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Levy Institute Publications
Strategic Analysis, April 2017 | April 2017 | Michalis Nikiforos, Gennaro ZezzaFrom a macroeconomic point of view, 2016 was an ordinary year in the post–Great Recession period. As in prior years, the conventional forecasts predicted that this would be the year the economy would finally escape from the “new normal” of secular stagnation. But just as in every previous year, the forecasts were confounded by the actual result: lower-than-expected growth—just 1.6 percent.
The radical policy changes promoted by the new Trump administration dominated economic conditions in the closing quarter of the year and the first quarter of 2017. Markets have responded with exuberance since the November elections, on the expectation that the proposed policy measures would increase profitability by boosting growth and cutting personal and corporate taxes. However, an evaluation of the US economy’s structural characteristics reveals three key impediments to a robust, sustainable recovery: income inequality, fiscal conservatism, and weak net export demand. The new administration’s often conflicting policy proposals are unlikely to solve any of these fundamental problems—if anything, the situation will worsen.
Our latest Strategic Analysis provides two medium-term scenarios for the US economy. The “business as usual” baseline scenario (built on CBO estimates) shows household debt and GDP growth roughly maintaining their moribund postcrisis trends. The second scenario assumes a sharp correction in the stock market beginning in 2017Q3, combined with another round of private sector deleveraging. The results: negative growth and a government deficit of 8.3 percent by 2020—essentially a repeat of the crisis of 2007–9.Download:Associated Program:Author(s):Related Topic(s):
Strategic Analysis, September 2016 | October 2016 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro Zezza
The Greek government has agreed to a new round of fiscal austerity measures consisting of a sharp increase in taxes on income and property and further reductions in pension and other welfare-related expenditures. Based on our model of the Greek economy, policies aimed at reducing the government deficit will cause a recession, unless other components of aggregate demand increase enough to more than offset the negative impact of fiscal austerity on output and employment.
In this report we argue that the troika strategy of increasing net exports to restart the economy has failed, partly because of the low impact of falling wages on prices, partly because of the low trade elasticities with respect to prices, and partly because of other events that caused a sharp reduction in transport services, which used to be Greece’s largest export sector.
A policy initiative to boost aggregate demand is urgently needed, now more than ever. We propose a fiscal policy alternative based on innovative financing mechanisms, which could trigger a boost in confidence that would encourage renewed private investment.Download:Associated Program:Author(s):Related Topic(s):
Strategic Analysis, March 2016 | March 2016 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro ZezzaOur latest strategic analysis reveals that the US economy remains fragile because of three persistent structural issues: weak demand for US exports, fiscal conservatism, and a four-decade trend in rising income inequality. It also faces risks from stagnation in the economies of the United States’ trading partners, appreciation of the dollar, and a contraction in asset prices. The authors provide a baseline and three alternative medium-term scenarios using the Levy Institute’s stock-flow consistent macro model: a dollar appreciation and reduced growth in US trading partners scenario; a stock market correction scenario; and a third scenario combining scenarios 1 and 2. The baseline scenario shows that future growth will depend on an increase in private sector indebtedness, while the remaining scenarios underscore the linkages between a fragile US recovery and instability in the global economy.Download:Associated Program:Author(s):Related Topic(s):
e-pamphlet, March 2016 | March 2016 | Jordan Brennan
American Prosperity in Historical PerspectiveJordan Brennan, of Unifor and the Canadian Centre for Policy Alternatives, examines the rise of income inequality and the deceleration of economic growth in the United States in this two-part analysis. The first section explores the consolidation of corporate power, through mergers and acquisitions, between 1895 and 2013, and finds that reduced competition, declines in fixed asset investment, and the rise of practices such as stock buybacks have shifted investment away from the real economy, leading to weak economic growth and rising income inequality. The second section of Brennan’s analysis examines the interplay of labor unions, inflation, and income inequality. The author observes that the decline of unions as a countervailing force to corporate power and anti-inflationary monetary policy have shifted income away from middle- and lower-income groups. Similarly, he observes that over the past century inflation has tended to redistribute income from capital to labor—from the upper to the lower income strata. In this context, he observes that anti-inflation policy is a use of state power to effect a regressive redistribution of income.Download:Associated Program:Author(s):Jordan Brennan
Public Policy Brief No. 144, 2017 | September 2017 | Jan Kregel
A Radical Proposal Based on Keynes’s Clearing UnionIn 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.
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Public Policy Brief No. 143, 2017 | February 2017 | Fernando J. Cardim de Carvalho
Since inheriting the Brazilian presidency five months ago, the new Temer administration has successfully ratified a constitutional amendment imposing a radical, two-decades-long public spending freeze, purportedly aimed at sparking an increase in business confidence and investment. In this policy brief, Fernando Cardim de Carvalho explains why this fiscal strategy is based not only on a flawed conception of the drivers of private-sector confidence and investment but also on a mistaken view of the roots of the current Brazilian economic crisis. The hoped-for “expansionary fiscal consolidation” is not likely to be achieved.Download:Associated Program:Author(s):Related Topic(s):
Policy Note 2017/4 | November 2017 | Ajit ZachariasThe 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:Associated Program(s):The Levy Institute Measure of Time and Income Poverty Gender Equality and the Economy The Distribution of Income and WealthAuthor(s):Related Topic(s):
Policy Note 2017/3 | July 2017 | L. Randall Wray
Because Healthcare Is Not InsurableThe 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:Associated Program:Author(s):Related Topic(s):
One-Pager No. 53 | February 2017 | Flavia Dantas, L. Randall Wray
Demographics or Lack of Jobs?
