviewing recent criticism of conventional economics by prominent economists as well as examining, within the current context, important research that paved the way for PKI. It then sketches essential elements of PKI—drawing heavily on the contributions of Hyman Minsky—and identifies directions for future research. Although there is much room for further development, PKI offers a promising starting point for economics after the Great Recession.

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• Working Paper No.723 14 May 2012

  Fiscal Policy, Unemployment Insurance, and Financial Crises in a Model of Growth and Distribution

  Levy Blog
  Abstract

  Recently, some have wondered whether a fiscal stimulus plan could reduce the government’s budget deficit. Many also worry that fiscal austerity plans will only bring higher deficits. Issues of this kind involve endogenous changes in tax revenues that occur when output, real wages, and other variables are affected by changes in policy. Few would disagree that various paradoxes of austerity or stimulus might be relevant, but such issues can be clarified a great deal with the help of a complete heterodox model.

  In light of recent world events, this paper seeks to improve our understanding of the dynamics of fiscal policy and financial crises within the context of two-dimensional (2D) and five-dimensional heterodox models. The nonlinear version of the 2D model incorporates curvilinear functions for investment and consumption out of unearned income. To bring in fiscal policy, I make use of a rule with either (1) dual targets of capacity utilization and public production, or (2) a balanced-budget target. Next, I add discrete jumps and policy-regime switches to the model in order to tell a story of a financial crisis followed by a move to fiscal austerity. Then, I return to the earlier model and add three more variables and equations: (1) I model the size of the private- and public-sector labor forces using a constant growth rate and account for their social reproduction by introducing an unemployment-insurance scheme; and (2) I make the markup endogenous, allowing its rate of change to depend, in a possibly nonlinear way, on capacity utilization, the real wage relative to a fixed norm, the employment rate, profitability, and the business sector’s desired capital-stock growth rate. In the conclusion, I comment on the implications of my results for various policy issues.

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• Working Paper No.722 11 May 2012

  Guaranteed Green Jobs

  Antoine Godin
  Abstract

  In most economies, the potential of saving energy via insulation and more efficient uses of electricity is important. In order to reach the Kyoto Protocol objectives, it is urgent to develop policies that reduce the production of carbon dioxide in all sectors of the economy. This paper proposes an analysis of a green-jobs employer-of-last-resort (ELR) program based on a stock-flow consistent (SFC) model with three productive sectors (consumption, capital goods, and energy) and two household sectors (wage earners and capitalists). By increasing the energy efficiency of dwellings and public buildings, the green-jobs ELR sector implies a shift in consumption patterns from energy consumption toward consumption of goods. This could spur the private sector and thus increase employment. Lastly, the jobs guarantee program removes all involuntary unemployment and decreases poverty while lowering carbon dioxide emissions. The environmental policy proposed in this paper is macroeconomic and offers a structural change of the economy instead of the usual micro solutions.

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• Working Paper No.721 11 May 2012

  Η κρίση ευρω-χρέους και το ευρωτρίλλημα της Γερμανίας

  Jörg Bibow
  Abstract

  Η εργασία εξετάζει τα αίτια της κρίσης χρέους στην ευρωζώνη, κυρίως τη συμβολή της Γερμανίας σε αυτή. Η εργασία προβάλλει το επιχείρημα ότι η κρίση δεν είναι πρωτίστως «κρίση δημοσίου χρέους», αλλά μια διπλή κρίση τραπεζικού τομέα και ισοζυγίου πληρωμών. Η ενδο-ανταγωνιστικότητα και οι ανισορροπίες στα ισοζύγια τρεχουσών συναλλαγών, και οι αντίστοιχες ροές χρέους που προκαλούν αυτές οι ανισορροπίες, αποτελούν τον πυρήνα του θέματος, και όλα αυτά σχετίζονται με την πολιτική του ανταγωνιστικού αποπληθωρισμού των μισθών που εφαρμόζει η Γερμανία από τα τέλη της δεκαετίας του 1990. Η Γερμανία καταπάτησε τον χρυσό κανόνα μιας νομισματικής ένωσης: δέσμευση σε ένα κοινό δείκτη πληθωρισμού. Ως αποτέλεσμα, η Γερμανία αντιμετωπίζει σήμερα ένα τρίλλημα δικής της κατασκευής και πρέπει να κάνει μια κρίσιμη επιλογή δεδομένου ότι δεν μπορεί να τα έχει όλα — διαρκή εξαγωγικά πλεονάσματα, μια μη μεταβιβάσιμη ένωση, και μια «καθαρή» ανεξάρτητη κεντρική τράπεζα. Η πραγματικότητα είναι ότι η εσφαλμένη διάγνωση της κρίσης στην ευρωζώνη και η λανθασμένη συνταγή λιτότητας έχουν επιδεινώσει την κατάσταση της ευρωπαϊκής οικονομίας και απειλούν την ίδια την επιβίωση του ευρώ. Η κρίση στην ευρωζώνη αποτελεί μια παγκόσμια «πολύ μεγάλη για να καταρρεύσει» απειλή και αντιπροσωπεύει έναν ηθικό κίνδυνο που ίσως δεν έχει προηγούμενο στην παγκόσμια κοινότητα.

