Publications

1657 publications found

• Public Policy Brief No.93 08 January 2008

  Minsky’s Cushions of Safety

  Jan Kregel
  Abstract

  In this brief, Senior Scholar Jan Kregel reviews Hyman P. Minsky’s concept of financial fragility—in short, that the structure of a capitalist economy becomes more fragile over a period of prosperity—and concludes that the current crisis is in fact the result of insufficient margins of safety based on how creditworthiness is assessed in the new “originate and distribute” financial system.

  Download Public Policy Brief No. 93, 2008 PDF (1.35 MB)
• Research Project Report No.34 02 January 2008

  Joint Project of UNDP and Levy Institute on Public Employment

  Rania Antonopoulos and Kijong Kim
  Abstract

  Documents relating to the South Africa and India case studies are available below.

  SOUTH AFRICA	INDIA
  Policy Brief Full Report Appendix A. SAM–SA Technical Report Appendix B. Statistical Analysis Appendix C. Job Identification Tables Appendix D. SAM Reformulation	Policy Brief Full Report Appendix A. SAM-Nana Kotda Village Appendix B. A Note on the Village Sam Appendix C. A Summary Table on Unpaid Work and Its Implications for Public Works Programmes
  Annotated Bibliography

• Working Paper No.525 20 December 2007

  Financialization

  Thomas I. Palley
  Abstract

  Financialization is a process whereby financial markets, financial institutions,
  and financial elites gain greater influence over economic policy and economic
  outcomes. Financialization transforms the functioning of economic systems at
  both the macro and micro levels.

  Its principal impacts are to (1) elevate the significance of the financial
  sector relative to the real sector, (2) transfer income from the real sector
  to the financial sector, and (3) increase income inequality and contribute
  to wage stagnation. Additionally, there are reasons to believe that financialization
  may put the economy at risk of debt deflation and prolonged recession.

  Financialization operates through three different conduits: changes in the
  structure and operation of financial markets, changes in the behavior of nonfinancial
  corporations, and changes in economic policy.

  Countering financialization calls for a multifaceted agenda that (1) restores
  policy control over financial markets, (2) challenges the neoliberal economic
  policy paradigm encouraged by financialization, (3) makes corporations responsive
  to interests of stakeholders other than just financial markets, and (4) reforms
  the political process so as to diminish the influence of corporations and wealthy
  elites.

  Download Working Paper No. 525 PDF (521.30 KB)
• Working Paper No.524 19 December 2007

  Promotion Nationale

  Hind Jalal
  Abstract

  Created in 1961, Promotion Nationale (PN) is an autonomous public entity in
  charge of mobilizing an underemployed or unemployed workforce for the implementation
  of labor-intensive projects, calling upon a simple technology likely to provide
  employment to unskilled workers. It is one of the major programs of social
  protection in Morocco—the oldest, most important, and best-targeted social
  program in the country.

  Vis-à-vis the importance of rural underemployment, especially during
  dry years, estimated per million working days, PN aims to improve employment
  opportunities by developing collective working methods, and by generating large-scale
  investment for the realization of public infrastructure projects and rural
  equipment. This institution aims at limiting rural migration through the permanent
  improvement of local incomes and living conditions. It thus constitutes a safety
  net for a large part of the population, especially in rural areas. Forty-five
  years after its creation, PN has at its credit an important and single assessment
  regarding the fight against unemployment with minimal management costs, in
  spite of certain difficulties and limitations that hinder the organization,
  particularly in terms of the geographical targeting of rural poverty zones.

  Download Working Paper No. 524 PDF (247.47 KB)
• Working Paper No.523 13 December 2007

  The Natural Instability of Financial Markets

  Jan Kregel
  Abstract

  This paper contrasts the economic incentives implicit in the Keynes-Minsky approach
  to inherent financial market instability with the incentives behind the traditional
  equilibrium approach leading to market stability to provide a framework for analyzing
  the stability induced by the recent changes in bank regulation to modernize financial
  services and the evolution of financial engineering innovations in the US financial
  system. It suggests that the changes that have occurred in the profit incentives
  for bank holding companies have modified the provision of liquidity to the financial
  system by banks, and the way credit assessment has moved from banks to other
  actors in the system. It takes the current experience in financial instability
  created by the expansion, through securitization, of the mortgage market as an
  example of these changes.