Aging demographics, “social shifts,” and other supply-side and institutional factors have commonly been blamed for the fall in the US labor force participation rate. However, depressed labor force participation for prime-age workers is likely due to a combination of insufficient aggregate demand, weak job creation, and stagnant wages—all of which have been persistent problems over the past three or four decades. Although insufficient aggregate demand is the main problem, general “Keynesian” pump priming is not the answer. Stimulus needs to take the form of targeted job creation to tighten labor markets for less-skilled workers.Download:Associated Program:Author(s):Flavia Dantas L. Randall WrayRelated Topic(s):
One-Pager No. 52 | January 2016 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro Zezza
Even under optimistic assumptions, the policy status quo being enforced in Greece cannot be relied upon to help recover lost incomes and employment within any reasonable time frame. And while a widely discussed public investment program funded by European institutions would help, a more innovative, better-targeted solution is required to address Greece’s protracted unemployment crisis: an “employer of last resort” (ELR) plan offering paid work in public projects, financed by issuing a nonconvertible “fiscal currency”—the Geuro.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 899 | January 2018 | Tamar KhitarishviliThe 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:Associated Program(s):Author(s):Related Topic(s):
Working Paper No. 898 | October 2017 | Lekha S. Chakraborty, Samiksha AgarwalThe 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:Associated Program:Author(s):Lekha S. Chakraborty Samiksha AgarwalRelated Topic(s):
Book Series, November 2015 | November 2015
Edited by Rainer Kattel, Jan Kregel, and Mario Tonveronachi
Have past and more recent regulatory changes contributed to increased financial stability in the European Union (EU), or have they improved the efficiency of individual banks and national financial systems within the EU? Edited by Rainer Kattel, Tallinn University of Technology, Director of Research Jan Kregel, and Mario Tonveronachi, University of Siena, this volume offers a comparative overview of how financial regulations have evolved in various European countries since the introduction of the single European market in 1986. The collection includes a number of country studies (France, Germany, Italy, Spain, Estonia, Hungary, Slovenia) that analyze the domestic financial regulatory structure at the beginning of the period, how the EU directives have been introduced into domestic legislation, and their impact on the financial structure of the economy. Other contributions examine regulatory changes in the UK and Nordic countries, and in postcrisis America.
Published by: Routledge
Book Series, November 2015 | November 2015 | L. Randall Wray
By L. Randall Wray
Perhaps no economist was more vindicated by the global financial crisis than Hyman P. Minsky (1919–1996). Although a handful of economists raised alarms as early as 2000, Minsky’s warnings began a half century earlier, with writings that set out a compelling theory of financial instability. Yet even today he remains largely outside mainstream economics; few people have a good grasp of his writings, and fewer still understand their full importance. Why Minsky Matters makes the maverick economist’s critically valuable insights accessible to general readers for the first time. Author L. Randall Wray shows that by understanding Minsky we will not only see the next crisis coming but we might be able to act quickly enough to prevent it.
As Wray explains, Minsky’s most important idea is that “stability is destabilizing”: to the degree that the economy achieves what looks to be robust and stable growth, it is setting up the conditions in which a crash becomes ever more likely. Before the financial crisis, mainstream economists pointed to much evidence that the economy was more stable, but their predictions were completely wrong because they disregarded Minsky’s insight. Wray also introduces Minsky’s significant work on money and banking, poverty and unemployment, and the evolution of capitalism, as well as his proposals for reforming the financial system and promoting economic stability.
A much-needed introduction to an economist whose ideas are more relevant than ever, Why Minsky Matters is essential reading for anyone who wants to understand why economic crises are becoming more frequent and severe—and what we can do about it.
Published by: Princeton
Volume 27, No. 1 | January 2018 | Elizabeth Dunn, Michael StephensThis issue of the Summary opens with a public policy brief that suggests looking to the postwar clearing union proposals made by John Maynard Keynes and Richard Kahn for insight into possible reforms of the current eurozone financial system. Two policy notes featured in this issue focus on current policy in the United States: the first addresses the feasibility of the Trump administration’s campaign promises to the middle class; and the second calls for the implementation of a universal single-payer health system. A third policy note argues that the relationship between time poverty and income poverty must be recognized in policy creation if the UN’s Sustainable Development Goals are to be met.
Working papers included in this issue: examine the determinants of long-term interest rates for US Treasury securities; build a stock-flow consistent model to assess the relationship between quantitative easing and economic instability; use the Minskyan concept of financial fragility to assess the financial soundness of electricity distribution companies in Brazil; discuss the origins of the “science” of economics from its beginnings in the political economy of Adam Smith; survey Minsky’s contributions to the financialization literature for answers to today’s pressing economic issues; and suggest the application of strategies for containing disease epidemics to reduce the socioeconomic costs of unemployment.
Download:Author(s):Elizabeth Dunn Michael Stephens
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From the Press Room
Dimitri Papadimitriou joins the hosts of "Bloomberg Daybreak: Europe" to discuss his outlook for the economy.
Greek Economy Minister Dimitri Papadimitriou talks to Sky News's Ian King.
Greek Economy to Grow Over 2 Percent in 2017, Papadimitriou Says