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Via Matías Vernengo, here is the audio of James Galbraith’s keynote address at the ANPEC (Associação Nacional dos Centros de Pós-Graduação em Economia) conference in Brazil.  Galbraith addresses the global financial crisis and the intellectual reactions (or non-reactions) to it, dealing both with those who attempted to explain away the crisis and those with a “rage to return” who scrambled for past insights.  Here Galbraith has in mind what he regards as the superficial return to Keynes in the early portion of the Great Recession:  “Half-remembered insights were framed into half-measures advocated by Keynesians of convenience. … [T]he authority that continues to be associated with Keynes was invoked to deflect and bury his spirit.” Galbraith also talks about the Marxian, Godleyan, Minskyan, and “Galbraithian” (John Kenneth) schools of thought (which he likens to “Millenarian sects”), joined by their acceptance of the possibility and likelihood of crises, and runs through the differences in their approaches to thinking about financial crises.

In an op-ed in today’s LA Times Dimitri Papadimitriou makes the case for a direct job creation program: It’s unreasonable to expect private enterprises to solve these problems. Full employment isn’t an objective of businesses. … There simply isn’t any known automatic mechanism, in the markets or elsewhere, that creates jobs in numbers that match the pool of people willing and able to work. … At the theoretical heart of job-creation programs is this fact: Only government, because it is not seeking profitability when it is hiring, can create a demand for labor that is elastic enough to keep a nation near full employment. During a downturn, when a government offers a demand for unemployed workers, it takes on a role analogous to the one that the Federal Reserve plays when it provides liquidity to banks. As in banking, setting an appropriate rate — in this case, a wage — is one key component for success, with the goal of employing those willing and able to work at or marginally below prevailing informal wages. Papadimitriou goes on to describe successful examples of direct public service job creation programs around the world, and finishes with a discussion of the need for decent monitoring and evaluation systems for these programs (a set of topics highlighted in the recent Levy Institute report on… Read More

In my last post, I reviewed an enjoyable book about some post-Keynesian economic economic thought and thinkers. To round things out a bit more, I thought I might offer a list of a few more often-overlooked but classical themes from economists who may be obscure to some blog readers or perhaps simply forgotten. Many of the points made in this post involve ways that economies change and develop, a topic that often brings “historical time” into the picture. (This list is by no means exhaustive or even carefully chosen.) •virtuous circles in economic growth: it’s often thought that the economy reverts to a steady and mediocre long-term growth trend following an especially good or bad economic year. Unfortunately, this may not be happening now (see Figure 1 in this Levy Institute one-pager). One theme of the Smithian growth theories pioneered for our era by Nicholas Kaldor and other economists profiled in A. P. Thirlwall’s excellent book The Nature of Economic Growth (2002; paperback 2003) is that a year or two of strong economic growth won’t necessarily increase the chances of a lean year in the future.

These two stories need to get together in a room and talk: 1) Demand for US debt is really high. 2) Government (net) investment is at a 40-year low. Notice that neither of these facts plays any noticeable role in the policy debates that dominate the US political scene.  There we’re offered a choice of competing visions between radicals who claim that current levels of government spending and investment represent the collapse of free civilization, and conservatives (only, we don’t call them that) who seem to think that we have the share of public investment more or less right (give or take a few dollars for green energy).

In 2009, the Institute released some careful research on the micro-level effects of the recovery act (one example is at this link). That work helps to answer questions about how the benefits of specific stimulus packages will be spread out among different individuals, and households, and demographic groups in the United States. Increasingly, these and other distributional issues loom large in U.S. debates about economic policy. For example, some influential economists contend that a distribution of income that is increasingly slanted toward “the 1 percent” has been a contributing factor to the dangerous upward trend in U.S. household debt that began decades before the recent financial crisis.  The regressive tax policies called for by many candidates ahead of tomorrow’s big Iowa Republican presidential caucuses also bring to mind these serious problems (see this New York Times link for a description of the Republican candidates’ somewhat varied positions on fiscal issues). An important school of thought that emphasized distributional issues in macroeconomics was the so-called “Cambridge school,” whose name connotes its association with Cambridge University in England and Cambridge progenitors such as John Maynard Keynes. This year, Piero Garegnani, who was closely linked in many ways with this school of thought, passed away (an interesting professional obituary is here). It was interesting to see this eminent Italian economist speak in a… Read More