  Download Working Paper No. 523 PDF (130.68 KB)
• Working Paper No.522 10 December 2007

  Lessons from the Subprime Meltdown

  L. Randall Wray
  Abstract

  This paper uses Hyman P. Minsky’s approach to analyze the current international
  financial crisis, which was initiated by problems in the American real estate market.
  In a 1987 manuscript, Minsky had already recognized the importance of the trend
  toward securitization of home mortgages. This paper identifies the causes and
  consequences of the financial innovations that created the real estate boom and
  bust. It examines the role played by each of the key players—including
  brokers, appraisers, borrowers, securitizers, insurers, and regulators—in
  creating the crisis. Finally, it proposes short-run solutions to the current
  crisis, as well as longer-run policy to prevent “it” (a debt deflation)
  from happening again.

  Download Working Paper No. 522 PDF (416.23 KB)
• Strategic Analysis 30 November 2007

  The US Economy: Is There a Way Out of the Woods?

  Wynne Godley, Dimitri B. Papadimitriou and Gennaro Zezza
  Abstract

  In their latest Strategic Analysis, Distinguished Scholar Wynne Godley, President Dimitri B. Papadimitriou, and Research Scholars Greg Hannsgen and Gennaro Zezza review recent events in the housing and financial markets to obtain a likely scenario for the evolution of household spending in the United States. They forecast a significant drop in borrowing and private expenditure in the coming quarters, with severe consequences for growth and unemployment, unless (1) the US dollar is allowed to continue its fall and thus complete the recovery in the US external imbalance, and (2) fiscal policy shifts its course—as it did in the 2001 recession.

  Download Strategic Analysis, November 2007 PDF (316.57 KB)
• Working Paper No.521 29 November 2007

  Earnings Functions and the Measurement of the Determinants of Wage Dispersion

  Jacques Silber and Joseph Deutsch
  Abstract

  This paper extends the famous Blinder and Oaxaca (1973) discrimination
  in several directions. First, the wage difference breakdown is not limited to
  two groups. Second, a decomposition technique is proposed that allows analysis
  of the determinants of the overall wage dispersion. The authors’ approach
  combines two techniques. The first of these is popular in the field of income
  inequality measurement and concerns the breakdown of inequality by population
  subgroup. The second technique, very common in the literature of labor economics,
  uses Mincerian earnings functions to derive a decomposition of wage differences
  into components measuring group differences in the average values of the explanatory
  variables, in the coefficients of these variables in the earnings functions,
  and in the unobservable characteristics. This methodological novelty allows one
  to determine the exact impact of each of these three elements on the overall
  wage dispersion, on the dispersion within and between groups, and on the degree
  of overlap between the wage distributions of the various groups.

  However, this paper goes beyond a static analysis insofar as it succeeds in breaking
  down the change over time in the overall wage dispersion and its components (both
  between and within group dispersion and group overlapping) into elements related
  to changes in the value of the explanatory variables and the coefficients of
  those variables in the earnings functions, in the unobservable characteristics,
  and in the relative size of the various groups.

  Download Working Paper No. 521 PDF (315.12 KB)
• Working Paper No.520 14 November 2007

  Nurkse and the Role of Finance in Development Economics

  Jan Kregel
  Abstract

  Ragnar Nurkse was one the pioneers in development economics. This paper celebrates
  the hundredth anniversary of his birth with a critical retrospective of his overall
  contribution to the field, in particular his views on the importance of employment
  policy in mobilizing domestic resources and the difficulties surrounding the
  use of external resources to finance development. It also demonstrates the affinity
  between Nurkse’s theory of mobilizing domestic resources and employer-of-last-resort
  proposals.

  Download Working Paper No. 520 PDF (277.17 KB)
• Working Paper No.519 09 November 2007

  Public Employment and Women

  L. Randall Wray and Pavlina R. Tcherneva
  Abstract

  In 2002, Argentina implemented a large-scale public employment program to deal
  with the latest economic crisis and the ensuing massive unemployment and poverty.
  The program, known as Plan Jefes, offered part-time work for unemployed
  heads of households, and yet more than 70 percent of the people who turned up
  for work were women. The present paper evaluates the operation of this program,
  its macroeconomic effects, and its impact on program participants. We report
  findings from our 2005 meetings with policymakers and visits to different project
  sites. We find that Jefes addresses many important community problems, is well
  received by participants, and serves the needs of women particularly well. Some
  of the benefits women report are working in mother-friendly jobs, getting needed
  training and education, helping the community, and finding dignity and empowerment
  through work.

  Download Working Paper No. 519 PDF (208.28 KB)
• Public Policy Brief No.92 26 October 2007

  The US Credit Crunch of 2007

  Charles J. Whalen
  Abstract

  It is now clear that most economists underestimated the widening economic impact of the credit crunch that has shaken American financial markets since at least mid-July. A credit crunch is an economic condition in which loans and investment capital are difficult to obtain; in such a period, banks and other lenders become wary of issuing loans, so the price of borrowing rises, often to the point where deals simply do not get done. Financial economist Hyman P. Minsky (1919–1996) was the foremost expert on such crunches, and his ideas remain relevant to understanding the current situation.

