Levy Institute Publications
Strategic Analysis, June 2021 | June 2021 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro ZezzaIn this report, Institute President Dimitri B. Papadimitriou and Research Scholars Michalis Nikiforos and Gennaro Zezza analyze how the US economy was affected by the pandemic and its prospects for recovery.
Their baseline simulation using the Institute’s stock-flow macroeconometric model shows a significant pickup in the growth rate in 2021 as a result of the American Rescue Plan Act. The report includes two additional scenarios simulated on top of the baseline, finding that President Biden’s infrastructure and families plans—whether paired with offsetting tax increases on high-earners or “deficit financed”—would have positive macroeconomic effects. Additionally, Papadimitriou, Nikiforos, and Zezza warn that if US policymakers do not prioritize decreasing the trade deficit, maintaining growth will require either continuous and very high government deficits or the private sector once again becoming a net borrower.
Finally, they argue that concerns about a sharp increase in inflation spurred by the fiscal stimulus are unwarranted: the US economy was not close to full employment or full utilization of resources before the pandemic, and the propagation mechanisms that could lead to accelerating inflation are not in place.Download:Associated Program:Author(s):Related Topic(s):
Strategic Analysis, May 2021 | May 2021 | Dimitri B. Papadimitriou, Christos Pierros, Nikolaos Rodousakis, Gennaro ZezzaThe Greek economy—still fragile due to the lingering effects of the 2009–10 crisis—was hit particularly hard by the COVID-19 pandemic. Greece’s 2020 GDP decline was one of the worst among the group of EU and eurozone member states, along with the highest levels of unemployment and underemployment.
Dimitri B. Papadimitriou, Christos Pierros, Nikos Rodousakis, and Gennaro Zezza update their analysis of the state of the Greek economy on the basis of recently released provisional data for 2020Q4, and model three projections through 2023: (1) a baseline scenario in which no agreement is reached on the disbursement of EU funds (the Recovery and Resilience Facility); (2) a scenario in which EU grants and loans are distributed in a timely manner; and (3) an additional scenario that pairs EU funds with implementation of an employer-of-last resort program. The second scenario would see Greece’s GDP growth return to its pre-pandemic trend—albeit still leaving the economy below the level of real GDP it reached in 2008. The third scenario has the most favorable impact on growth and employment—raising real GDP above its pre-pandemic trend. Failure to achieve a proper recovery of GDP in Greece would be directly related to an absence of fiscal policy expansion.
This Strategic Analysis is the joint product of the Levy Economics Institute of Bard College and INE-GSEE (Athens, Greece). It is simultaneously issued in both English and Greek.Download:Associated Program:Author(s):Related Topic(s):
Public Policy Brief No. 155 | June 2021 | Yeva Nersisyan , L. Randall Wray
Yes, If He Abandons Fiscal “Pay Fors"President Biden’s proposals for investing in social and physical infrastructure signal a return to a budget-neutral policymaking framework that has largely been set aside since the outbreak of the COVID-19 crisis. According Yeva Nersisyan and L. Randall Wray, this focus on ensuring revenues keep pace with spending increases can undermine the goals internal to both the public investment and tax components of the administration’s plans: the “pay for” approach limits our spending on progressive policy to what we can raise through taxes, and we will only tax the amount we need to spend.
Nersisyan and Wray propose an alternative approach to budgeting for large-scale public expenditure programs. In their view, policymakers should evaluate spending and tax proposals on their own terms, according to the goals each is intended to meet. If the purpose of taxing corporations and wealthy individuals is to reduce inequality, then the tax changes should be formulated to accomplish that—not to “raise funds” to finance proposed spending. And while it is possible that general tax hikes might be needed to prevent public investment programs from fueling inflation, they argue that the kinds of taxes proposed by the administration would do little to relieve inflationary pressures should they arise. Under current economic circumstances, however, the president’s proposed infrastructure spending should not require budgetary offsets or other measures to control inflation in their estimation.Download:Associated Program(s):Author(s):Yeva Nersisyan L. Randall Wray
Public Policy Brief No. 154, 2021 | February 2021 | Jan Kregel
Let Us Look Seriously at the Clearing UnionThis policy brief explores a route to remaking the international financial system that would avoid the contradictions inherent in some of the prevailing reform proposals currently under discussion. Senior Scholar Jan Kregel argues that the willingness of central banks to consider electronic currency provides an opening to reconsider a truly innovative reform of the international financial system, and one that is more appropriate to a digital monetary world: John Maynard Keynes’s original clearing union proposal.
