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Unions and Economic Performance in Developing Countries: Case Studies from Latin America Fernando Rios-Avila The Rational Expectations Hypothesis: An Assessment from Popper’s Philosophy Iván H. Ayala and Alfonso Palacio-Vera Integrating Time in Public Policy: Empirical Description of Gender-specific Outcomes and Budgeting  Lekha S. Chakraborty Financial Crisis Resolution and Federal Reserve Governance: Economic Thought and Political Realities Bernard Shull Options for China in a Dollar Standard World: A Sovereign Currency Approach L. Randall Wray and Xinhua Liu Feasible Estimation of Linear Models with N-fixed Effects Fernando Rios-Avila A Stock-flow Approach to a General Theory of Pricing  Philip Pilkington

One thing Jan Kregel’s new policy note makes clear is that congressional debates about raising the debt ceiling were a great deal more enlightening in the 1940s and ’50s. Here is Rep. Wright Patman (D-TX) in 1943 defending his proposal to fund what were expected to be huge wartime expenditures by bypassing the private financial system and placing government debt directly with the Federal Reserve Banks at zero interest rates: the Government of the United States, under the Constitution, has the power, and it is the duty of the Government, to create all money. The Treasury Department issues both money and bonds. Under the present system it sells the bonds to a bank that creates the money, and then if the bank needs the actual money, the actual printed greenbacks to pay the depositors, the Treasury will furnish that money to the banks to pay the depositors. In that way, the Government farms out the use of its own credit absolutely free. To Patman, “farming” out the government’s credit in this way was just a direct — and unnecessary — subsidy to private banks: “I am opposed to the United States Government, which possesses the sovereign and exclusive privilege of creating money, paying private bankers for the use of its own money. These private bankers do not hire their own… Read More

23rd Annual Hyman P. Minsky Conference Stabilizing Financial Systems for Growth and Full Employment The National Press Club Washington, D.C. April 9–10, 2014 Organized by the Levy Economics Institute with support from the Ford Foundation. In a context of global uncertainty, with growth and employment well below normal levels, the 2014 Minsky Conference will address both financial reform and prosperity, drawing from Minsky’s work on financial instability and his proposal for achieving full employment. Panels will focus on the design of a new, more robust, and stable financial architecture; fiscal austerity and the sustainability of the US and European economic recovery; central bank independence and financial reform; the larger implications of the eurozone debt crisis for the global economic system; the impact of the return to more traditional US monetary policy on emerging markets and developing economies; improving governance of the social safety net; the institutional shape of the future financial system; strategies for promoting an inclusive economy and more equitable income distribution; and regulatory challenges for emerging-market economies. Registration is now open. Participants include: Anat Admati Professor of Finance and Economics, Stanford University Robert Barbera Co-director, Center for Financial Economics, The Johns Hopkins University Richard Berner Director, Office of Financial Research, US Department of the Treasury Sherrod Brown US Senator (D-OH) Willem H. Buiter* Global Chief Economist, Citi Vítor… Read More

From the preface to a new policy brief by Amit Bhaduri: In our era of global finance, the theory of aggregate demand management is alive and unwell. In this policy brief, Bhaduri describes what he regards as a prevalent contemporary approach to demand management. Detached from its Keynesian roots, this “vulgar” version of demand management theory is being used to justify policies that stand in stark contrast to those prescribed by the original Keynesian model. Rising asset prices and private-debt-fueled consumption play the starring roles, while fiscal policy retreats into the background. … While some might insist that the age of global finance leaves little room for the idea of demand management, Bhaduri contends that the theory survives, but that it does so in a form that is nearly unrecognizable from the original. This contemporary model of demand management receives its inspiration from the presuppositions of neoclassical economics, and its policy emphasis is often the very opposite of the old Keynesian model. … To support demand, the “vulgar,” or “Great Moderation,” model hinges on the interplay between expectations of ever-rising asset prices and a consumption boom driven by private debt. Bhaduri cautions, however, that a model centered on private credit creation is prone to instability. More and more financial investment is needed to produce greater returns and boost asset prices,… Read More

