Levy Institute Publications
Strategic Analysis, May 2015 | May 2015 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro Zezza
The Greek economy has the potential to recover, and in this report we argue that access to alternative financing sources such as zero-coupon bonds (“Geuros”) and fiscal credit certificates could provide the impetus and liquidity needed to grow the economy and create jobs. But there are preconditions: the existing government debt must be rolled over and austerity policies put aside, restoring trust in the country’s economic future and setting the stage for sustainable income growth, which will eventually enable Greece to repay its debt.Download:Associated Program:Author(s):Related Topic(s):
Strategic Analysis, May 2015 | May 2015 | Dimitri B. Papadimitriou, Greg Hannsgen, Michalis Nikiforos, Gennaro ZezzaIn this latest Strategic Analysis, the Institute’s Macro Modeling Team examines the current, anemic recovery of the US economy. The authors identify three structural obstacles—the weak performance of net exports, a prevailing fiscal conservatism, and high income inequality—that, in combination with continued household sector deleveraging, explain the recovery’s slow pace. Their baseline macro scenario shows that the Congressional Budget Office’s latest GDP growth projections require a rise in private sector spending in excess of income—the same unsustainable path that preceded both the 2001 recession and the Great Recession of 2007–9. To better understand the risks to the US economy, the authors also examine three alternative scenarios for the period 2015–18: a 1 percent reduction in the real GDP growth rate of US trading partners, a 25 percent appreciation of the dollar over the next four years, and the combined impact of both changes. All three scenarios show that further dollar appreciation and/or a growth slowdown in the trading partner economies will lead to an increase in the foreign deficit and a decrease in the projected growth rate, while heightening the need for private (and government) borrowing and adding to the economy’s fragility.Download:Associated Program:Author(s):Related Topic(s):
Strategic Analysis, December 2014 | December 2014 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro ZezzaWith the anti-austerity Syriza party continuing to lead in polls ahead of Greece’s election on January 25, what is the outlook for restoring growth and increasing employment following six years of deep recession? Despite some timid signs of recovery, notably in the tourism sector, recent short-term indicators still show a decline for 2014. Our analysis shows that the speed of a market-driven recovery would be insufficient to address the urgent problems of poverty and unemployment. And the protracted austerity required to service Greece’s sovereign debt would merely ensure the continuation of a national crisis, with spillover effects to the rest of the eurozone—especially now, when the region is vulnerable to another recession and a prolonged period of Japanese-style price deflation. Using the Levy Institute’s macroeconometric model for Greece, we evaluate the impact of policy alternatives aimed at stimulating the country’s economy without endangering its current account, including capital transfers from the European Union, suspension of interest payments on public debt and use of these resources to boost demand and employment, and a New Deal plan using public funds to target investment in production growth and finance a direct job creation program.Download:Associated Program:Author(s):Related Topic(s):
Research Project Report, August 2015 | September 2015 | İpek Ilkkaracan, Kijong Kim, Tolga Kaya
The Turkish Case
Produced in partnership with the International Labour Organization, United Nations Development Programme, and UN Women, this report examines the demand-side rationale for a public investment in the social care sector—specifically, early childhood care and preschool education (ECCPE)—by comparing its potential for job creation, pro-women allocation of jobs, and poverty reduction with an equivalent investment in the construction sector.
The authors find that a public investment of 20.7 billion TRY yields an estimated 290,000 new jobs in the construction sector and related sectors. However, an equal investment in ECCPE creates 719,000 new jobs in ECCPE and related sectors, or 2.5 times as many jobs. Furthermore, nearly three-quarters of the ECCPE jobs go to women, whereas a mere 6 percent of new jobs go to women following an expansion of the construction sector.
ECCPE expansion is also shown to be superior in terms of the number of decent jobs (i.e., jobs with social security benefits) created: some 85 percent of new ECCPE jobs come with social security benefits, compared to the slightly more than 30 percent of construction jobs that come with equivalent benefits. Both expansions are found to benefit the poor, with an ECCPE expansion targeting prime-working-age poor mothers of small children showing the potential to reduce the relative poverty rate by 1.14 percentage points. In terms of fiscal sustainability, an ECCPE expansion is estimated to recoup 77 percent of public expenditures through increased government revenues, while construction recovers roughly 52 percent.