Kregel investigates whether such a clearing system could be built up from an already-existing initiative that has emerged in the private sector. He analyzes the operations of a private, cross-border payment system that could serve as a real-world blueprint for a more politically palatable equivalent of Keynes’s international clearing union.Download:Associated Program(s):Author(s):Related Topic(s):
Policy Note 2021/3 | June 2021 | Edward Lane, L. Randall WrayEdward Lane and L. Randall Wray explain how federal taxes on corporate profits are not well suited to either containing inflationary pressures or reducing inequality. They are not only a poor complement to President Biden’s proposed infrastructure plans, but are inefficient and ineffective taxes more broadly, according to Lane and Wray. The authors follow Hyman Minsky in recommending the elimination of corporate taxes, and they outline a replacement centered on the taxation of unrealized capital gains.Download:Associated Program(s):Author(s):Edward Lane L. Randall WrayRelated Topic(s):
Policy Note 2021/2 | May 2021 | Luiza Nassif Pires, Luísa Cardoso, Ana Luíza Matos de Oliveira
The Impact of the Emergency Benefit on Poverty and Extreme Poverty in BrazilResearch Scholar Luiza Nassif-Pires, Luísa Cardoso, and Ana Luíza Matos de Oliveira analyze the importance of the “emergency benefit” (Auxílio Emergencial) in containing the increase in poverty and extreme poverty in Brazil during the COVID-19 pandemic. They find the emergency benefit mitigated the loss of income, brought the poverty rate to historically low levels, and reduced inequality: poverty gaps in terms of gender and (to a lesser degree) race narrowed in 2020. However, their simulations show that a planned reduction in transfer levels for 2021 will result in the emergency benefit providing substantially less social protection against loss of income than its more robust 2020 version.Download:Associated Program(s):Author(s):Luiza Nassif Pires Luísa Cardoso Ana Luíza Matos de OliveiraRelated Topic(s):
e-pamphlet, August 2021 | August 2021 | L. Randall WrayModern Money Theory (MMT) has been frequently mentioned in recent media—first as “crazy talk” that if followed would bankrupt the nation and then, after the COVID-19 pandemic hit, as a way to finance an emergency response. In recent months, however, Washington seems to have returned to the old view that government spending must be “paid for” with new taxes. This raises the question: Has MMT really made headway with policymakers? This e-pamphlet examines the extraordinary interview given recently by Representative John Yarmuth’s (D, KY-03), Chair of the House Budget Committee, in which he explicitly adopts an MMT approach to budgeting. Chairman Yarmuth also lays out a path for realizing the major elements of President Biden’s proposals. Finally, Wray summarizes a recent presentation he gave to the Congressional Budget Office’s Macroeconomic Analysis section that urged reconsideration of the way that fiscal policy impacts are assessed.Download:Associated Program(s):Monetary Policy and Financial Structure Economic Policy for the 21st Century The State of the US and World EconomiesAuthor(s):Related Topic(s):
Statement of Senior Scholar L. Randall Wray to the House Budget Committee, US House of Representatives
Testimony, November 20, 2019 | November 2019 | L. Randall Wray, Yeva Nersisyan
Reexamining the Economic Costs of DebtOn November 20, 2019, Senior Scholar L. Randall Wray testified before the House Committee on the Budget on the topic of reexamining the economic costs of debt:
"In recent months a new approach to national government budgets, deficits, and debts—Modern Money Theory (MMT)—has been the subject of discussion and controversy. [. . .]
