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In a 90-minute debate, I’m not sure it’s possible to cover every single issue of pressing national importance and to do so in coherent detail.  So the following is a complaint one could make about a number of issues that were missing from last Thursday’s VP debate, but it was a little eyebrow-raising that financial reform was absent from the conversation. Sure, the collapse of Lehman is ancient history as far as the political news cycle is concerned, and regulatory details can sometimes come off as unbearably technical to the average viewer.  However, we are still living through the real-world economic consequences of a massive global financial crash; the ink on the 2010 Dodd-Frank Act is not yet dry (key regulations are still being finalized); and recent scandals should have reminded us that the soundness of the financial system cannot be taken for granted. Hopefully, tonight’s presidential debate will feature a little more recognition of the catastrophic regulatory failure we’re still living with.  We’ll see.  At this year’s Minsky conference, Gillian Tett of the Financial Times joined a panel discussion (with Louis Uchitelle, Jeff Madrick, and Yalman Onaran) on the role of the press in the financial crisis and financial reform efforts (audio here).  Tett commented on the failure of the press to focus on what was really going in… Read More

We expect the unexpected at the Levy Institute. As followers of Keynes, most economists here, including this author, believe that one cannot assign exact probabilities to most important economic outcomes even, say, six months into the future. On the other hand, thinking about the economic debate on job creation, and the recent release of new jobs data, I have not been very surprised at the gradual pace of progress in reducing the unemployment rate. In fact, we on the macro team have consistently called for more fiscal stimulus rather than less. The reason is that unemployment is a relatively slow-moving variable. As the chart at the top of this post shows, the unemployment rate (shown as a blue line) fell only rather gradually after each of the previous three recessions (shown as shaded areas in the figure). (Here, we count the double-dip recessions of 1980 and 1981–82 as one.) Hence, once the recovery began, we knew that with the unemployment rate at very high levels, it needed to fall unusually fast to be at reasonable levels by this point in the Obama administration.  Hence, since 2007, the team has advocated an easing of fiscal policy. Instead, especially after the 2009 ARRA, little action was taken by the government to stimulate the economy. Partly as a result of inaction on fiscal… Read More

On the surface, the data from Argentina look awfully good—among the top performers in the world over the past decade. And she’s apparently done it without a run-up of either private sector or government sector debt. In other words, Argentineans have bucked the trend among developed countries, that saw (mostly) tepid growth fueled almost entirely by debt. And that seems to be at least in part due to a policy choice. Argentina had been the poster child for Neoliberal policies all through the 1990s—they adopted virtually the whole Neolib agenda lock-stock-and-barrel. They even adopted a currency board. And unlike Euroland (which also adopted something like a currency board as each member adopted a foreign currency—the euro), Argentina would have consistently met the tight Maastricht criteria on budget deficits and debts over that period. The main purpose of the austere budgets and currency board constraints was to kill high inflation. It worked. But, over that period unemployment grew and GDP growth was moderate. I won’t go further into the problems encountered at the turn of the new decade but the whole thing collapsed into a severe economic, financial, and political crisis. In a last desperation move, the government abandoned the currency board (or, you could say the currency board abandoned the government!), defaulted on its debt, and created a Jobs Guarantee… Read More

Levy Institute scholars James Galbraith and Randall Wray presented at the annual conference held by the Central Bank of Argentina last week. Galbraith’s presentation began with the issue of the flexibility of central bank mandates and then turned to an account of the long-term evolution in the economy that prepared the groundwork for the recent global financial crisis. Randall Wray spoke on the theoretical and policy implications of a government’s ability to issue a sovereign currency.  Video and slides below the fold (full list of speakers here).

I returned to the Levy Institute yesterday after the International Post Keynesian Conference in beautiful Kansas City. I will mention some of the news from the conference, for readers who are interested in the kinds of events that Levy Institute scholars attend. At such conferences, ideas are taken very seriously, and many interesting debates were simmering at this one.  Theories and models abounded. Many of them went right to the heart of the causes of the financial crisis. Speaking of interesting, students were among those attending and helped to organize the conference. Some were selling official conference t-shirts as well as used books in the vendors’ area. I haven’t had a chance to try my shirt on, having returned home only Sunday night on a delayed flight. Many of the giants in the field were there.  A surprise event in honor of the Institute’s Jan Kregel took place last Thursday night, the first night of the conference.  Kregel recently joined Paul Davidson as an editor of the Journal of Post Keynesian Economics. A new Post Keynesian economic policy forum is online, and many from the Institute are editors. This new paperback from Eckhard Hein and Englebert Stockhammer, also on display at the conference, explains some of the ideas and history of this school of economists, including their conferences. Post Keynesian… Read More

Kevin Drum has excised another section of the now-famous leaked fundraiser video, and this time the GOP challenger is holding forth on quantitative easing and other subjects. Drum picks on Romney’s specific claim that the government is buying three-quarters of US treasury debt, but there’s something in this quotation that’s more fundamentally off: We’re living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who’s loaning us the trillion? The Chinese aren’t loaning us anymore. The Russians aren’t loaning it to us anymore. So who’s giving us the trillion? And the answer is we’re just making it up. The Federal Reserve is just taking it and saying, “Here, we’re giving it.” It’s just made up money, and this does not augur well for our economic future. The problem here is that Romney’s “fantasy” world, in which the government “makes up” money, is just a roughly accurate description of fiat money.  And if you’re rooting around in the text of Obama’s American Recovery and Reinvestment Act for the dastardly provision that created this new “feeyat” money thing, don’t waste your time—it’s been around for a long, long time.  If you’re interested in the actual history of money, as opposed to the “we used to have real money… Read More