  Download Επιστημονική εργασία υπό εξέλιξη (Working Paper) No. 721 PDF (3.33 MB)
• Working Paper No.721 11 May 2012

  The Euro Debt Crisis and Germany’s Euro Trilemma

  Jörg Bibow
  Abstract

  This paper investigates the causes behind the euro debt crisis, particularly Germany’s role in it. It is argued that the crisis is not primarily a “sovereign debt crisis” but rather a (twin) banking and balance of payments crisis. Intra-area competitiveness and current account imbalances, and the corresponding debt flows that such imbalances give rise to, are at the heart of the matter, and they ultimately go back to competitive wage deflation on Germany’s part since the late 1990s. Germany broke the golden rule of a monetary union: commitment to a common inflation rate. As a result, the country faces a trilemma of its own making and must make a critical choice, since it cannot have it all —perpetual export surpluses, a no transfer / no bailout monetary union, and a “clean,” independent central bank. Misdiagnosis and the wrongly prescribed medication of austerity have made the situation worse by adding a growth crisis to the potpourri of internal stresses that threaten the euro’s survival. The crisis in Euroland poses a global “too big to fail” threat, and presents a moral hazard of perhaps unprecedented scale to the global community.

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• Working Paper No.720 10 May 2012

  What Are the Driving Factors behind the Rise of Spreads and CDSs of Euro-area Sovereign Bonds?

  Nicholas Apergis and Emmanuel Mamatzakis
  Abstract

  This paper examines the underlying dynamics of selected euro-area sovereign bonds by employing a factor-augmenting vector autoregressive (FAVAR) model for the first time in the literature. This methodology allows for identifying the underlying transmission mechanisms of several factors; in particular, market liquidity and credit risk. Departing from the classical structural vector autoregressive (VAR) models, it allows us to relax limitations regarding the choice of variables that could drive spreads and credit default swaps (CDSs) of euro-area sovereign debts. The results show that liquidity, credit risk, and flight to quality drive both spreads and CDSs of five years’ maturity over swaps for Greece and Ireland in recent years. Greece, in particular, is facing an elastic demand for its sovereign bonds that further stretches liquidity. Moreover, in current illiquid market conditions spreads will continue to follow a steep upward trend, with certain adverse financial stability implications. In addition, we observe a negative feedback effect from counterparty credit risk.

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• Working Paper No.719 09 May 2012

  Reorienting Fiscal Policy after the Great Recession

  Pavlina R. Tcherneva
  Abstract

  The paper evaluates the fiscal policy initiatives during the Great Recession in the United States. It argues that, although the nonconventional fiscal policies targeted at the financial sector dwarfed the conventional countercyclical stabilization efforts directed toward the real sector, the relatively disappointing impact on employment was a result of misdirected funding priorities combined with an exclusive and ill-advised focus on the output gap rather than on the employment gap. The paper argues further that conventional pump-priming policies are incapable of closing this employment gap. In order to tackle the formidable labor market challenges observed in the United States over the last few decades, policy could benefit from a fundamental reorientation away from trickle-down Keynesianism and toward what is termed here a “bottom-up approach” to fiscal policy. This approach also reconsiders the nature of countercyclical government stabilizers.

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• Working Paper No.719 09 May 2012

  Επαναπροσδιορίζοντας τη δημοσιονομική πολιτική μετά τη Μεγάλη Κάμψη

  Pavlina R. Tcherneva
  Abstract

  Το κείμενο αξιολογεί τις πρωτοβουλίες δημοσιονομικής πολιτικής που εφαρμόστηκαν κατά τη διάρκεια της Μεγάλης Κάμψης στις Ηνωμένες Πολιτείες. Η συγγραφέας του θεωρεί ότι, παρά το γεγονός ότι οι μη συμβατικές δημοσιονομικές πολιτικές που ήταν προσανατολισμένες προς τον χρηματοοικονομικό τομέα επισκίασαν τις συμβατικές αντικυκλικές προσπάθειες σταθεροποίησης προς τον πραγματικό τομέα της οικονομίας, η σχετική απογοητευτική επίπτωση που είχαν στην απασχόληση ήταν αποτέλεσμα άστοχων προτεραιοτήτων χρηματοδότησης συνδυαζόμενες με μια αποκλειστική και κακώς συμβουλευόμενη εστίαση στο παραγωγικό κενό αντί στο κενό της αγοράς εργασίας. Το κείμενο υποστηρίζει περαιτέρω ότι οι παραδοσιακές πολιτικές για την τόνωση της οικονομίας μέσω κρατικών δαπανών στον εμπορικό τομέα και μειώσεις φόρων (pump-priming) δεν είναι ικανές να κλείσουν το κενό της απασχόλησης. Προκειμένου να αντιμετωπιστούν οι τρομερές προκλήσεις στην αγορά εργασίας που παρατηρούμε τις τελευταίες δεκαετίες, η πολιτική θα μπορούσε να επωφεληθεί από έναν θεμελιώδη επαναπροσδιορισμό μακριά από την κεϋνσιανιστική προσέγγιση της διάχυσης των οφελών προς τα κάτω και προς αυτό που αποκαλούμε εδώ μια προσέγγιση δημοσιονομικής πολιτικής «από τη βάση προς τα πάνω». Η προσέγγιση αυτή αναθεωρεί επίσης τη φύση των κρατικών αντικυκλικών σταθεροποιητών.