The Commission’s latest “Quarterly Report on the Euro Area” makes an interesting read; at least to those who simply can’t get enough of the “structural reform” gospel that has been running high in the Commission’s corridors for the past 30 years or so. So be warned: For any more enlightened minds the report is mainly of interest for what it does not talk about. One might perhaps start by congratulating the Commission for noticing that the euro area is falling behind internationally. In case you had not known, the euro area’s GDP is still about 3 percent below its pre-crisis peak level, domestic demand about 5 percent. Few other policymakers on this planet have such a stellar record to show for themselves. And the Commission is surely part of that gang. The Commission does not wish to talk about the crisis too much though. It is more concerned with long-run trends that started some time before the crisis. In particular, the Commission points out that after catching up quite successfully with the US in terms of productivity levels and living standards from the mid-1960s up until the mid-1990s, something seems to have happened in the mid-1990s that enabled the US to persistently outperform the euro area ever since. What happened around that time that allowed the US to achieve respectable… Read More

Could it be that Mario Draghi is alone among the key euro authorities in recognizing that the euro crisis may not be quite over yet? Given that Mr. Draghi is also widely credited as the euro’s foremost savior, this seems more than just a little odd. Recall that, almost magically, Mr. Draghi managed to pull the euro currency union back from that yawning abyss of acute breakup scares prevailing until the summer of 2012 – and with nothing but words: the simple promise “to do whatever it takes” to keep the euro whole. As the markets have stayed calm ever since, the euro body politic has indulged in complacency. All the more so since the release of the first non-negative quarter-on-quarter GDP growth number for the spring of last year that saw the euro authorities engage in self-congratulatory shoulder-slapping, bravely declaring that the war on the euro crisis was won as their sound policies were finally starting to bear fruit. European Commission president José Manuel Barroso just added another refrain to the chorus, predicting that 2014 would bring definite change for the better to the euro community. Interestingly, as delusion and denial seems to fully absorb other euro authorities, the ECB’s president alone is taking a more clear-headed view on the actual state of affairs and prospects for the euro… Read More

Roughly a year after President Johnson used the occasion of his first State of the Union address to declare war on poverty, Hyman Minsky presented a paper on the subject at a conference in Berkeley. Here’s what he wrote: The war against poverty is a conservative rebuttal to an ancient challenge of the radicals, that capitalism necessarily generates “poverty in the midst of plenty.” This war intends to eliminate poverty by changing people, rather than the economy. Thus the emphasis, even in the Job Corps, is upon training or indoctrination to work rather than on the job and the task to be performed. However, this approach, standing by itself, cannot end poverty. All it can do is give the present poor a better chance at the jobs that exist: it can spread poverty more fairly. A necessary ingredient of any war against poverty is a program of job creation; and it has never been shown that a thorough program of job creation, taking people as they are, will not, by itself, eliminate a large part of the poverty that exists. The war against poverty cannot be taken seriously as long as the Administration and the Congress tolerate a 5 percent unemployment rate and frame monetary and fiscal policy with a target of eventually achieving a 4 percent unemployment rate. Only… Read More

Jesse Myerson created a firestorm over mainstream media with his Rolling Stone piece “Five Economic Reforms Millennials Should Be Fighting For.” I’d like to address the very first of these reforms, the Job Guarantee (JG), as Myerson references my proposal for running the program through the non-profit sector and discussed it in several interviews on Tuesday. Last month, I did a podcast with him about this program. Let me focus on some questions that keep popping up about the proposal, e.g., Josh Barro’s Business Insider piece. What is the problem? It is fundamental. It’s not just a problem of today’s deeply ailing economy. It’s permanent. There are always people willing to work, whom profit-driven firms do not wish to hire.  Even when economies are growing rapidly, there are never enough job openings for all who want to work. That number is 24.4 million people today: 10.9 million officially unemployed and 13.5 million in hidden unemployment (bls.gov). The mark of unemployment is itself an obstacle to getting a job. The average employer equates 9 months of unemployment to 4 years of lost work experience. (Eriksson and Rooth AER, 2014). And so unemployment breeds unemployability, feeding the decades-long uptrend in long-term unemployment, while the economic, political and social costs are mounting. Whenever I write about unemployment, I always stress the long run…. Read More

