• 23rd Annual Hyman P. Minsky Conference Washington, D.C., April 9–10, 2014  MORE >>
  • Athens Conference: Austerity and the Eurozone Conference audio and video now available online  MORE >>
  • Master of Science in Economic Theory and Policy Applications now being accepted  MORE >>
  • The Hyman P. Minsky Summer Seminar June 13–21, 2014—Levy Institute, Annandale-on-Hudson, NY  MORE >>
  • Ending Poverty: Jobs, Not Welfare A new collection of essays by Hyman P. Minsky  MORE >>

New Levy Institute Publications

  • Co-operative Banking in Greece


    Research Project Report, April 2014 | July 2014 | Dimitri B. Papadimitriou, Taun Toay
    A Proposal for Rural Reinvestment and Urban Entrepreneurship
    The crisis in Greece is persistent and ongoing. After six years of deepening recession, real GDP has shrunk by more than 25 percent, with total unemployment now standing at 27.2 percent. Clearly, reviving growth and creating jobs should be at the top of the policy agenda.

    But banks remain undercapitalized, and lending has been restricted to only the most creditworthy businesses and households. Many start-ups and small- and medium-size enterprises (SMEs) have almost no access to development loans, and for those to whom credit can be extended, it is at disproportionally high interest rates.

    The success of micro-lending institutions in developing nations (such as the Grameen Bank in Bangladesh) has highlighted the positive economic performance of community-based credit, and such lending models have proven to be an important poverty policy alternative in areas where transfer payments are limited. Community or co-operative financial institutions (CFIs) can fill the gap when existing institutions cannot adequately perform critical functions of the financial system for SMEs, entrepreneurs, and low-income residents seeking modest financing and other banking services.

    We propose expanding the reach and services of CFIs within Greece, drawing upon lessons from the US experience of community development banking and various co-operative banking models in Europe. The primary goals of this nationwide system would be to make credit available, process payments, and offer savings opportunities to communities not well served by the major commercial Greek banks.

    Our blueprint includes suggestions on the banks’ organization and a framework within which they would be chartered, regulated, and supervised by a newly created central co-operative bank. It also looks at the possible impact that such a network could have, especially in terms of start-ups, SMEs, and rural redevelopment (agrotourism)—all of which are critical to Greece’s exit from recession. 

  • Is Rising Inequality a Hindrance to the US Economic Recovery?


    Strategic Analysis, April 2014 | April 2014 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro Zezza, Greg Hannsgen
    The US economy has been expanding moderately since the official end of the Great Recession in 2009. The budget deficit has been steadily decreasing, inflation has remained in check, and the unemployment rate has fallen to 6.7 percent. The restrictive fiscal policy stance of the past three years has exerted a negative influence on aggregate demand and growth, which has been offset by rising domestic private demand; net exports have had only a negligible (positive) effect on growth.   As Wynne Godley noted in 1999, in the Strategic Analysis Seven Unsustainable Processes, if an economy faces sluggish net export demand and fiscal policy is restrictive, economic growth becomes dependent on the private sector’s continuing to spend in excess of its income. However, this continuous excess is not sustainable in the medium and long run. Therefore, if spending were to stop rising relative to income, without either fiscal relaxation or a sharp recovery in net exports, the impetus driving the expansion would evaporate and output could not grow fast enough to stop unemployment from rising. Moreover, because growth is so dependent on “rising private borrowing,” the real economy “is at the mercy of the stock market to an unusual extent.” As proved by the crisis of 2001 and the Great Recession of 2007–09, Godley’s analysis turned out to be correct.   Fifteen years later, the US economy appears to be going down the same road again. Postrecession, foreign demand is still weak and the government is maintaining its tight fiscal stance. Once again, the recovery predicted in the latest Congressional Budget Office report relies on excessive private sector borrowing, and once again, the recovery is at the mercy of the stock market. Given that the income distribution has worsened since the crisis—continuing a 35-year trend—the burden of indebtedness will again fall disproportionally on the middle class and the poor. In order for the CBO projections to materialize, households in the bottom 90 percent of the distribution would have to start accumulating debt again in line with the prerecession trend while the stock of debt of the top 10 percent remained at its present level. Clearly, this process is unsustainable. The United States now faces a choice between two undesirable outcomes: a prolonged period of low growth—secular stagnation—or a bubble-fueled expansion that will end with a serious financial and economic crisis. The only way out of this dilemma is a reversal of the trend toward greater income inequality.  

  • Prospects and Policies for the Greek Economy


    Strategic Analysis, February 2014 | February 2014 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro Zezza
    In this report, we discuss alternative scenarios for restoring growth and increasing employment in the Greek economy, evaluating alternative policy options through our specially constructed macroeconometric model (LIMG). After reviewing recent events in 2013 that confirm our previous projections for an increase in the unemployment rate, we examine the likely impact of four policy options: (1) external help through Marshall Plan–type capital transfers to the government; (2) suspension of interest payments on public debt, instead using these resources for increasing demand and employment; (3) introduction of a parallel financial system that uses new government bonds; and (4) adoption of an employer-of-last-resort (ELR) program financed through the parallel financial system. We argue that the effectiveness of the different plans crucially depends on the price elasticity of the Greek trade sector. Since our analysis shows that such elasticity is low, our ELR policy option seems to provide the best strategy for a recovery, having immediate effects on the Greek population's standard of living while containing the effects on foreign debt.