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• One Pager No.30 04 May 2012

  Η οικοδόμηση ενός αποτελεσματικού ρυθμιστικού συστήματος απαιτεί μια θεωρία χρηματοοικονομικής αστάθειας

  Jan Kregel and Dimitri B. Papadimitriou
  Abstract

  Ο Χάιμαν Μίνσκυ είχε συγκεκριμένες απόψεις για το πώς θα έπρεπε να αναδιαμορφωθεί το ρυθμιστικό σύστημα και η χρηματοοικονομική αρχιτεκτονική, και ένα από τα πολλά μαθήματα που μπορούμε να αντλήσουμε από το έργο του είναι ότι υπάρχει μια στενή σχέση ανάμεσα στον τρόπο που σκεφτόμαστε για την προοπτική της αστάθειας των χρηματοπιστωτικών αγορών και το πώς προσεγγίζουμε το ζήτημα της χρηματοοικονομικής ρύθμισης. Η ρύθμιση δεν μπορεί να είναι αποτελεσματική εάν βασίζεται απλά σε «αποσπασματικά» μέτρα που παράγονται ως αντίδραση στη σημερινή «στιγμή», έγραψε ο Μίνσκυ. Αυτό που πρέπει να γίνει είναι να αναδιαμορφωθεί η ίδια η δομή του χρηματοπιστωτικού συστήματος.

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• One Pager No.30 04 May 2012

  Building Effective Regulation Requires a Theory of Financial Instability

  Jan Kregel and Dimitri B. Papadimitriou
  Abstract

  Hyman Minsky had particular views about how the regulatory system and financial architecture should be reformulated, and one of the many lessons we can learn from his work is that there is an intimate connection between how we think about the prospect of financial market instability and how we approach financial regulation. Regulation cannot be effective if it is simply based on “piecemeal” measures produced in response to the current “moment,” Minsky wrote. It needs to reformulate the structure of the financial system itself.

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• Working Paper No.718 04 May 2012

  Aggregate Production Functions and the Accounting Identity Critique

  Jesus Felipe and John McCombie
  Abstract

  In a reply to Felipe and McCombie (2010a), Temple (2010) has largely ignored the main arguments that underlie the accounting identity critique of the estimation of production functions using value data. This criticism suggests that estimates of the parameters of aggregate production functions cannot be regarded as reflecting the underlying technology of the industry. While Temple concedes some points, he erroneously believes that the critique holds only under some ad hoc assumptions. As a consequence, he argues that the critique works only “part-time.” This rejoinder discusses Temple’s arguments and demonstrates that the critique works full-time.

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• Working Paper No.717 03 May 2012

  Introduction to an Alternative History of Money

  L. Randall Wray
  Abstract

  This paper integrates the various strands of an alternative, heterodox view on the origins of money and the development of the modern financial system in a manner that is consistent with the findings of historians and anthropologists. As is well known, the orthodox story of money’s origins and evolution begins with the creation of a medium of exchange to reduce the costs of barter. To be sure, the history of money is “lost in the mists of time,” as money’s invention probably predates writing. Further, the history of money is contentious. And, finally, even orthodox economists would reject the Robinson Crusoe story and the evolution from a commodity money through to modern fiat money as historically accurate. Rather, the story told about the origins and evolution of money is designed to shed light on the “nature” of money. The orthodox story draws attention to money as a transactions-cost-minimizing medium of exchange.

  Heterodox economists reject the formalist methodology adopted by orthodox economists in favor of a substantivist methodology. In the formalist methodology, the economist begins with the “rational” economic agent facing scarce resources and unlimited wants. Since the formalist methodology abstracts from historical and institutional detail, it must be applicable to all human societies. Heterodoxy argues that economics has to do with a study of the institutionalized interactions among humans and between humans and nature. The economy is a component of culture; or, more specifically, of the material life process of society. As such, substantivist economics cannot abstract from the institutions that help to shape economic processes; and the substantivistproblem is not the formal one of choice, but a problem concerning production and distribution.

  A powerful critique of the orthodox story regarding money can be developed using the findings of comparative anthropology, comparative history, and comparative economics. Given the embedded nature of economic phenomenon in prior societies, an understanding of what money is and what it does in capitalist societies is essential to this approach. This can then be contrasted with the functioning of precapitalist societies in order to allow identification of which types of precapitalist societies would use money and what money would be used for in these societies. This understanding is essential for informed speculation on the origins of money. The comparative approach used by heterodox economists begins with an understanding of the role money plays in capitalist economies, which shares essential features with analyses developed by a wide range of Institutionalist, Keynesian, Post Keynesian, and Marxist macroeconomists. This paper uses the understanding developed by comparative anthropology and comparative history of precapitalist societies in order to logically reconstruct the origins of money.

