Levy Institute Publications
Strategic Analysis, April 2019 | April 2019 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro ZezzaAlthough the ongoing recovery is about to become the longest in the history of the United States, it is also the weakest in postwar history, and as we enter the second quarter of 2019, many clouds have gathered.
This Strategic Analysis considers the recent trajectory, the present state, and the future prospects of the US economy. The authors identify four main structural problems that explain how we arrived at the crisis of 2007–09 and why the recovery that has followed has been so weak—as well as why the prospect of a recession is increasingly likely.
The US economy is in need of deep structural reforms that will deal with these problems. This report analyzes a pair of policies that begin to move in that direction, both involving an increase in the tax rate for high-income and high-net-worth households. Even if the primary justification for these policies is not economic, this report shows that if such an increase in taxes is accompanied by an equivalent increase in government outlays, the redistributive impact will have a positive macroeconomic effect while moving the US economy toward a more sustainable future.Download:Associated Program:Author(s):Related Topic(s):
Strategic Analysis, November 2018 | November 2018 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro ZezzaThe Greek government has managed to exit the stability support program and achieve a higher-than-required primary surplus so as not to require further austerity measures to depress domestic demand. At the same time, the economy has started to recover, mainly due to the good performance of both exports of goods and tourism and modest increases in investment
In this report, we review recent developments in the determinants of aggregate demand and net exports, and provide estimates of two scenarios: one which assumes business as usual and the other an alternate scenario simulating the medium-term impact of an acceleration in investment.
We conclude with a discussion on the sustainability of Greek government debt, showing that it is crucial that the cost of borrowing remains below the nominal growth of national income.Download:Associated Program:Author(s):Related Topic(s):
Research Project Reports, April 2018 | April 2018 | L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, Stephanie A. KeltonDespite 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 Reports, August 2018 | August 2018 | Ajit Zacharias, Thomas Masterson, Fernando Rios-Avila, Kijong Kim, Tamar Khitarishvili
The Levy Institute Measure of Time and Consumption PovertyTime constraints that stem from the overlapping domains of paid and unpaid work are of central concern to the debates surrounding the economic development of developing countries in general and countries of sub-Saharan Africa in particular. Time deficits due to household production are especially acute in these countries due to the poor state of social and physical infrastructure, which constrains the time allocation people can choose.
Standard measures of poverty fail to capture hardships caused by time deficits. This report applies a methodological approach that incorporates time deficits into the measurement of poverty, known as the Levy Institute Measure of Time and Consumption Poverty (LIMTCP), to the cases of Ghana and Tanzania. The LIMTCP explicitly recognizes the role of time constraints and, as such, has the potential to meaningfully inform the design of policies aimed at poverty reduction and improvement of individual and household well-being. The analysis of simulation exercises assessing the impact of paid employment provision on official and LIMTCP poverty rates has strong implications for policies aimed at poverty reduction, emphasizing the need to account for alleviating not only income but also time constraints. It also has strong gender relevance, as time poverty is more relevant for women due to their disproportionate burden of household responsibilities. Our study argues that policies aimed at improving women’s labor market outcomes can also succeed at improving their well-being only if time constraints are addressed.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):
Public Policy Brief No. 147, 2019 | March 2019 | Jan KregelAs global market integration collides with growing demands for national political sovereignty, Senior Scholar Jan Kregel contrasts two diametrically opposed approaches to managing the tensions between international financial coordination and national autonomy. The first, a road not taken, is John Maynard Keynes’s proposal to reform the postwar international financial system. The second is the approach taken in the establishment of the eurozone and the development of its settlement and payment system. Analysis of Keynes’s clearing union proposal and its underlying theoretical approach highlights the flaws of the current eurozone setup.Download:Associated Program(s):Author(s):Related Topic(s):
Public Policy Brief No. 146, 2018 | August 2018 | Ajit Zacharias, Thomas Masterson, Fernando Rios-Avila
Post-2000 Trends in the United StatesAjit Zacharias, Thomas Masterson, and Fernando Rios-Avila update the Levy Institute Measure of Economic Well-Being (LIMEW) for US households for the period 2000–13. The LIMEW—which comprises base income, income from wealth, net government expenditures, and the value of household production—is aimed at achieving a more comprehensive understanding of trends in living standards. This policy brief analyzes developments during this period at all levels of the LIMEW distribution, with a particular focus on the significant role played by net government expenditures. The overall trend for 2000–13 was one of historic stagnation in the growth of economic well-being for US households, but an examination of the different components of the measure reveals significant shifts taking place behind this headline trend.