The report concludes that in addition to supply-side effects, there is a robust demand-side rationale for expanded funding of ECCPE, with clear benefits in terms of decent employment creation, gender equality, poverty alleviation, and fiscal sustainability. These findings have important implications for expanded public investment in the broader social care sector as a strategy that embraces gender budgeting while promoting inclusive and sustainable growth.Download:Associated Program:Author(s):Related Topic(s):
Research Project Report, May 2015 | May 2015 | Rania Antonopoulos, Sofia Adam, Kijong Kim, Thomas Masterson, Dimitri B. PapadimitriouThis addendum to our June 2014 report, “Responding to the Unemployment Challenge: A Job Guarantee Proposal for Greece,” updates labor market data through 2014Q3 and identifies emerging employment and unemployment trends. The overarching aim of the report, the outcome of a study undertaken in 2013 by the Levy Institute in collaboration with the Observatory of Economic and Social Developments of the Labour Institute of the Greek General Confederation of Labour, is to provide policymakers and the general public research-based evidence of the macroeconomic and employment effects of a large-scale direct job creation program in Greece, and to invite critical rethinking of the austerity-driven macro policy instituted in 2010 as a condition of the loans made to Greece by its eurozone partners.Download:Associated Program(s):Author(s):Related Topic(s):
Research Project Report, April 2015 | April 2015This monograph is part of the Levy Institute’s Research and Policy Dialogue Project on Improving Governance of the Government Safety Net in Financial Crisis, a two-year project funded by the Ford Foundation.
This is the fourth in a series of reports summarizing the findings of the Research and Policy Dialogue Project on Improving Governance of the Government Safety Net in Financial Crisis, directed by Senior Scholar L. Randall Wray. This project explores alternative methods of providing a government safety net in times of crisis. In the global financial crisis that began in 2007, the United States used two primary responses: a stimulus package approved and budgeted by Congress, and a complex and unprecedented response by the Federal Reserve. The project examines the benefits and drawbacks of each method, focusing on questions of accountability, democratic governance and transparency, and mission consistency.
The project has also explored the possibility of reform that might place more responsibility for provision of a safety net on Congress, with a smaller role to be played by the Fed, enhancing accountability while allowing the Fed to focus more closely on its proper mission. Given the rise of shadow banking—a financial system that operates largely outside the reach of bank regulators and supervisors—the Fed faces a complicated problem. It might be necessary to reform finance, through downsizing and a return to what Hyman Minsky called “prudent banking,” before we can reform the Fed.
This report describes the overall scope of the project and summarizes key findings from the three previous reports, as well as additional research undertaken in 2014.Download:Associated Program:Related Topic(s):
Research Project Report, April 2014 | July 2014 | Dimitri B. Papadimitriou, Taun Toay
A Proposal for Rural Reinvestment and Urban EntrepreneurshipThe 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.Download:Associated Program:Author(s):Related Topic(s):
Public Policy Brief No. 139, 2015 | February 2015 | Jan Kregel
Back to the FutureEmerging market economies are taking an ill-targeted and far too limited approach to addressing their ongoing problems with the international financial system, according to Senior Scholar Jan Kregel. In this policy brief, he explains why only a wholesale reform of the international financial architecture can adequately address these countries’ concerns. As a blueprint for reform, Kregel recommends a radical proposal advanced in the 1940s, most notably by John Maynard Keynes. Keynes was among those who were developing proposals for shaping the international financial system in the immediate postwar period. His clearing union plan, itself inspired by Hjalmar Schacht’s system of bilateral clearing agreements, would have effectively eliminated the need for an international reserve currency. Under Keynes’s clearing union, trade and other international payments would be automatically facilitated through a global clearinghouse, using debits and credits denominated in a notional unit of account. The unit of account would have a fixed conversion rate to national currencies and could not be bought, sold, or traded—meaning no market for foreign currency would be required. Clearinghouse credits could only be used to offset debits by buying imports, and if not used within a specified period of time, the credits would be extinguished, giving export surplus countries an incentive to spend them. As Kregel points out, this would help support global demand and enable a shared adjustment burden. Though Keynes’s proposal was not specifically designed for emerging market economies, Kregel recommends combining this plan with current ideas for regionally governed institutions—to create, in other words, “regional clearing unions,” building on existing swaps arrangements. Under such a system, emerging market economies would be able to pursue their development needs without reliance on the prevailing international financial architecture, in which their concerns are, at best, diluted.Download:Associated Program:Author(s):Related Topic(s):