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• Working Paper No.717 03 May 2012

  Μια εισαγωγή στην εναλλακτική ιστορία του χρήματος

  L. Randall Wray
  Abstract

  Η εργασία αυτή ενσωματώνει τις διάφορες συνιστώσες μιας εναλλακτικής, ετερόδοξης άποψης αναφορικά με την προέλευση του χρήματος και την ανάπτυξη του σύγχρονου χρηματοπιστωτικού συστήματος με τρόπο που να συνάδει με τα ευρήματα των ιστορικών και των ανθρωπολόγων. Όπως είναι γνωστό, η ορθόδοξη ερμηνεία της προέλευσης και της εξέλιξης του χρήματος ξεκινά με τη δημιουργία ενός μέσου ανταλλαγής προκειμένου να μειωθεί το κόστος λειτουργίας του αντιπραγματισμού. Αναμφίβολα, η ιστορία του χρήματος χάνεται στα βάθη του χρόνου καθώς η εφεύρεση του χρήματος είναι προγενέστερη της γραφής. Επιπλέον, η ιστορία του χρήματος είναι αμφιλεγόμενη. Τέλος, ακόμη και οι ορθόδοξοι οικονομολόγοι απορρίπτουν το μοντέλο του Ροβινσώνα Κρούσου—και την πορεία της εξέλιξης από το εμπορευματικό χρήμα στο παραστατικό χρήμα—ως ιστορικά ανακριβές. Στο πλαίσιο αυτό, η ιστορία σχετικά με την προέλευση και την εξέλιξη του χρήματος έχει σχεδιαστεί προκειμένου να διαφωτίσει τη «φύση» του χρήματος. Η ορθόδοξη ερμηνεία εφιστά την προσοχή στο χρήμα ως ένα μέσο ανταλλαγής για την ελαχιστοποίηση του κόστους.

  Οι ετερόδοξοι οικονομολόγοι απορρίπτουν τη φορμαλιστική μεθοδολογία που υιοθετήθηκε από τους ορθόδοξους οικονομολόγους υπέρ μιας ουσιαστικής μεθοδολογίας. Στη φορμαλιστική μεθοδολογία, ο οικονομολόγος ξεκινά με το μοντέλο της ορθολογικής συμπεριφοράς του ανθρώπου—δηλαδή του ορθολογικά σκεπτόμενου ανθρώπου που αντιμετωπίζει μια κατάσταση περιορισμένων πόρων και απεριόριστων επιθυμιών. Δεδομένου ότι η φορμαλιστική μεθοδολογία βασίζεται στην αφαίρεση του ιστορικού στοιχείου, υποτίθεται ότι έχει εφαρμογή σε όλες τις ανθρώπινες κοινωνίες. Οι ετερόδοξοι οικονομολόγοι υποστηρίζουν ότι η οικονομία έχει να κάνει με τη μελέτη των θεσμοθετημένων αλληλεπιδράσεων ανάμεσα στους ανθρώπους και μεταξύ ανθρώπου και φύσης. Η οικονομία είναι ένα συστατικό του πολιτισμού, και πιο συγκεκριμένα της υλικής διαδικασίας της ζωής της κοινωνίας. Ως εκ τούτου, η «ουσιαστική» (substantive) οικονομική επιστήμη δεν προβαίνει σε αφαίρεση των θεσμών που συμβάλλουν στη διαμόρφωση των οικονομικών διαδικασιών· και το πρόβλημα της ουσιαστικότητας δεν είναι τυπικό θέμα επιλογής, αλλά ένα πρόβλημα που σχετίζεται άμεσα με την παραγωγή και τη διανομή.

  Μια ισχυρή κριτική της ορθόδοξης ερμηνείας σχετικά με το χρήμα μπορεί να αναπτυχθεί χρησιμοποιώντας τα πορίσματα της συγκριτικής ανθρωπολογίας, της συγκριτικής ιστορίας, και της συγκριτικής οικονομικής. Δεδομένης της ενταγμένης/ενσωματωμένης φύσης του οικονομικού φαινομένου σε προηγούμενες κοινωνίες, η κατανόηση του τι πραγματικά είναι το χρήμα και τι κάνει είναι απαραίτητη προϋπόθεση για την ανάπτυξη αυτής της προσέγγισης. Στη συνέχεια μπορεί να γίνει αντιπαραβολή με τη λειτουργία των προ-καπιταλιστικών κοινωνιών προκειμένου να επιτραπεί η αναγνώριση εκείνων των μορφών των προ-καπιταλιστικών κοινωνιών που θα χρησιμοποιήσουν το χρήμα και το είδος του χρήματος που θα χρησιμοποιηθεί σε αυτές τις κοινωνίες. Αυτή η κατανόηση είναι απαραίτητη για μια ενημερωμένη εικασία σχετικά με την προέλευση του χρήματος. Η συγκριτική προσέγγιση που χρησιμοποιείται από ετερόδοξους οικονομολόγους ξεκινά με την κατανόηση του ρόλου που διαδραματίζει το χρήμα στις καπιταλιστικές οικονομίες, η οποία έχει ουσιώδη χαρακτηριστικά με τις αναλύσεις που αναπτύχθηκαν από ένα ευρύ φάσμα θεσμικών, κεϋνσιανιστών, μετα-κεϋνσιανιστών και μαρξιστών οικονομολόγων. Η εργασία αυτή χρησιμοποιεί την κατανόηση που αναπτύχθηκε από την συγκριτική ανθρωπολογία και τη συγκριτική ιστορία των προ-καπιταλιστικών κοινωνιών προκειμένου να ανακατασκευάσει ορθολογικά την προέλευση του χρήματος.