A companion document, the Supplemental Tables, features additional data referenced in the policy brief.
Details about the sources of data and methods used to construct the estimates in this policy brief are discussed in Levy Institute Working Paper No. 912.Download:Associated Program(s):Author(s):Related Topic(s):
Policy Note 2019/2 | May 2019 | Jan KregelAgainst the background of an ongoing trade dispute between the United States and China, Senior Scholar Jan Kregel analyzes the potential for achieving international adjustment without producing a negative impact on national and global growth. Once the structure of trade in the current international system is understood (with its global production chains and large imbalances financed by international borrowing and lending), it is clear that national strategies focused on tariff adjustment to reduce bilateral imbalances will not succeed. This understanding of the evolution of the structure of trade and international finance should also inform our view of how to design a new international financial system capable of dealing with increasingly large international trade imbalances.Download:Associated Program(s):Author(s):Related Topic(s):
Policy Note 2019/1 | April 2019 | Paolo SavonaWhile a consensus has formed that the eurozone’s economic governance mechanisms must be reformed, and some progress has been made on this front, what has been agreed to so far falls short of what is needed to address the central imbalances caused by the eurozone setup, according to Paolo Savona.
The key elements that are missing from the current package of reforms are interrelated: a common insurance scheme for bank deposits, the possible regulation of banks’ sovereign exposure, and the existence of a common safe asset. Savona outlines a proposal to increase the supply of safe assets provided by a common European issuer (the European Stability Mechanism) and explains how the plan could be made economically and politically satisfactory to all member states while facilitating progress on the deposit insurance and sovereign exposure issues.Download:Associated Program(s):Author(s):Paolo SavonaRelated Topic(s):
One-Pager No. 59 | April 2019 | Joel PerlmannSome common accounts of “populism” and its causes risk leading us away from understanding what is happening today in parts of the democratic West, according to Senior Scholar Joel Perlmann. He cautions that economic insecurity may well be a common source of populism, but such insecurity is too prevalent and too diverse to be tied primarily to massive international economic shifts. Cross-national explanations are of limited utility; we need to look more closely at the intermingling of political, ethnic, and cultural themes operating in national contexts in order to better understand particular outbursts of popular discontent.Download:Associated Program:Author(s):Related Topic(s):
One-Pager No. 58 | November 2018 | Joel Perlmann
What's New?The Trump administration is facing a legal challenge to its efforts to add a citizenship question to the 2020 decennial census—a question that was first included in 1890, but has not been asked of the entire population since 1950. If the citizenship question was asked in the past, why not reinstate it? Senior Scholar Joel Perlmann explains how the characteristics of both immigration and the census itself have changed radically since 1890 and, as a result, how the inclusion of this question on the once-a-decade census would not only be redundant, but would threaten the integrity of the census count.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 933 | July 2019 | Lorenzo Esposito, Giuseppe Mastromatteo
Making Sense of the Barro-Ricardo Equivalence in a Financialized WorldThe 2008 crisis created a need to rethink many aspects of economic theory, including the role of public intervention in the economy. On this issue, we explore the Barro-Ricardo equivalence, which has played a decisive role in molding the economic policies that fostered the crisis. We analyze the equivalence and its theoretical underpinnings, concluding that: (1) it declares, but then forgets, that it does not matter whether the nature of debt and investment is public or private; (2) its most problematic assumption is the representative agent hypothesis, which does not allow for an explanation of financialization and cannot assess dangers coming from high levels of financial leverage; (3) social wealth cannot be based on any micro-foundation and is linked to the role of the state as provider of financial stability; and (4) default is always the optimal policy for the government, and this remains true even when relaxing many equivalence assumptions. We go on to discuss possible solutions to high levels of public debt in the real world, inferring that no general conclusions are possible and every solution or mix of solutions must be tailored to each specific case. We conclude by connecting different solutions to the political balance of forces in the current era of financialization, using Italy (and, by extension, the eurozone) as a concrete example to better illustrate the discussion.Download:Associated Program(s):Author(s):Lorenzo Esposito Giuseppe MastromatteoRelated Topic(s):