  This brief by Charles J. Whalen demonstrates that the US credit crunch of 2007 can aptly be described as a “Minsky moment.” It begins by taking a look at aspects of this crunch, then examines the notion of a Minsky moment, along with the main ideas informing Minsky’s perspective on economic instability. At the heart of that viewpoint is what Minsky called the “financial instability hypothesis,” which derives from an interpretation of John Maynard Keynes’s work and underscores the value of an evolutionary and institutionally grounded alternative to conventional economics. The brief then returns to the 2007 credit crunch and identifies some of the key elements relevant to fleshing out a Minsky-oriented account of that event.

  Download Public Policy Brief No. 92, 2007 PDF (476.11 KB)
• Working Paper No.518 25 October 2007

  Fiscal Deficit, Capital Formation, and Crowding Out in India

  Lekha S. Chakraborty
  Abstract

  This paper analyzes the real (direct) and financial crowding out in India between
  1970–71 and 2002–03. Using an asymmetric vector autoregressive (VAR)
  model, the paper finds no real crowding out between public and private investment;
  rather, complementarity is observed between the two. The dynamics of financial
  crowding out is captured through the dual transmission mechanism via the real
  rate of interest—that is, whether private capital formation is interest-rate
  sensitive and, in turn, whether the rise in the real rate of interest is induced
  by a fiscal deficit. The study found empirical evidence for the former but not
  the latter, supporting the conclusion that there is no financial crowding out
  in India. The differential impacts of public infrastructure and noninfrastruture
  innovations on the private corporate sector are carried out separately to analyze
  the nonhomogeneity aspects of public investment. The results of the
  Impulse Response Function reinforced that no other macrovariables, including
  cost and quantity of credit and the output gap, have been as significant as public
  investment—in particular, public infrastructure investment—in determining
  private corporate investment in the medium and long terms, which has crucial
  policy implications.

  Download Working Paper No. 518 PDF (610.51 KB)
• Working Paper No.517 23 October 2007

  What Are the Relative Macroeconomic Merits and Environmental Impacts of Direct Job Creation and Basic Income Guarantees?

  Pavlina R. Tcherneva
  Abstract

  There is a body of literature that favors universal and unconditional public assurance policies over those that are targeted and means-tested. Two such proposals—the basic income proposal and job guarantees—are discussed here. The paper evaluates the impact of each program on macroeconomic stability, arguing that direct job creation has inherent stabilization features that are lacking in the basic income proposal. A discussion of modern finance and labor market dynamics renders the latter proposal inherently inflationary, and potentially stagflationary. After studying the macroeconomic viability of each program, the paper elaborates on their environmental merits. It is argued that the “green” consequences of the basic income proposal are likely to emerge, not from its modus operandi, but from the tax schemes that have been advanced for its financing. By contrast, the job guarantee proposal can serve as an institutional vehicle for achieving various environmental goals by explicitly targeting environmental rehabilitation, conservation, and sustainability. Finally, in the hope of consensus building, the paper advances a joint policy proposal that is economically viable, environmentally friendly, and socially just.

  Download Working Paper No. 517 PDF (321.66 KB)
• Book Series 15 October 2007

  Government Spending on the Elderly

  Dimitri B. Papadimitriou
  Abstract

  The results are in: we are aging—individually and collectively, nationally and globally. In the United States, as in most countries with an advanced economy, the aging of the population will be a primary domestic public policy issue in the coming decades. According to Census Bureau estimates, the proportion of the elderly in the total population will increase, while the proportion of the working-age population is projected to decline. These demographic changes imply a significant growth in the number of beneficiaries in federal entitlement programs. Existing program rules and rapidly escalating health care costs are expected to lead to fiscal pressures, and to pose significant challenges for economic growth.

  Coping with an aging population requires action in the near term to forestall more difficult choices in the long term. This book provides an assessment of the forces that drive government spending on retirees and explores alternate means of financing the retirement and health care of older citizens. Probabilistic forecasts and comparative analyses are used to measure the potential impact of various reform proposals. Individual essays examine European welfare state regimes and their generosity toward the elderly, global demographic trends and their implications for social welfare systems, the differing retirement prospects for women and men, the changing role of employer pensions in the United States, the adequacy of retirement resources among the soon-to-retire, and the effects of wage growth on the long-term solvency of Social Security.