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• Working Paper No.716 30 April 2012

  Measuring Macroprudential Risk through Financial Fragility

  Éric Tymoigne
  Abstract

  This paper presents a method to capture the growth of financial fragility within a country and across countries. This is done by focusing on housing finance in the United States, the United Kingdom, and France. Following the theoretical framework developed by Hyman P. Minsky, the paper focuses on the risk of amplification of shock via a debt deflation instead of the risk of a shock per se. Thus, instead of focusing on credit risk, for example, financial fragility is defined in relation to the means used to service debts, given credit risk and all other sources of shocks. The greater the expected reliance on capital gains and debt refinancing to meet debt commitments, the greater the financial fragility, and so the higher the risk of debt deflation induced by a shock if no government intervention occurs. In the context of housing finance, this implies that the growth of subprime lending was not by itself a source of financial fragility; instead, it was the change in the underwriting methods in all sectors of the mortgage markets that created a financial situation favorable to the emergence of a debt deflation. Stated alternatively, when nonprime and prime mortgage lending moved to asset-based lending instead of income-based lending, the financial fragility of the economy grew rapidly.

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• Working Paper No.715 30 April 2012

  Tracking the Middle-income Trap

  Jesus Felipe, Utsav Kumar and Arnelyn Abdon
  Abstract

  This paper provides a working definition of what the middle-income trap is. We start by defining four income groups of GDP per capita in 1990 PPP dollars: low-income below $2,000; lower-middle-income between $2,000 and $7,250; upper-middle-income between $7,250 and $11,750; and high-income above $11,750. We then classify 124 countries for which we have consistent data for 1950–2010. In 2010, there were 40 low-income countries in the world, 38 lower-middle-income, 14 upper-middle-income, and 32 high-income countries. Then we calculate the threshold number of years for a country to be in the middle-income trap: a country that becomes lower-middle-income (i.e., that reaches $2,000 per capita income) has to attain an average growth rate of per capita income of at least 4.7 percent per annum to avoid falling into the lower-middle-income trap (i.e., to reach $7,250, the upper-middle-income threshold); and a country that becomes upper-middle-income (i.e., that reaches $7,250 per capita income) has to attain an average growth rate of per capita income of at least 3.5 percent per annum to avoid falling into the upper-middle-income trap (i.e., to reach $11,750, the high-income level threshold). Avoiding the middle-income trap is, therefore, a question of how to grow fast enough so as to cross the lower-middle-income segment in at most 28 years, and the upper-middle-income segment in at most 14 years. Finally, the paper proposes and analyzes one possible reason why some countries get stuck in the middle-income trap: the role played by the changing structure of the economy (from low-productivity activities into high-productivity activities), the types of products exported (not all products have the same consequences for growth and development), and the diversification of the economy. We compare the exports of countries in the middle-income trap with those of countries that graduated from it, across eight dimensions that capture different aspects of a country’s capabilities to undergo structural transformation, and test whether they are different. Results indicate that, in general, they are different. We also compare Korea, Malaysia, and the Philippines according to the number of products that each exports with revealed comparative advantage. We find that while Korea was able to gain comparative advantage in a significant number of sophisticated products and was well connected, Malaysia and the Philippines were able to gain comparative advantage in electronics only.

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• Working Paper No.714 26 April 2012

  Managing Global Financial Flows at the Cost of National Autonomy

  Sunanda Sen
  Abstract

  The narrative as well as the analysis of global imbalances in the existing literature are incomplete without the part of the story that relates to the surge in capital flows experienced by the emerging economies. Such analysis disregards the implications of capital flows on their domestic economies, especially in terms of the “impossibility” of following a monetary policy that benefits domestic growth. It also fails to recognize the significance of uncertainty and changes in expectation as factors in the (precautionary) buildup of large official reserves. The consequences are many, and affect the fabric of growth and distribution in these economies. The recent experiences of China and India, with their deregulated financial sectors, bear this out.

  Financial integration and free capital mobility, which are supposed to generate growth with stability (according to the “efficient markets” hypothesis), have not only failed to achieve their promises (especially in the advanced economies) but also forced the high-growth developing economies like India and China into a state of compliance, where domestic goals of stability and development are sacrificed in order to attain the globally sanctioned norm of free capital flows.

  With the global financial crisis and the specter of recession haunting most advanced economies, the high-growth economies in Asia have drawn much less attention than they deserve. This oversight leaves the analysis incomplete, not only by missing an important link in the prevailing network of global trade and finance, but also by ignoring the structural changes in these developing economies—many of which are related to the pattern of financialization and turbulence in the advanced economies.