Japan is the champion nation in terms of budget deficits and government debt relative to GDP. Many have long argued (wrongly) that this is because holders happen to have addresses in Japan. Nonsense. A sovereign government that issues its own currency makes interest payments on its debt in exactly the same manner whether the holder has an address at the South Pole or on Mars: a keystroke to a savings deposit at the central bank. What matters is whether the country issues its own currency. That is why the little spat between the UK and France—with France insisting that credit agencies ought to down-grade the UK before they downgrade France—is so silly. France can have a debt ratio under 15% of GDP and still be forced to default. The UK can have a debt ratio above Japan’s 200% and still face no chance of involuntary default. That is the beauty and utility of issuing your own currency. France is a currency user and its fate depends on Germany—which is busy sucking up every spare Euro it can lay its greedy hands on. France is no better off than the panhandler on the street corner begging for pocket change—a user of currency, not an issuer. Read the rest here.

The Levy Institute, with underwriting from the Labour Institute of the Greek General Confederation of Workers, has helped design and implement a program of direct job creation throughout Greece. Two-year projects, financed using European Structural Funds, have already begun. This report by Senior Scholar Rania Antonopoulos, President Dimitri B. Papadimitriou, and Research Analyst Taun Toay traces the economic trends preceding and surrounding the economic crisis in Greece, with particular emphasis on recent labor market trends and emerging gaps in social safety net coverage. Overall, the report aims to aid policymakers and planners in channeling program resources to the most deserving regions, households, and persons; and in devising data collection methodologies that will facilitate accurate and useful monitoring and evaluation systems for a targeted employment creation program. On its own, the report provides an excellent in-depth portrayal of the evolution of the Greek economy since joining the euro and traces some of the harrowing challenges ahead—particularly in youth employment (the youth labor force participation rate is 20 percent below the OECD average—what’s happening in Greece will truly mark an entire generation). For those interested in the policy side, the report also provides a solid introduction to the conceptual justification behind a direct job creation program along the lines of Hyman Minsky’s “employer of last resort” idea (beginning on p.33 of the… Read More

Philip Arestis and Malcolm Sawyer have a guest post at Triple Crisis that critiques the latest proposal for a new fiscal compact in the EU (essentially an SGP with more automatic sanctions for those who surpass the 3 percent of GDP budget deficit limit and the annual structural deficit limit of 0.5 percent of GDP).  Arestis and Malcom note the asymmetrical restrictions of the compact (there are limits on deficits, but not surpluses) and demonstrate that the deficit limits are entirely too stringent: The ‘fiscal compact’ assumes that an upper limit of 3 per cent of GDP is consistent with a near balanced structural budget despite the swings in economic activity and associated swings in budget deficits as the automatic stabilisers take effect. As a rule of thumb a 1 per cent fall in GDP below trend leads to around a 0.7 per cent rise in the budget deficit – hence a more than 3 per cent drop in GDP before trend with a structural deficit of 0.5 per cent would lead to a country breaching the limit. Note that this is a drop in GDP below trend – and could come from an actual drop of more like 1 per cent (with a 2 per cent trend growth rate).