We’re seeing a lot of “is the euro crisis over?” stories pop up in the press lately (or rather, again).  The sensible responses are “no” and “which euro crisis?” Presumably, this burst of enthusiasm derives in part from Mario Draghi’s announcement to (sort of) commit to (sort of) unlimited bond purchases.  But even if you think, optimistic reader that you are, that this will (sort of) rein in the periphery’s galloping borrowing costs and forestall an immediate breakup of the eurozone (at least until next month), that would just leave us with a slightly smaller pile of crises—including a crippling growth crisis. For Greece in particular, to declare its crisis “over” requires a serious dose of lowered expectations: The unemployment rate currently stands at 23.5 percent, wages and salaries have shrunk by as much as 30 percent, a series of pension cuts has been implemented (the latest proposal is to cut up to 600 euros per month from individual pension checks!), hospital operating expenses have been reduced by half, and the education budget has been hit so hard that many schools throughout the country operated without heating oil last winter. If you want to know what it looks like when a national crisis isn’t over, read more here.

For those who haven’t seen it already, US News and World Report did a brief piece a short while ago on Minsky’s approach to financial instability.  After running through a list of recent financial panics and crises, Chris Gay notes that from a certain theoretical perspective, this wasn’t supposed to happen.  “This sort of blood-curdling free-fall is supposed to be a once-in-a-lifetime event, like the transit of Venus or a federal budget surplus.  How is it,” he asks, “that someone who was in high school when Justin Bieber was in Pampers has already experienced half a dozen of them? Either we need to redefine ‘crash’ or someone owes you some lifetimes.”  Black swans were once thought by European ornithologists to be rare, until they discovered a number of the birds in Australia.  By contrast, the assumption that financial panics and crises are rare has stuck around, despite more than enough experience with the economic equivalent of black feathers. In Minsky’s view, financial crises are a normal part of the functioning of this economic system; they are not some deus ex machina that arrives from without to push the system off-balance.  Digesting this way of looking at the stability of our economic system won’t just affect whether we’re surprised when the next panic or crisis comes crashing down on our heads, but… Read More

by Lekha Chakraborty India has recently turned to a debate over the effect of the Prime Minister’s personal characteristics on the country’s growth and development outcomes. Do political leaders’ personal characteristics affect economic growth? It is an elusive empirical question. One of the most robust findings of a recent treatment of this topic is that leaders do matter for economic growth and, in particular, more educated leaders generate higher growth. The paper, titled “Do Educated Leaders Matter?,” appeared in The Economic Journal in 2011, by Timothy Besley of the London School of Economics and co-authored by Jose G. Montalvo and Marta Reynal-Querol. They examined this issue in a new context of how the educational attainment of a political leader affects a country’s economic growth during the leader’s tenure in office. The study also finds a strong negative effect on growth of a random exit of the Prime Minister from his office.  “[I]ntelligence is central to the Platonic view of leadership,” they write, “so the idea that more educated citizens could be better leaders would come as no surprise.” This finding naturally leads us to the question of who should be appointed as Prime Minister. In India, we currently find a well-educated technocrat in that position. With the recent controversial article by Simon Denyer, the New Delhi bureau chief of the… Read More

Marriner Eccles was Chairman of the Federal Reserve under President Franklin D. Roosevelt. This note consists of excerpts from an address he gave to the US Senate Committee on Finance in 1933, before he was called to Washington for public service by FDR. The original address contained in the Congressional Records has been reduced from over thirty pages (including questions and answers) to only three pages here that contain his essential message. Some parts have been slightly modified to fit the current time and crisis. Additions or alteration to the text has been marked by square brackets. All original figures used by Eccles in the address have been inflated by a factor of 16.4, according to the official US CPI index. In the mad confusion and fear brought about by our present disordered economies, we need bold and courageous leadership more than at any other time in our history. The orthodox capitalistic system of uncontrolled individualism, with its free competition, will no longer serve our purpose. We can only survive and function under a modified capitalistic system controlled and regulated from the top by government. The proposals I offer are all intended to bring about, by Government action, an increase of purchasing power on the part of all the people, resulting in an immediate and increasing volume in all lines… Read More

Who would have expected extreme thinking from central bankers? That is the theme of some coverage in the financial press over the past few weeks. For example, the Financial Times takes note that “a growing chorus of economists is saying central banks should take more radical steps, including buying assets other than government bonds.” Some, if not all, of these steps are not so radical from a broad historical perspective. Following the recent bankers’ brainstorming session in Jackson Hole, Wyoming, Fed Chairman Ben Bernanke was said to be pondering various possibilities including (1) QE (quantitative easing) 3, (2) a lowering of the interest rate paid on banks’ reserve accounts at the Fed, (3) an extension until 2015 of the Fed’s low-interest-rate precommitment, and perhaps in the longer term, (4) adopting nominal GDP targeting, as endorsed, for example, by George Soros in a recent opinion piece on the eurozone and Germany in particular. Today, the Fed announced that it would adopt options (1) and (3), purchasing $40 billion in mortgage-backed debt each month for an indefinite period and predicting that the federal funds rate would remain near zero through mid-2015 (see news article for more details). Most of the measures being contemplated are portrayed as more radical than they actually are, in my view. For example, most of the actions being… Read More

The Levy Economics Institute of Bard College will hold its fourth annual Hyman P. Minsky Summer Seminar in June 2013.  The Summer Seminar provides a rigorous discussion of both the theoretical and the applied aspects of Minsky’s economics, with an examination of meaningful prescriptive policies relevant to the current economic and financial crisis.  It is of particular interest to graduate students, recent graduates, and those at the beginning of their academic or professional career. The 2013 Seminar program will be organized by Jan Kregel, Dimitri B. Papadimitriou, and L. Randall Wray, and the teaching staff will include well-known economists concentrating on and expanding Minsky’s work. Registration information can be found here.