  Download Working Paper No. 714 PDF (766.53 KB)
• One Pager No.29 18 April 2012

  Eurozone Crisis 2.0

  C. J. Polychroniou
  Abstract

  Since last month’s Greek bond swap, various European leaders have declared the eurozone crisis over or “almost over.” But Euroland’s current economic reality begs to differ. No matter how much cheap money the ECB provides or how high the EC “firewall” rises, the region’s economic malaise can’t be cured without massive government intervention—the implementation of strong, proactive economic policies that will put people back to work, increase state revenues, and improve the standard of living.

  Download One-Pager No. 29 PDF (69.84 KB)
• Strategic Analysis 15 April 2012

  Πίσω στις συνήθεις τακτικές ή δημοσιονομική τόνωση;

  Dimitri B. Papadimitriou and Gennaro Zezza
  Abstract

  Αν και η οικονομία φαίνεται να βελτιώνεται σταδιακά, οι ευρείς δείκτες καταγράφουν ότι το 14.5% του αμερικανικού εργατικού δυναμικού είναι άνεργο ή υποαπασχολήσιμο, ποσοστό όχι πολύ χαμηλότερο από το 16.2% που ήταν πέρυσι. Στην καινούργια έκθεση της σειράς Στρατηγική Ανάλυση, αναφερόμαστε αρχικά στους βραδυκίνητους παράγοντες που δυσκολεύουν την επίτευξη μιας ολοκληρωμένης και βιώσιμης οικονομικής ανάκαμψης: (α) μια επίμονη μετατόπιση στην διανομή του εισοδήματος προς το ανώτατο 1% του πληθυσμού, (β) αποτυχία στην προσπάθεια πλήρους σταθεροποίησης και επανελέγχου του χρηματοοικονομικού συστήματος, (γ) σοβαρά δημοσιονομικά προβλήματα για τις πολιτειακές και τοπικές κυβερνήσεις, και (δ) συνεχιζόμενες αρνητικές επιπτώσεις από την χρηματοοικονομική κρίση του 2008 για πολλά νοικοκυριά και τους ισολογισμούς πολλών επιχειρήσεων. Αυτοί οι παράγοντες συμβάλουν ώστε η απασχόληση να μην ανακάμπτει αρκετά γρήγορα, παρά το υποτιθέμενο τέλος της οικονομικής κάμψης. Εν τω μεταξύ, οι δημόσιες επενδύσεις σε όλα τα επίπεδα διακυβέρνησης μειώθηκαν από 3.7% του ΑΕΠ το 2008 σε 3.2% στο τέταρτο τρίμηνο του 2011, εξηγώντας κατά κάποιο τρόπο την αδύναμη εικόνα της οικονομίας.

  Σε αυτή την έκθεση χρησιμοποιούμε το μακροοικονομικό μοντέλο του Ινστιτούτου Οικονομικών Levy για να προσομοιώσουμε την κατάσταση της οικονομίας κάτω από τα τέσσερα ακόλουθα σενάρια: (1) ένα σενάριο ιδιωτικού δανεισμού, όπου εντοπίζουμε το απαιτούμενο ποσό σχετικά με τον καθαρό δανεισμό/καθαρή δανειοδότηση για να επιτευχθεί η πορεία της αύξησης της απασχόλησης κάτω από τις σημερινές πολιτικές του Γραφείου Προϋπολογισμού του Κογκρέσου, σε μια έκθεση που ξεχειλίζει από υπερβολική αισιοδοξία και προκατάληψη εναντίον των ελλειμμάτων, (2) ένα πιο αληθοφανές σενάριο, όπου υποθέτουμε ότι η κυβέρνηση έχει επεκτείνει τις περισσότερες φορολογικές ελαφρύνσεις και ότι ο δανεισμός των νοικοκυριών αυξάνεται με πιο λογικούς ρυθμούς από ότι στο προηγούμενο σενάριο, και (3) ένα σενάριο δημοσιονομικής τόνωσης της οικονομίας, στο οποίο προσομοιώνουμε τις επιπτώσεις μιας αύξησης της τάξης του 1% στις κρατικές επενδύσεις.

  Τα αποτελέσματα αποκαλύπτουν τη σημασία της συσσώρευσης χρέους ως μέτρο στην διαμόρφωση της μακροοικονομικής πολιτικής. Το πρώτο σενάριο αναπαράγει τις σχετικά αισιόδοξες προβλέψεις του Γραφείου Προϋπολογισμού του Κογκρέσου για την απασχόληση, αλλά τα αποτελέσματά μας δείχνουν ότι το σενάριο ανάπτυξης με οδηγητή τον ιδιωτικό τομέα επαναφέρει τα νοικοκυριά και τις επιχειρήσεις σε τρομακτικά υψηλά επίπεδα χρέους. Σημειώνουμε ότι οι προβλέψεις του Γραφείου Προϋπολογισμού του Κογκρέσου χρησιμοποιούν ένα ορθόδοξο μοντέλο που έχει αρκετά ουσιώδη ψεγάδια. Αυτό επιτρέπει στο Γραφείο Προϋπολογισμού του Κογκρέσου να καταλήγει στο λανθασμένο συμπέρασμα ότι οι σημερινές πολιτικές θα μειώσουν το ποσοστό ανεργίας δίχως να αυξήσουν τα επίπεδα χρέους για τον ιδιωτικό τομέα.