In this testimony I do not want to rehash the theoretical foundations of MMT. Instead I will highlight empirical facts with the goal of explaining the causes and consequences of the intransigent federal budget deficits and the growing national government debt. I hope that developing an understanding of the dynamics involved will make the topic of deficits and debt less daunting. I will conclude by summarizing the MMT views on this topic, hoping to set the record straight."
Update 1/7/2020: In an appendix, L. Randall Wray responds to a Question for the Record submitted by Rep. Ilhan OmarDownload:Associated Program(s):Author(s):L. Randall Wray Yeva NersisyanRelated Topic(s):
Scope and Effects of Reducing Time Deficits via Intrahousehold Redistribution of Household Production
Research Project Report, July 2021 | July 2021 | Ajit Zacharias, Thomas Masterson, Fernando Rios-Avila, Abena D. Oduro
Evidence from sub-Saharan AfricaGender disparity in the division of responsibilities for unpaid care and domestic work (household production) is a central and pervasive component of inequalities between men and women and boys and girls. Reducing disparity in household production figures as one element of the goal of gender equality enshrined in the United Nations’ Sustainable Development Goals (SDGs) and feminist scholars and political activists have articulated that the redistribution of household production responsibilities from females to males is important for its own sake, as well as for achieving gender equality in labor market outcomes. A cursory examination of available cross-country data indicates that higher per capita GDP—the neoliberal panacea for most societal malaise—provides little bulwark against the gender inequality in household production.
Ajit Zacharias, Thomas Masterson, Fernando Rios-Avila, and Abena D. Oduro contribute to the literature on the intrahousehold distribution of household production by placing the question within a framework of analyzing deprivation, applying that framework to better understand the interactions between poverty and the gendered division of labor in four sub-Saharan African nations: Ethiopia, Ghana, South Africa, and Tanzania. Central to their framework is the notion that attaining a minimal standard of living requires command over an adequate basket of commodities and sufficient time to be spent on home production, where meeting those requirements produces benefits for all—including those beyond the household.
Their findings motivate questions regarding the feasibility and effectiveness of redistribution of household responsibilities to alleviate time deficits and their impoverishing effects. By developing a framework to assess the mechanics of redistribution among family members and applying it to gender-based redistribution, they derive the maximum extent to which redistribution—either among all family members, between sexes, or between husbands and wives—can lower the incidence of time deficits. The conclude with a discussion of alternative principles of distributing household production responsibilities among family members and examine their impact on the Levy Institute Measure of Time and Income Poverty (LIMTCP) and discuss some policy questions in light of their findings.Download:Associated Program:Author(s):Related Topic(s):
Research Project Report, April 2018 | April 2018 | L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, Stephanie A. Kelton
A Path to Full EmploymentDespite reports of a healthy US labor market, millions of Americans remain unemployed and underemployed, or have simply given up looking for work. It is a problem that plagues our economy in good times and in bad—there are never enough jobs available for all who want to work. L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, and Stephanie A. Kelton examine the impact of a new “job guarantee” proposal that would seek to eliminate involuntary unemployment by directly creating jobs in the communities where they are needed.
The authors propose the creation of a Public Service Employment (PSE) program that would offer a job at a living wage to all who are ready and willing to work. Federally funded but with a decentralized administration, the PSE program would pay $15 per hour and offer a basic package of benefits. This report simulates the economic impact over a ten-year period of implementing the PSE program beginning in 2018Q1.
Unemployment, hidden and official, with all of its attendant social harms, is a policy choice. The results in this report lend more weight to the argument that it is a policy choice we need no longer tolerate. True full employment is both achievable and sustainable.Download:Associated Program:Author(s):Related Topic(s):
Research Project Report, February 2018 | February 2018 | Scott Fullwiler, Stephanie A. Kelton, Catherine Ruetschlin, Marshall SteinbaumAmong the more ambitious policies that have been proposed to address the problem of escalating student loan debt are various forms of debt cancellation. In this report, Scott Fullwiler, Research Associate Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum examine the likely macroeconomic impacts of a one-time, federally funded cancellation of all outstanding student debt.