BARD COLLEGE TO LAUNCH INNOVATIVE MBA IN SUSTAINABILITY Now Enrolling Students for Fall 2012 in New York City www.bard.edu/mb ANNANDALE-ON-HUDSON, N.Y. — Responding to a revolution in business strategy and to rising student demand, Bard College announces the creation of a new Master of Business Administration in Sustainability Program. Based in New York City, the new MBA in Sustainability responds to the dramatic surge in demand for training in sustainable business practices being created by green start-up businesses and major corporate efforts, such IBM’s Smarter Planet and General Electric’s Eco-Imagination. The two-year program, which will start in fall 2012, is being developed as a partnership between the Bard Center for Environmental Policy (Bard CEP), which grants M.S. degrees in environmental policy and in climate science and policy, and the Levy Economics Institute of Bard College, a leading nonpartisan economic policy research organization. “Bard is proud to make a substantive contribution to such an important field,” said Bard College President Leon Botstein. The Bard MBA in Sustainability provides a rigorous education in core business principles, as well as sustainable business practices, with a focus throughout on economics, environment, and social equity. Green companies must achieve quality production and performance, efficient operations, sound financial management, deep employee engagement, responsible and effective marketing, creative responses to changing economic conditions, flexible strategies, and continuous innovation…. Read More

J. Andrew Felkerson writes at AlterNet about the study he authored detailing the Federal Reserve’s bailout of financial institutions over the course of the latest crisis.  He explains some of the reasoning behind his study’s methodology, particularly with respect to his use of a cumulative measure of loans and asset purchases (the other two measures he uses involve the peak amount outstanding at a moment in time and peak weekly amounts): Perhaps the largest difference in our analysis is that we learned our money and banking theory from the late Hyman Minsky. He taught us that the modern economy is essentially financial, and as such, is prone to systemic financial crises that if left unchecked can lead to “bone crunching depressions.” Therefore it is essential to have a LOLR. Thus, any transaction between the Fed and the markets which is not part of conventional monetary operations, such as lending from the discount window or open market operations, represents an instance in which private markets were not able to or were unwilling to engage in the normal financial intermediation process. If it any point in time the private markets were capable (or willing) to carry out business as usual, Fed intervention would not have been required. Thus, we need to account for each extraordinary event, and the best way that we… Read More

Randall Wray has a new one-pager following up on the release of a report detailing and tallying up the Federal Reserve’s extraordinary efforts to prop up the banking system—a report with the rather eye-catching headline number of $29.6 trillion.  The Levy Institute working paper, the first in a series, is part of a Ford Foundation-supported project undertaken by James Felkerson and Nicola Matthews under Wray’s direction. In the one-pager, Wray explains the methodology and justification behind the report’s presentation of the raw data that was released (after some persuasion) by the Fed.  As an example, he runs through the numbers for just one facility, the Primary Dealer Credit Facility (PDCF) created in March 2008, and explains the three different measures compiled by the report.  First, they present the peak outstanding commitment (loans and asset purchases) at a point in time ($150 billion); then the peak flow of commitments over a week ($700 billion); and finally, the cumulative total over the life of the facility ($9 trillion).  Again, this is all for one facility (PDCF). What’s the point of all these numbers?  Wray explains: Take your pick: the appropriate number chosen depends on the question asked. The smallest number answers the question, What was the Fed’s peak exposure to losses (assuming the Fed would let the institutions fail without extending even… Read More

It’s difficult to know where to begin with this post from Casey Mulligan (the comments are definitely worth reading). He starts off by implying that those who might want to characterize the recession as involving “a lack of hiring” are simply misled by the nature of aggregate data on hiring and separations. He goes on to say this is due to the fact that turnover rates (and therefore hiring and separations) for younger people are higher throughout the business cycle than for older workers. He links to this 2010 Brookings paper by Michael Elsby, Bart Hobijn and Aysegul Sahin. Unfortunately for Mulligan’s point, the authors have this to say: Measures of unemployment flows for different labor force groups yield an important message on the sources of the disparate trends in unemployment across those groups: higher levels and greater cyclical sensitivity of joblessness among young, low-skilled, and minority workers, both in this and in previous downturns, are driven predominantly by differences in rates of entry into unemployment between these groups and others. In sharp contrast, a striking feature of unemployment exit rates is a remarkable uniformity in their cyclical behavior across labor force groups—the declines in outflow rates during this and prior recessions are truly an aggregate phenomenon.[p.3] While Mulligan states, correctly, that “[e]stimated job separations among employees ages 25-54 were… Read More