  Οι πολιτικές που αξιολογούμε στο δεύτερο σενάριο δεν δείχνουν να είναι καλύτερες, παρά το ότι διακρίνονται από μια πιο χαλαρή δημοσιονομική στάση. Τέλος, το τρίτο σενάριο στην ανάλυσή μας αποδεικνύει ότι ακόμη και μια μικρή αύξηση στις κρατικές επενδύσεις χρηματοδοτούμενες από φόρους θα μπορούσαν να μειώσουν σημαντικά το ποσοστό ανεργίας—περίπου κατά 0.5%. Ένα πακέτο δημοσιονομικών κινήτρων αυτού του μεγέθους είναι πολιτικά εφικτό στην παρούσα φάση. Όμως, τα αποτελέσματα της ανάλυσής που πραγματοποιήσαμε μας οδηγούν στο συμπέρασμα ότι θα χρειαστεί ένα πολύ μεγαλύτερο πακέτο δημοσιονομικών μέτρων τόνωσης της οικονομίας προκειμένου να μειωθεί η ανεργία σε αποδεκτά επίπεδα για τους περισσότερους χαράκτες πολιτικής.

  Download Στρατηγική Ανάλυση, Απρίλιος 2012 PDF (1.09 MB)
• Strategic Analysis 15 April 2012

  Back to Business as Usual? Or a Fiscal Boost?

  Dimitri B. Papadimitriou and Gennaro Zezza
  Abstract

  Though the economy appears to be gradually gaining momentum, broad measures indicate that 14.5 percent of the US labor force is unemployed or underemployed, not much below the 16.2 percent rate reached a full year ago. In this new report in our Strategic Analysis series, we first discuss several slow-moving factors that make it difficult to achieve a full and sustainable economic recovery: the gradual redistribution of income toward the wealthiest 1 percent of households; a failure to fully stabilize and reregulate finance; serious fiscal troubles for state and local governments; and detritus from the financial crisis that remains on household and corporate balance sheets. These factors contribute to a situation in which employment has not risen fast enough since the (supposed) end of the recession to significantly increase the employment-population ratio. Meanwhile, public investment at all levels of government fell from roughly 3.7 percent of GDP in 2008 to 3.2 percent in the fourth quarter of 2011, helping to explain the weak economic picture.

  For this report, we use the Levy Institute macro model to simulate the economy under the following three scenarios: (1) a private borrowing scenario, in which we find the appropriate amount of private sector net borrowing/lending to achieve the path of employment growth projected under current policies by the Congressional Budget Office (CBO), in a report characterized by excessive optimism and a bias toward deficit reduction; (2) a more plausible scenario, in which we assume that the federal government extends certain key tax cuts and that household borrowing increases at a more reasonable rate than in the previous scenario; and (3) a fiscal stimulus scenario, in which we simulate the effects of a fully “paid for” 1 percent increase in government investment.

  The results show the importance of debt accumulation as a consideration in macro policymaking. The first scenario reproduces the CBO’s relatively optimistic employment projections, but our results indicate that this private-sector-led growth scenario quickly brings household and business debt to new all-time highs as percentages of GDP. We note that the CBO makes its projections using an orthodox model with several common, but fundamental, flaws. This makes possible the agency’s result that current policies will reduce the unemployment rate without a run-up in the private sector’s debt—“business as usual,” in the words of our report’s title.

  The policies weighed in the second scenario do not perform much better, despite a looser fiscal stance. Finally, our third scenario illustrates that a small, tax-financed increase in government investment could lower the unemployment rate significantly—by about one-half of 1 percent. A stimulus package of this size might be within the realm of political possibility at this juncture. However, our results lead us to surmise that it would take a much more substantial fiscal stimulus to reduce unemployment to a level that most policymakers would regard as acceptable.

  Download Strategic Analysis, April 2012 PDF (522.53 KB)
• Book Series 10 April 2012

  Beyond the Minsky Moment: Where We’ve Been, Why We Can’t Go Back, and the Road Ahead for Financial Reform

  Levy Blog
  Abstract
  This eBook traces the roots of the 2008 financial meltdown to the structural and regulatory changes leading from the 1933 Glass-Steagall Act to the 1999 Financial Services Modernization Act, and on through to the subprime-triggered crash. It evaluates the regulatory reactions to the global financial crisis—most notably, the 2010 Dodd-Frank Act—and, with the help of Minsky’s work, sketches a way forward in terms of stabilizing the financial system and providing for the capital development of the economy.

  The book explains how money manager capitalism set the stage for the outbreak of the systemic crisis and debt deflation through which we are still living. And it explains that, despite calls for a return to Glass-Steagall, we cannot turn back the clock. Minsky’s blueprint for a more stable structure is smaller banks and the restoration of relationship banking. Modifying and extending his idea for creating a bank holding company would preserve some of the features of Glass-Steagall. 