The report analyzes households’ mounting reliance on debt to finance higher education, including the distributive implications of student debt and debt cancellation; describes the financial mechanics required to carry out the cancellation of debt held by the Department of Education (which makes up the vast majority of student loans outstanding) as well as privately owned student debt; and uses two macroeconometric models to provide a plausible range for the likely impacts of student debt cancellation on key economic variables over a 10-year horizon.
The authors find that cancellation would have a meaningful stimulus effect, characterized by greater economic activity as measured by GDP and employment, with only moderate effects on the federal budget deficit, interest rates, and inflation (while state budgets improve). These results suggest that policies like student debt cancellation can be a viable part of a needed reorientation of US higher education policy.
Download:Associated Program(s):Author(s):Scott Fullwiler Stephanie A. Kelton Catherine Ruetschlin Marshall SteinbaumRelated Topic(s):
One-Pager No. 67 | June 2021 | Edward Lane, L. Randall WrayPresident Biden has proposed pairing his American Jobs Plan with an increase in federal corporate income taxes. Leaving aside the issue of whether any tax increases are needed to “pay for” the plan, Edward Lane and L. Randall Wray assess the proposed corporate profits tax hike in terms of its ability to meet two objectives: (1) fighting potential inflation that might result from the new Jobs Plan (and all the other relief and stimulus plans enacted), and (2) taxing the rich to reduce inequality. They argue the federal corporate income tax is far less effective at combating inflation and inequality than what many might think, and propose replacing corporate taxation with taxes on individuals that would ensure the burden is mostly imposed on high earners.Download:Associated Program(s):Author(s):Edward Lane L. Randall WrayRelated Topic(s):
One-Pager No. 66 | April 2021 | Frank VenerosoAccording to Frank Veneroso, a broad subset of today’s US stock market has become what he calls a “pure price-chasing bubble.” Examination of the history of comparable pure price-chasing bubbles shows there has been a set of key causal factors that contributed to these rare market events. The most extreme such case was an over-the-counter market in Kuwait called the “Souk al-Manakh.” This exemplar of a pure price-chasing phenomenon may shed light—albeit unflattering—on the current US equity market, Veneroso contends.Download:Associated Program:Author(s):Frank VenerosoRelated Topic(s):
Working Paper No. 993 | September 2021 | Michalis Nikiforos, Marcio Santetti, Rudiger von Arnim
Theory and EmpiricsThis paper provides a theoretical and empirical reassessment of supermultiplier theory. First, we show that, as a result of the passive role it assigns to investment, the Sraffian supermultiplier (SSM) predicts that the rate of utilization leads the investment share in a dampened cycle or, equivalently, that a convergent cyclical motion in the utilization-investment share plane would be counterclockwise. Second, impulse response functions from standard recursive vector autoregressions (VAR) for postwar US samples strongly indicate that the investment share leads the rate of utilization, or that these cycles are clockwise. These results raise questions about the key mechanism underlying supermultiplier theory.Download:Associated Program(s):Author(s):Michalis Nikiforos Marcio Santetti Rudiger von ArnimRelated Topic(s):
Working Paper No. 992 | August 2021 | Sam Levey
Government as the Source of the Price Level and UnemploymentMany of the claims put forth by Modern Monetary Theory (MMT) center around the state’s monopoly over its own currency. In this paper I interrogate the plausibility of two claims: 1) MMT’s theory of the price level—that the price level is a function of prices paid by government when it spends—and 2) the claim that the cause of deficient effective demand is the state’s failure to supply government liabilities so as to meet the demand for net financial assets. I do so by building a model of “monopoly money” capable of producing these two outcomes.Download:Associated Program:Author(s):Sam LeveyRelated Topic(s):