• Public Policy Brief No.91 09 October 2007

  Globalization and the Changing Trade Debate

  Thomas I. Palley
  Abstract

  The failure of the Doha Development Round of World Trade Organization (WTO) negotiations in July 2006 was the first major collapse of a multilateral trade round since World War II. Research Associate Thomas Palley sees the failure as an event that could mark the close of a 60-year era of trade policy largely centered on increasing market access and reducing tariffs, quotas, and subsidies. Doha’s demise represents an opportunity to challenge the intellectual dominance of the current WTO paradigm, to expose the failings of the neoliberal model of economic development, and to reposition the global trade debate.

  Download Public Policy Brief No. 91, 2007 PDF (130.52 KB)
• Working Paper No.516 21 September 2007

  The Right to a Job, the Right Types of Projects

  Rania Antonopoulos
  Abstract

  There is now widespread recognition that in most countries, private-sector investment has not been able to absorb surplus labor. This is all the more the case for poor unskilled people. Public works programs and employment guarantee schemes in South Africa, India, and other countries provide jobs while creating public assets. In addition to physical infrastructure, an area that has immense potential to create much-needed jobs is that of social service delivery and social infrastructure. While unemployment and enforced “idleness” persist, existing time-use survey data reveal that people around the world—especially women and children—spend long hours performing unpaid work. This work includes not only household maintenance and care provisioning for family members and communities, but also time spent that helps fill public infrastructural gaps—for example, in the energy, health, and education sectors. This paper suggests that, by bringing together public job creation, on the one hand, and unpaid work, on the other, well-designed employment guarantee policies can promote job creation, gender equality, and pro-poor development.

  Download Working Paper No. 516 PDF (225.92 KB)
• Working Paper No.515 13 September 2007

  Minsky’s Approach to Employment Policy and Poverty

  L. Randall Wray
  Abstract

  While Hyman P. Minsky is best known for his work on financial instability, he
  was also intimately involved in the postwar debates about fiscal policy and what
  would become the War on Poverty. Indeed, at the University of California, Berkeley,
  he was a vehement critic of the policies of the Kennedy and Johnson administrations,
  and played a major role in developing an alternative. Minsky insisted that the
  high investment path chosen by postwar fine-tuners would generate macroeconomic
  instability, and that the War on Poverty would never lower poverty rates significantly.
  In retrospect, he was correct on both accounts. Further, he proposed high consumption
  and an employer of last resort policy as essential ingredients of any coherent
  strategy for achieving macro stability and poverty elimination. This paper summarizes
  Minsky’s work in this area, focusing on his writings from the early 1960s
  through the early 1970s in order to explore the path not taken.

  Download Working Paper No. 515 PDF (118.51 KB)
• Working Paper No.514 10 September 2007

  The Continuing Legacy of John Maynard Keynes

  L. Randall Wray
  Abstract

  This working paper examines the legacy of Keynes’s General Theory of Employment, Interest, and Money (1936) on the occasion of the 70th anniversary of its publication and the 60th anniversary of Keynes’s death. The paper incorporates some of the latest research by prominent followers of Keynes, presented at the 9th International Post Keynesian Conference in September 2006.

  Download Working Paper No. 514 PDF (137.03 KB)
• Working Paper No.513 04 September 2007

  Inequality of Life Chances and the Measurement of Social Immobility

  Jacques Silber and Amedeo Spadaro
  Abstract

  This paper begins by proposing two cardinal measures of inequality in life chances. Using as its database a matrix in which the lines correspond to the social category of parents and the columns to the income distribution of their children, it then highlights the importance of the marginal distributions when comparing social immobility within two populations. It also shows how it is possible to neutralize differences in these margins. The idea is to adapt a method used in the field of occupational segregation measurement that allows one to make a distinction between differences in gross and net social immobility, assuming that the marginal distributions of the two populations are identical. Borrowing ideas from recent literature on the equality of opportunity, the paper then defines the concept of an inequality in circumstances curve and relates it to that of a social immobility curve.

  Two empirical datasets are used to determine the usefulness of the concepts presented. The first dataset comes from a survey conducted in France in 1998 and allows one to measure the degree of social immobility and of inequality in circumstances on the basis of the occupation of fathers or mothers and the income class to which sons or daughters belong. The second dataset, drawn from a social survey conducted in Israel in 2003, is the basis for a study of social immobility and inequality in circumstances, emphasizing the transition from the educational level of the fathers to the income class of the children. Both illustrations confirm the usefulness of the analytical tools described in this paper.