  • A Sustainable Monetary Framework for an Independent Scotland


    Public Policy Brief No. 134, 2014 | June 2014 | Philip Pilkington

    This September, voters in Scotland will decide whether to break away from the United Kingdom. If supporters of independence carry the day, pivotal choices that affect the scope of Scotland’s economic sovereignty and its future relationship to the UK will need to be made, particularly with respect to the question of its currency. As the disaster in the eurozone makes clear, it is essential to get these arrangements right.

    In this policy brief, Philip Pilkington outlines a monetary framework designed to meet the macroeconomic challenges that would be faced by a newly separate Scotland. His conclusion: while it would be in Scotland’s best interests to continue using the sterling in the short run, making the transition to issuing its own, freely floating currency would place the country on a more stable economic footing.

  • Dead Economic Dogmas Trump Recovery: The Continuing Crisis in the Eurozone Periphery


    Public Policy Brief No. 133, 2014 | May 2014 | C. J. Polychroniou
    The “happy talk” emanating from eurozone officials regarding the economic crises in the periphery deserves some vigorous pushback. Focusing on the four bailed-out countries of Greece, Ireland, Portugal, and Spain, Research Associate and Policy Fellow C. J. Polychroniou argues in this policy brief that, contrary to the burgeoning optimism in official communications, these countries’ economies are still not on track for vigorous, sustainable recoveries in growth and employment—and that there is nothing surprising in this result. 

  • A Decade of Flat Wages?


    Policy Note 2014/4 | June 2014 | Fernando Rios-Avila, Julie L. Hotchkiss
    In the late 1990s low unemployment rates, increases in the minimum wage, and improvements in labor productivity contributed to a boost in wages, which translated into 12.4 percent cumulative growth in real wages from the late ‘90s until 2002. Real wages then stagnated despite continued growth in labor productivity. This period between 2002 and 2013 has become known as the decade of flat wages. However, over the same period there were significant changes in the composition of the labor market. In particular, the labor force has aged and become more educated. Increases in age, experience, and education could in fact be propping up observed real wages—meaning that wages of workers with a specific age and education profile may have actually declined over the decade. This is exactly what we uncover in this policy note: what appears to have been a decade of flat real wages was actually a decade of declining real wages within age/education worker profiles.

  • The Myth of the Greek Economic “Success Story”


    Policy Note 2014/3 | February 2014 | C. J. Polychroniou
    In 2001, a three-year, multicountry study by the Structural Adjustment Participatory Review International Network (SAPRIN), prepared in cooperation with the World Bank, national governments, and civil society organizations, offered a damning indictment of the policies of structural adjustment reform pursued by the IMF and the World Bank in third world countries. The structural adjustment programs in Greece, combined with the policies of austerity, are producing results that fit the patterns outlined in the SAPRIN study like a glove.   This policy note rejects the myth of Greece as an economic success story and argues that current trends and developments in the country make for a bleak economic future. The experiment under way in Greece will produce an economy resembling, not the Celtic Tiger of the mid-1990s to early 2000s, as the current government envisions, but an underdeveloped Latin America country of the 1980s.

  • Time and Consumption Poverty in Turkey


    One-Pager No. 46 | February 2014 | Thomas Masterson, Emel Memiş, Ajit Zacharias
    The Levy Institute Measure of Time and Consumption Poverty (LIMTCP) is a two-dimensional measure that takes into account both the necessary consumption expenditures and the household production time needed to achieve a minimum standard of living—factors often ignored in official poverty measures. In the case of Turkey, application of the LIMTCP reveals an additional 7.6 million people living in poverty, resulting in a poverty rate that is a full 10 percentage points higher than the official rate of 30 percent. 

  • Time Deficits and Hidden Poverty in Korea


    One Pager No. 45 | January 2014 | Kijong Kim, Thomas Masterson, Ajit Zacharias
    Official poverty lines in Korea and other countries ignore the fact that unpaid household production contributes to the fulfillment of material needs and wants that are essential to attaining a minimum standard of living. By taking household work for granted, these official estimates provide an inaccurate accounting of the breadth and depth of poverty—and can lead policymakers astray.

  • If Deficits Are Not the Culprit, What Determines Indian Interest Rates?