Public Policy Brief No. 138, 2014 | October 2014 | Rania Antonopoulos, Sofia Adam, Kijong Kim, Thomas Masterson, Dimitri B. PapadimitriouTo mobilize Greece’s severely underemployed labor potential and confront the social and economic dangers of persistent unemployment, we propose the immediate implementation of a direct public benefit job creation program—a Greek “New Deal.” The Job Guarantee (JG) program would offer the unemployed jobs, at a minimum wage, on work projects providing public goods and services. This policy would have substantial positive economic impacts in terms of output and employment, and when newly accrued tax revenue is taken into account, which substantially reduces the net cost of the program, it makes for a comparatively modest fiscal stimulus. At a net cost of roughly 1 percent to 1.2 percent of GDP (depending on the wage level offered), a midrange JG program featuring the direct creation of 300,000 jobs has the potential to reduce the unemployed population by a third or more, once indirect employment effects are taken into account. And our research indicates that the policy would do all this while reducing Greece’s debt-to-GDP ratio—which leaves little room for excuses.Download:Associated Program(s):Author(s):Related Topic(s):
Policy Note 2015/5 | August 2015 | Sunanda Sen
An Assessment in the Context of the IMF Rulings for Greece
Developing countries, led by China and other BRICS members (Brazil, Russia, India, and South Africa), have been successfully organizing alternative sources of credit flows, aiming for financial stability, growth, and development. With their goals of avoiding International Monetary Fund loan conditionality and the dominance of the US dollar in global finance, these new BRICS-led institutions represent a much-needed renovation of the global financial architecture. The nascent institutions will provide an alternative to the prevailing Bretton Woods institutions, loans from which are usually laden with prescriptions for austerity—with often disastrous consequences for output and employment. We refer here to the most recent example in Europe, with Greece currently facing the diktat of the troika to accept austerity as a precondition for further financial assistance.
It is rather disappointing that Western financial institutions and the EU are in no mood to provide Greece with any options short of complying with these disciplinary measures. Limitations, such as the above, in the prevailing global financial architecture bring to the fore the need for new institutions as alternative sources of funds. The launch of financial institutions by the BRICS—when combined with the BRICS clearing arrangement in local currencies proposed in this policy note—may chart a course for achieving an improved global financial order. Avoiding the use of the dollar as a currency to settle payments would help mitigate the impact of exchange rate fluctuations on transactions within the BRICS. Moreover, using the proposed clearing account arrangement to settle trade imbalances would help in generating additional demand within the BRICS, which would have an overall expansionary impact on the world economy as a whole.Download:Associated Program(s):Author(s):Related Topic(s):
Policy Note 2015/4 | March 2015 | Pavlina R. Tcherneva
Trends in US Income InequalityIn the postwar period, with every subsequent expansion, a smaller and smaller share of the gains in income growth have gone to the bottom 90 percent of families. Worse, in the latest expansion, while the economy has grown and average real income has recovered from its 2008 lows, all of the growth has gone to the wealthiest 10 percent of families, and the income of the bottom 90 percent has fallen. Most Americans have not felt that they have been part of the expansion. We have reached a situation where a rising tide sinks most boats. This policy note provides a broader overview of the increasingly unequal distribution of income growth during expansions, examines some of the changes that occurred from 2012 to 2013, and identifies a disturbing business cycle trend. It also suggests that policy must go beyond the tax system if we are serious about reversing the drastic worsening of income inequality.Download:Associated Program:Author(s):Related Topic(s):
One-Pager No. 49 | May 2015 | Matthew Berg
Shadow Banking and Federal Reserve Governance in the Global Financial Crisis
The 2008 Federal Open Market Committee (FOMC) transcripts provide a rare portrait of how policymakers responded to the unfolding of the world’s largest financial crisis since the Great Depression. The transcripts reveal an FOMC that lacked a satisfactory understanding of a shadow banking system that had grown to enormous proportions—an FOMC that neither comprehended the extent to which the fate of regulated member banks had become intertwined and interlinked with the shadow banking system, nor had considered in advance the implications of a serious crisis. As a consequence, the Fed had to make policy on the fly as it tried to prevent a complete collapse of the financial system.Download:Associated Program:Author(s):Matthew BergRelated Topic(s):
One-Pager No. 48 | February 2015 | Jan KregelThe developed world’s policy response to the recent financial crisis has produced complaints from Brazil of “currency wars” and calls from India for increased policy coordination and cooperation. Chinese officials have echoed the “exorbitant privilege” noted by de Gaulle in the 1960s, and Russia has joined China as a proponent of replacing the dollar with Special Drawing Rights. However, none of the proposed remedies are adequate to achieve the emerging market economies’ objective of joining the ranks of industrialized, developed countries.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 844 | July 2015 | Michalis Nikiforos