I just returned from the big annual meeting of economists (this time in Philly), at which we had a panel on the Job Guarantee. One of the papers on our panel was by William (Sandy) Darity and Darrick Hamilton, which demonstrated how imperative it is to implement the JG to reduce hiring discrimination in the labor market. Darrick (who presented the paper) pointed out that official unemployment rates for black Americans is chronically twice as high as that for whites; by conventional views of what constitutes Great Depression levels of unemployment, black Americans are in a Great Depression and are always suffering from at least recession levels of unemployment. Darrick pointed out that even in good times, blacks with some college education have unemployment rates higher than white high school drop-outs, and even as high as whites who’ve been incarcerated. Sandy has supported the Job Guarantee since the earliest days—he was on the first panel we ever organized on the JG (back when we were calling it Public Service Employment). While the JG will not eliminate racial discrimination in the USA, it will go a long way in helping to provide a real opportunity. The highest unemployment rates are among the young. As Sandy says, black teen high school dropouts have a 95 percent joblessness rate. You read that right…. Read More

L. Randall Wray just published a one-pager on China’s policy options from the perspective of Modern Money Theory: Since adopting a policy of gradually opening its economy more than three decades ago, China has enjoyed rapid economic growth and rising living standards for much of its population. While some argue that China might fall into the middle-income “trap,” they are underestimating the country’s ability to continue to grow at a rapid pace. It is likely that China’s growth will eventually slow, but the nation will continue on its path to join the developed high-income group—so long as the central government recognizes and uses the policy space available to it. China doesn’t necessarily need an expansion of total government spending — what it needs, Wray argues, is to “shift spending away from local governments, which have limited fiscal capacity, and toward the sovereign central government, which has more fiscal policy space.” Local government budgets, which face solvency constraints (local governments actually need to raise revenue to pay debt service), are showing signs of being over-extended — and the reality is probably even worse than the data suggest, Wray points out, given that local governments have been relying on off-balance-sheet investment vehicles. By contrast, Wray observes that China’s central government, facing no risk of insolvency, has a relatively tight budget. The logic… Read More

A new volume edited by the director of the Levy Institute’s Gender Equality and the Economy program, Rania Antonopoulos: With the full effects of the Great Recession still unfolding, this collection of essays analyses the gendered economic impacts of the crisis. The volume, from an international set of contributors, argues that gender-differentiated economic roles and responsibilities within households and markets can potentially influence the ways in which men and women are affected in times of economic crisis. Looking at the economy through a gender lens, the contributors investigate the antecedents and consequences of the ongoing crisis as well as the recovery policies adopted in selected countries. There are case studies devoted to Latin America, transition economies, China, India, South Africa, Turkey, and the USA. Topics examined include unemployment, the job-creation potential of fiscal expansion, the behavioral response of individuals whose households have experienced loss of income, social protection initiatives, food security and the environment, shedding of jobs in export-led sectors, and lessons learned thus far. From these timely contributions, students, scholars, and policymakers are certain to better understand the theoretical and empirical linkages between gender equality and macroeconomic policy in times of crisis. From the table of contents:

Dissatisfaction with the incomplete or timid nature of the 2010 Dodd-Frank financial reforms has generated interest in some alternative regulatory proposals. One alternative that’s fairly prominent in progressive circles revolves around the idea of returning to the structure of the 1933 Glass-Steagall Act. In this video, Jan Kregel explains why we can’t go back. He argues that recent proposals to revive Glass-Steagall are based on a misunderstanding of what banks do and how they make their money. [iframe width=”448″ height=”252″ src=”//www.youtube.com/embed/_jQsajnbn44?start=648″ frameborder=”0″ allowfullscreen></iframe] You can find this video and others at the Levy Institute’s new YouTube page (videos of speeches and panel discussions from two recent Levy Institute Minsky conferences, in Rio and Athens, will be made available. More to come).