  Download eBook, April 2012 PDF (1.98 MB)
• Research Project Report 10 April 2012

  Using Minsky to Simplify Financial Regulation

  Levy Blog
  Abstract
  This monograph is part of the Institute’s research program on Financial Instability and the Reregulation of Financial Institutions and Markets, funded by the Ford Foundation. Its purpose is to investigate the causes and development of the recent financial crisis from the point of view of the late financial economist and Levy Distinguished Scholar Hyman Minsky, and to propose “a thorough, integrated approach to our economic problems.”

  The monograph draws on Minsky’s work on financial regulation to assess the efficacy of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, enacted in response to the 2008 subprime crisis and subsequent deep recession. Some two years after its adoption, the implementation of Dodd-Frank is still far from complete. And despite the fact that a principal objective of this legislation was to remove the threat of taxpayer bailouts for banks deemed “too big to fail,” the financial system is now more concentrated than ever and the largest banks even larger. As economic recovery seems somewhat more assured and most financial institutions have regrouped sufficiently to repay the governmental support they received, the specific rules and regulations required to make Dodd-Frank operational are facing increasing resistance from both the financial services industry and from within the US judicial system.

  This suggests that the Dodd-Frank legislation may be too extensive, too complicated, and too concerned with eliminating past abuses to ever be fully implemented, much less met with compliance. Indeed, it has been called a veritable paradise for regulatory arbitrage. The result has been a call for a more fundamental review of the extant financial legislation, with some suggesting a return to a regulatory framework closer to Glass-Steagall’s separation of institutions by function—a cornerstone of Minsky’s extensive work on regulation in the 1990s. For Minsky, the goal of any systemic reform was to ensure that the basic objectives of the financial system—to support the capital development of the economy and to provide a safe and secure payments system—were met. Whether the Dodd-Frank Act can fulfill this aspect of its brief remains an open question.

  Download Research Project Report, April 10, 2012 PDF (295.37 KB)
• Research Project Report 10 April 2012

  Improving Governance of the Government Safety Net in Financial Crisis

  L. Randall Wray
  Abstract
  This monograph is part of the Levy Institute’s Research and Policy Dialogue Project on Improving Governance of the Government Safety Net in Financial Crisis, a two-year project funded by the Ford Foundation.

  In the current financial crisis, the United States has relied on two primary methods of extending the government safety net: a stimulus package approved and budgeted by Congress, and a massive and unprecedented response by the Federal Reserve in the fulfillment of its lender-of-last-resort function. This monograph examines the benefits and drawbacks of each method, focusing on questions of accountability, democratic governance and transparency, and mission consistency. The aim is to explore the possibility of reform that would place more responsibility for provision of a safety net on Congress, with a smaller role to be played by the Fed, not only enhancing accountability but also allowing the Fed to focus more closely on its proper mission.

  Download Research Project Report, April 9, 2012 PDF (1.08 MB)
• Public Policy Brief No.123 10 April 2012

  A Detailed Look at the Fed’s Crisis Response by Funding Facility and Recipient

  James Andrew Felkerson
  Abstract

  The extraordinary scope and magnitude of the financial crisis of 2007–09 required an extraordinary response by the Federal Reserve in the fulfillment of its lender-of-last-resort (LOLR) function. In an attempt to stabilize financial markets during the worst financial crisis since the Great Crash of 1929, the Fed engaged in loans, guarantees, and outright purchases of financial assets that were not only unprecedented, but cumulatively amounted to over twice current US GDP as well. the purpose of this brief is to provide a descriptive account of the Fed’s response to the recent crisis—to delineate the essential characteristics and logistical specifics of the veritable "alphabet soup" of LOLR machinery rolled out to save the world financial system. It represents the most comprehensive investigation of the raw data to date, one that draws on three discrete measures: the peak outstanding commitment at a given point in time; the total peak flow of commitments (loans plus asset purchases), which helps identify periods of maximum financial system distress; and, finally, the total amouunt of loans and asset purchases made between January 2007 and March 2012. This third number, which is a cumulative measure, reveals that the total Fed response exceeded $29 trillion. Providing this account from such varying angles is a necessary first step in any attempt to fully understand the actions of the central bank in this critical period—and a prerequisite for thinking about how to shape policy for future crises.

  Download Public Policy Brief No. 123, 2012 PDF (925.55 KB)
• Working Paper No.713 09 April 2012

  Control of Finance as a Prerequisite for Successful Monetary Policy

  Thorvald Grung Moe
  Abstract

  Henry Simons’s 1936 article “Rules versus Authorities in Monetary Policy” is a classical reference in the literature on central bank independence and rule-based policy. A closer reading of the article reveals a more nuanced policy prescription, with significant emphasis on the need to control short-term borrowing; bank credit is seen as highly unstable, and price level controls, in Simons’s view, are not be possible without limiting banks’ ability to create money by extending loans. These elements of Simons’s theory of money form the basis for Hyman P. Minsky’s financial instability hypothesis. This should not come as a surprise, as Simons was Minsky’s teacher at the University of Chicago in the late 1930s. I review the similarities between their theories of financial instability and the relevance of their work for the current discussion of macroprudential tools and the conduct of monetary policy. According to Minsky and Simons, control of finance is a prerequisite for successful monetary policy and economic stabilization.

  Download Working Paper No. 713 PDF (126.62 KB)