We present a model where the saving rate of the household sector, especially households at the bottom of the income distribution, becomes the endogenous variable that adjusts in order for full employment to be maintained over time. An increase in income inequality and the current account deficit and a consolidation of the government budget lead to a decrease in the saving rate of the household sector. Such a process is unsustainable because it leads to an increase in the household debt-to-income ratio, and maintaining it depends on some sort of asset bubble. This framework allows us to better understand the factors that led to the Great Recession and the dilemma of a repeat of this kind of unsustainable process or secular stagnation. Sustainable growth requires a decrease in income inequality, an improvement in the external position, and a relaxation of the fiscal stance of the government.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 843 | July 2015 | Pedro Leao
This paper has two main objectives. The first is to propose a policy architecture that can prevent a very high public debt from resulting in a high tax burden, a government default, or inflation. The second objective is to show that government deficits do not face a financing problem. After these deficits are initially financed through the net creation of base money, the private sector necessarily realizes savings, in the form of either government bond purchases or, if a default is feared, “acquisitions” of new money.Download:Associated Program:Author(s):Pedro LeaoRelated Topic(s):
Working Paper No. 842 | July 2015 | Jörg Bibow
The Euro Treasury Plan
The euro crisis remains unresolved and the euro currency union incomplete and extraordinarily vulnerable. The euro regime’s essential flaw and ultimate source of vulnerability is the decoupling of central bank and treasury institutions in the euro currency union. We propose a “Euro Treasury” scheme to properly fix the regime and resolve the euro crisis. This scheme would establish a rudimentary fiscal union that is not a transfer union. The core idea is to create a Euro Treasury as a vehicle to pool future eurozone public investment spending and to have it funded by proper eurozone treasury securities. The Euro Treasury could fulfill a number of additional purposes while operating mainly on the basis of a strict rule. The plan would also provide a much-needed fiscal boost to recovery and foster a more benign intra-area rebalancing.Download:Associated Program(s):Author(s):Related Topic(s):
Book Series, September 2015 | September 2015 | L. Randall Wray
By L. Randall Wray
In a completely revised second edition, Senior Scholar L. Randall Wray presents the key principles of Modern Money Theory, exploring macro accounting, monetary and fiscal policy, currency regimes, and exchange rates in developed and developing nations. Wray examines how misunderstandings about the nature of money caused the recent global financial meltdown, and provides fresh ideas about how leaders should approach economic policy. This updated edition also includes new chapters on tax policies and inflation.
Published by: Palgrave Macmillan
Book Series, November 2014 | December 2014 | Dimitri B. Papadimitriou
Edited by Dimitri B. PapadimitriouLevy Institute Senior Scholar Jan A. Kregel is a prominent Post-Keynesian economist. This study combines lessons drawn from events and experiences of developing countries and examines them in relation to his ideas on economics and development.
This collection brings together distinguished scholars who have been influenced by Kregel's prodigious contributions to the fields of economic theory and policy. The chapters cover and extend many topics analyzed in Kregel's published work, including monetary economic theory and policy; aspects of the Cambridge (UK and US) controversies; Sraffa's critique on neoclassical value and distribution theory; Post-Keynesianism; employment policy; obstacles in financing development; trade and development theories; causes and lessons from the financial crises in East Asia, Latin America, and Europe; Minskyan-Kregel theories of financial instability; and global governance. Combining rigorous scholarly assessment of the issues, the contributors seek to offer solutions to the debates on economic theory and the problem of continuing high unemployment, to identify the factors that determine economic expansion, and to analyze the impact of financial crises on systemic stability, markets, institutions, and international regulations on domestic and global economic performance.
The scope and comprehensive analyses found in this volume will be of interest to economists and scholars of economics, finance, and development.
Published by: Palgrave Macmillan
Volume 24, No. 3 | October 2015 | Jonathan Hubschman
This issue includes the two most recent strategic analyses, for Greece and the United States. The Levy Institute Macro Modeling Team argues that Greece cannot return to economic growth under austerity. The strategic analysis of the US economy follows, and shows that economic growth could easily be undermined by such things as a rising dollar, fiscal austerity, and deepening income inequality. A policy note offers arguments for a pragmatic debt reduction and reconstruction plan for Greece following the historical example of the Marshall Plan in Germany. Two policy notes take up the issue of inequality in the United States. The first examines the distribution of income in the postwar period and the second examines trends in real wages by demographic characteristics. Drawing on the work of Distinguished Scholar Wynne Godley, a nonbehavioral theory of savings is proposed to explain recent developments in the US economy and the challenges it faces going forward. A discussion of the lack of capital development in the increasingly financialized economies of the United States and the UK provides prescriptions for sustainable, inclusive growth.