    Working Paper No. 811 | July 2014 | Hrishikesh Vinod, Lekha S. Chakraborty, Honey Karun
    An Evaluation Using the Maximum Entropy Bootstrap Method

    This paper challenges two clichés that have dominated the macroeconometric debates in India. One relates to the neoclassical view that deficits are detrimental to growth, as they increase the rate of interest, and in turn displace the interest-rate-sensitive components of private investment. The second relates to the assumption of “stationarity”—which has dominated the statistical inference in time-series econometrics for a long time—as well as the emphasis on unit root–type testing, which involves detrending, or differencing, of the series to achieve stationarity in time-series econometric models. The paper examines the determinants of rates of interest in India for the periods 1980–81 and 2011–12, using the maximum entropy bootstrap (Meboot) methodology proposed in Vinod 1985 and 2004 (and developed extensively in Vinod 2006, Vinod and Lopez-de-Lacalle 2009, and Vinod 2010 and 2013). The practical appeal of Meboot is that it does not necessitate all pretests, such as structural change and unit root–type testing, which involve detrending the series to achieve stationarity, which in turn is problematic for evolutionary short time series. It also solves problems related to situations where stationarity assumptions are difficult to verify—for instance, in mixtures of I(0) and nonstationary I(d) series, where the order of integration can be different for different series.

    What makes Meboot compelling for Indian data on interest rates? Prior to interest rate deregulation in 1992, studies to analyze the determinants of interest rates were rare in India. Analytical and econometric limitations to dealing with the nonvarying administered rates for a meaningful time-series analysis have been the oft-cited reason. Using high-frequency data, the existing attempts have focused on the recent financially deregulated interest rate regime to establish possible links between interest rates and macroeconomic variables (Chakraborty 2002 and 2012, Dua and Pandit 2002, and Goyal 2004). The results from the Meboot analysis revealed that, contrary to popular belief, the fiscal deficit is not significant for interest rate determination in India. This is in alignment with the existing empirical findings, where it was established that the interest rate is affected by changes in the reserve currency, expected inflation, and volatility in capital flows, but not by the fiscal deficit. This result has significant policy implications for interest rate determination in India, especially since the central bank has cited the high fiscal deficit as one of the prime constraints for flexibility in fixing the rates.

  • When Good Intentions Pave the Road to Hell


    Working Paper No. 810 | June 2014 | Andrea Terzi
    Monetization Fears and Europe’s Narrowing Options

    With the creation of the Economic and Monetary Union and the euro, the national government debt of eurozone member-states became credit sensitive. While the potentially destabilizing impact of adverse cyclical conditions on credit-sensitive debt was seriously underestimated, the design was intentional, framed within a Friedman-Fischer-Buchanan view that “no monetization” rules provide a powerful means to discipline government behavior. While most countries follow some kind of “no monetization” rule, the one embraced by the eurozone was special, as it also prevented monetization on the secondary market for debt. This made all eurozone public debt defaultable—at least until the European Central Bank (ECB) announced the Outright Monetary Transactionsprogram, which can be seen as an enhanced rule-based approach that makes governments solvent on the condition that they balance their budgets. This has further narrowed Europe’s options for policy solutions that are conducive to job creation. An approach that would require no immediate changes in the European Union’s (EU) political structure would be for the EU to fund “net government spending in the interest of Europe” through the issue of a eurobond backed by the ECB.

  • Gender Perspectives and Gender Impacts of the Global Economic Crisis


    Book Series, December 2013 | December 2013 | Rania Antonopoulos
    Edited by Rania Antonopoulos

    With the full effects of the Great Recession still unfolding, this collection of essays analyzes 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 United States. 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.

    Published by: Routledge

  • Ending Poverty: Jobs, Not Welfare


    Book Series, April 2013 | April 2013 | Hyman P. Minsky
    By Hyman P. Minsky | Preface by Dimitri B. Papadimitriou | Introduction by L. Randall Wray
    Although Hyman P. Minsky is best known for his ideas about financial insta­bility, he was equally concerned with the question of how to create a stable economy that puts an end to poverty for all who are willing and able to work. This collection of Minsky’s writing spans almost three decades of his published and previously unpublished work on the necessity of combating poverty through full employment policies—through job creation, not welfare.

    Minsky was an American economist who studied under Joseph Schumpeter and Wassily Leontief. He taught economics at Washington University, the University of California–Berkeley, Brown University, and Harvard University. Minsky joined the Levy Economics Institute of Bard College as a distinguished scholar in 1990, where he continued his research and writing until a few months before his death in October 1996. His two seminal books were Stabilizing an Unstable Economy and John Maynard Keynes, both of which were reissued by the Levy Institute in 2008.

    Minsky held a B.S. in mathematics from the University of Chicago (1941) and an M.P.A. (1947) and a Ph.D. in economics (1954) from Harvard. He was a recipient in 1996 of the Veblen-Commons Award, given by the Association for Evolutionary Economics in recognition of his exemplary standards of scholarship, teaching, public service, and research in the field of evolutionary institutional economics.

    This book was made possible in part through the generous support of the Ford Foundation and Andrew Sheng of the Fung Global Institute.

    Published By: Levy Economics Institute of Bard College