  Download Working Paper No. 513 PDF (194.74 KB)
• Working Paper No.512 03 September 2007

  Endogenous Money

  L. Randall Wray
  Abstract

  While the mainstream long argued that the central bank could use quantitative constraints as a means to controlling the private creation of money, most economists now recognize that the central bank can only set the overnight interest rate—which has only an indirect impact on the quantity of reserves and the quantity of privately created money. Indeed, in order to hit the overnight rate target, the central bank must accommodate the demand for reserves, draining the excess or supplying reserves when the system is short. Thus, the supply of reserves is best characterized as horizontal, at the central bank’s target rate. Because reserves pay relatively low rates, or even zero rates (as in the United States), banks try to minimize their holdings. Over time, they continually innovate, as they seek to minimize costs and increase profits. This includes innovations that reduce the quantity of reserves they need to hold (either to satisfy legal requirements, or to meet the needs of check cashing and clearing), and also innovations that allow them to increase the rate of return on equity within regulatory constraints, such as those associated with Basle agreements. Such behavior has been a central concern of the structuralist approach—which argued that it is too simplistic to hypothesize simple horizontal loan-and-deposit supply curves.

  Download Working Paper No. 512 PDF (73.74 KB)
• Working Paper No.511 15 August 2007

  The Fed’s Real Reaction Function

  James K. Galbraith, Olivier Giovannoni and Ann J. Russo
  Abstract

  Using a VAR model of the American economy from 1984 to 2003, we find that, contrary to official claims, the Federal Reserve does not target inflation or react to “inflation signals.” Rather, the Fed reacts to the very “real” signal sent by unemployment, in a way that suggests that a baseless fear of full employment is a principal force behind monetary policy. Tests of variations in the workings of a Taylor Rule, using dummy variable regressions, on data going back to 1969 suggest that after 1983 the Federal Reserve largely ceased reacting to inflation or high unemployment, but continued to react when unemployment fell “too low.” Further, we find that monetary policy (measured by the yield curve) has significant causal impact on pay inequality—a domain where the Fed refuses responsibility. Finally, we test whether Federal Reserve policy has exhibited a pattern of partisan bias in presidential election years, with results that suggest the presence of such bias, after controlling for the effects of inflation and unemployment.

  Download Working Paper No. 511 PDF (344.43 KB)
• Working Paper No.510 13 August 2007

  A Post-Keynesian View of Central Bank Independence, Policy Targets, and the Rules-versus-Discretion Debate

  L. Randall Wray
  Abstract

  This paper addresses three issues surrounding monetary policy formation: policy independence, choice of operating targets, and rules versus discretion. According to the New Monetary Consensus, the central bank needs policy independence to build credibility; the operating target is the overnight interbank lending rate, and the ultimate goal is price stability. This paper provides an alternative view, arguing that an effective central bank cannot be independent as conventionally defined, where effectiveness is indicated by ability to hit an overnight nominal interest rate target. Discretionary policy is rejected, as are conventional views of the central bank’s ability to achieve traditional goals such as robust growth, low inflation, and high employment. Thus, the paper returns to Keynes’s call for low interest rates and euthanasia of the rentier.

  Download Working Paper No. 510 PDF (92.32 KB)
• Working Paper No.509 07 August 2007

  On Various Ways of Measuring Unemployment, with Applications to Switzerland

  Jacques Silber, Joseph Deutsch and Yves Flückiger
  Abstract

  This paper begins with an examination of various ways of measuring unemployment
  and, borrowing ideas from the poverty measurement literature, proposes four new
  general unemployment indices. The first of these is parallel to the Sen poverty
  index; the second, to the Sen index’s generalization by Shorrocks; the
  third, to the FGT poverty index; and the fourth, to the Watts poverty index.
  The authors then present an empirical illustration based on Swiss data compiled
  at the state, or canton, level, using the so-called Shapley decomposition to
  determine the contribution of three components—the traditional unemployment
  rate, the average unemployment duration, and the inequality in the unemployment
  durations—to the differences between the values of the four proposed indices,
  both within a given canton and within Switzerland as a whole. The paper concludes
  with a discussion of the assumptions made about the maximum unemployment duration
  for the purposes of the study, and their impact on the results obtained.

  Download Working Paper No. 509 PDF (450.36 KB)
• Working Paper No.506 16 July 2007

  The Effects of a Declining Housing Market on the US Economy

  Dimitri B. Papadimitriou and Gennaro Zezza
  Abstract

  Longstanding speculation about the likelihood of a housing market collapse has given way in the past few months to consideration of just how far the housing market will fall, and how much damage the debacle will inflict on the economy. This paper assesses the magnitude of the impact of housing price decreases on real private expenditure, examines the role of new types of mortgages and mortgage-related securities, and analyzes possible policy responses.

  Download Working Paper No. 506 PDF (184.62 KB)