Turning to the ongoing crisis in Europe, this issue offers a perspective on Germany’s insistence on austerity as a strategy to advance political integration. A new paper analyzes the impact of a euro exit on trade, growth, employment, and wages in light of the historical experience of currency devaluations. And a Euro Treasury, as a means to repair a basic flaw in the euro and support growth, is proposed. The issue also includes several discussions of clearing unions using local currencies to address deficiencies in the current financial system for emerging economies. Further examining the experience in the emerging BRICs economies, John Maynard Keynes’s observations on the relationship between short- and long-term interest rates is confirmed in an analysis of India’s government bond yields. Wage inequality trends in Bolivia are also analyzed in a working paper.
Contributing to our historical understanding of the origins of money, a new paper explores the historical development of class society and money in the ancient societies of Greece and Egypt. The inclusion of unpaid forms of work currently excluded from satellite accounts is reviewed and found to be an obstacle to accurate analysis and sound policy development. The issue concludes with a study that offers both a methodological contribution and substantive guidance for policies and programs aimed at improving the health of children and families.
Program: The State of the US and World Economies
- DIMITRI B. PAPADIMITRIOU, MICHALIS NIKIFOROS, and GENNARO ZEZZA, Greece: Conditions and Strategies for Economic Recovery
- DIMITRI B. PAPADIMITRIOU, GREG HANNSGEN, MICHALIS NIKIFOROS, and GENNARO ZEZZA, Fiscal Austerity, Dollar Appreciation, and Maldistribution Will Derail the US Economy
- SUNANDA SEN, The BRICS Initiatives in the Current Global Conjuncture: An Assessment in the Context of the IMF Rulings for Greece
- PAVLINA R. TCHERNEVA, When a Rising Tide Sinks Most Boats: Trends in US Income Inequality
- MICHALIS NIKIFOROS, DIMITRI B. PAPADIMITRIOU, and GENNARO ZEZZA, The Greek Public Debt Problem
- MICHALIS NIKIFOROS, A Nonbehavioral Theory of Saving
- JÖRG BIBOW, Making the Euro Viable: The Euro Treasury Plan
- RICCARDO REALFONZO and ANGELANTONIO VISCIONE, The Effects of a Euro Exit on Growth, Employment, and Wages
Program: Monetary Policy and Financial Structure
- JAN KREGEL, Emerging Market Economies and the Reform of the International Financial Architecture: Back to the Future; Emerging Markets and the International Financial Architecture: A Blueprint for Reform
- JAN KREGEL, Europe at the Crossroads: Financial Fragility and the Survival of the Single Currency
- GREG HANNSGEN and TAI YOUNG-TAFT, Inside Money in a Kaldor-Kalecki-Steindl Fiscal Policy Model: The Unit of Account, Inflation, Leverage, and Financial Fragility
- MARIANA MAZZUCATO and L. RANDALL WRAY, Financing the Capital Development of the Economy: A Keynes-Schumpeter-Minsky Synthesis
- TANWEER AKRAM and ANUPAM DAS, Does Keynesian Theory Explain Indian Government Bond Yields?
- ALLA SEMENOVA and L. RANDALL WRAY, The Rise of Money and Class Society: The Contributions of John F. Henry
Program: The Distribution of Income and Wealth
- FERNANDO RIOS-AVILA, A Decade of Declining Wages: From Bad to Worse
- GUSTAVO CANAVIRE-BACARREZA and FERNANDO RIOS-AVILA, On the Determinants of Changes in Wage Inequality in Bolivia
Program: Economic Policy in the 21st Century
Explorations in Theory and Empirical Analysis
- TAI YOUNG-TAFT, Marx’s Theory of Money and 21st-century Macrodynamics
- TAMAR KHITARISHVILI, FERNANDO RIOS-AVILA, and KIJONG KIM, Direct Estimates of Food and Eating Production Function Parameters for 2004–12 Using an ATUS/CE Synthetic Dataset
- New Scholars
- Levy MS Faculty Appointments
- Gender and Macroeconomics Conference
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- 25th Annual Hyman P. Minsky Conference
- The Hyman P. Minsky Summer Seminar
PUBLICATIONS AND PRESENTATIONS
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