Volume 30, No. 2 | May 2021 | Elizabeth Dunn, Michael StephensA trio of publications in this Summary explores how the plumbing of an existing cross-border payment system associated with a private company provides the operational blueprints for a potential revival of John Maynard Keynes’s international clearing union proposal, and how the willingness of central banks to consider electronic currency provides an opening to reconsider this reform. Working papers in this issue argue that once we understand the purposes and incidence of corporate taxation, it is revealed to be a particularly inefficient tax; explain that while Japan, which is occasionally held up as a poster child for Modern Money Theory (MMT), helps demonstrates some of the errors of mainstream thinking concerning sovereign budgeting, policy-wise the country has not been in line with MMT prescriptions; investigate the impact of pandemic-associated daycare closures on the time parents of young children dedicate to caregiving in Turkey; apply Hyman Minsky’s work on public employment programs to demonstrate how jobs that generate socially useful output can help us face today’s challenges and create a greener tomorrow; analyze factors that may explain the gendered differences in household production burdens to identify where policy can help achieve a more egalitarian distribution and reduce women’s time poverty; review three strands of literature on the Palestinian labor market over the past three decades, illustrating how the ongoing conflict in the region impacts decisions around education and employment; build stock-flow consistent (SFC) models for Latin American economies to demonstrate the balance sheet effects of currency depreciation and test the impact of alternative policy scenarios; reflect on Keynes’s writings on the state theory of money, financial markets, and uncertainty; and consider the empirics of long-term bond yields in Mexico.
Program: The State of the US and World Economies
LORENZO NALIN and GIULIANO TOSHIRO YAJIMA, Balance Sheet Effects of a Currency Devaluation: A Stock-Flow Consistent Framework for Mexico
SEBASTIAN VALDECANTOS, Argentina’s (Macroeconomic?) Trap: Some Insights from an Empirical Stock-Flow Consistent Model
Program: Monetary Policy and Financial Structure
JAN KREGEL, Keynes’s Clearing Union Is Alive and Well and Living in Your Mobile Phone
JAN KREGEL, Another Bretton Woods Reform Moment: Let Us Look Seriously at the Clearing Union
L. RANDALL WRAY and YEVA NERSISYAN, Has Japan Been Following Modern Money Theory Without Recognizing It? No! And Yes.
TANWEER AKRAM and SYED AL-HELAL UDDIN, The Empirics of Long-Term Mexican Government Bond Yields
JAN KREGEL, The Economic Problem: From Barter to Commodity Money to Electronic Money
TANWEER AKRAM, A Note Concerning Government Bond Yields
Program: Distribution of Wealth and Income
FERNANDO RIOS-AVILA, ABENA D. ODURO, and LUIZA NASSIF PIRES, Intrahousehold Allocation of Household Production: A Comparative Analysis for Sub-Saharan African Countries
Program: Employment Policy and Labor Markets
DANIEL HAIM, What Jobs Should a Public Job Guarantee Provide? Lessons from Hyman P. Minsky
SAMEH HALLAQ, The Palestinian Labor Market over the Last Three Decades
Program: Gender Equality and the Economy
EMEL MEMIŞ and EBRU KONGAR, Potential Impact of Daycare Closures on Parental Child Caregiving in Turkey
Program: Economic Policy for the 21st Century
EDWARD LANE and L. RANDALL WRAY, Is It Time to Eliminate Federal Corporate Income Taxes?
29th Annual Hyman. P. Minsky ConferenceDownload:Author(s):Elizabeth Dunn Michael Stephens
Book Series, January 2020 | January 2020 | L. Randall Wray
Heterodox Economic Policy for the 21st CenturyA Great Leap Forward: Heterodox Economic Policy for the 21st Century investigates economic policy from a heterodox and progressive perspective. Author Randall Wray uses relatively short chapters arranged around several macroeconomic policy themes to present an integrated survey of progressive policy on topics of interest today that are likely to remain topics of interest for many years.
Published by: Elsevier Press