Working Paper No. 932 | June 2019 | He Zengping, Jia GenliangLocal government debt in China is increasing and presents a great threat to China’s financial stability. In China’s fiscal system, the central government often prioritizes reducing its fiscal deficit and can determine to a great extent the distribution of revenue and expenditure between itself and local governments. There is therefore a tendency for the fiscal burden to be shifted from the central government to the local governments. Resolving China’s local government debt problem requires not only strengthening regulation, but also abandoning the central government’s fiscal balance target, because this target may make regulation hard to sustain in times of economic downturn. This paper discusses central-local fiscal relations in the framework of Modern Money Theory, suggesting that, because a government with currency sovereignty can always afford any spending denominated in its own currency, China’s central government should bear a greater fiscal burden.Download:Associated Program:Author(s):He Zengping Jia GenliangRelated Topic(s):
Book Series, March 2018 | March 2018 | Jan Kregel
Edited by Marcella Corsi, Jan Kregel, and Carlo D'IppolitiEdited by Marcella Corsi, Sapienza University of Rome, Levy Institute Director of Research Jan Kregel, and Carlo D’Ippoliti, Sapienza University of Rome, this new collection of 16 essays is dedicated to Alessandro Roncaglia and deals with the themes that “have characterized his work or represent expressions of his personality, his interests and method," particularly his contributions to the interpretation of classical political economists as a means for informing present-day policy.
Published by: Anthem Press
Book Series, April 2018 | April 2018 | Joel Perlmann
From Ellis Island to the 2020 CensusIn America Classifies the Immigrants: From Ellis Island to the 2020 Census (Harvard University Press, 2018), Senior Scholar Joel Perlmann traces the evolution of thinking about “race” and “ethnic groups” in America. Beginning with the 1897 “List of Races and Peoples” through the proposed 2020 changes for the US Census, Perlmann examines the shifting ideas about racial and national differences that shape our social and legal policies.
Published by: Harvard University Press
Volume 28, No. 2 | April 2019 | Elizabeth Dunn, Michael StephensThis issue of the Summary features a public policy brief that considers the flaws in the eurozone’s settlement and payment system and a policy note that revisits the fall of Lehman Brothers ten years later.
Working papers included in this issue discuss the construction of stock-flow-consistent models that consider the specific features of the economy they are built to examine; investigate the role of social institutions in investment decisions under capitalism; compare Hyman Minsky’s and Lauchlin Curry’s positions on monetary economics; explore the evolution of central bank profits as fiscal revenue; assess the scope, successes, and shortcomings of social programs in Mexico and Argentina; and evaluate the impact of gender budgeting on gender equality and fiscal spending in Asia Pacific countries.
Program: The State of the US and World Economies
- GENNARO ZEZZA and FRANCESCO ZEZZA, On the Design of Empirical Stock-Flow-Consistent Models
Program: Monetary Policy and Financial Structure
- JAN KREGEL, Globalization, Nationalism, and Clearing Systems
- JAN KREGEL, Preventing the Last Crisis: Minsky’s Forgotten Lessons Ten Years after Lehman
- SUNANDA SEN, Investment Decisions under Uncertainty
- IVÁN D. VELASQUEZ, Two Harvard Economists on Monetary Economics: Lauchlin Currie and Hyman Minsky on Financial Systems and Crises
- JÖRG BIBOW, Unconventional Monetary Policies and Central Bank Profits: Seigniorage as Fiscal Revenue in the Aftermath of the Global Financial Crisis
Program: Gender Equality and the Economy
- MARTHA TEPEPA, Social Policy in Mexico and Argentina
Program: Employment Policy and Labor Markets
- LEKHA S. CHAKRABORTY, MARIAN INGRAMS, and YADAWENDRA SINGH, Macroeconomic Policy Effectiveness and Inequality: Efficacy of Gender Budgeting in Asia Pacific
Download:Author(s):Elizabeth Dunn Michael Stephens
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Minsky's MomentThe second in a series of articles on seminal economic ideas looks at Hyman Minsky’s hypothesis that booms sow the seeds of busts.