Levy Institute Publications

  • The Pandemic, the Stimulus, and the Future Prospects for the US Economy


    Strategic Analysis, June 2021 | June 2021 | Dimitri B. Papadimitriou, Michalis Nikiforos, Gennaro Zezza
    In 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.

  • Restarting the Greek Economy?


    Strategic Analysis, May 2021 | May 2021 | Dimitri B. Papadimitriou, , Nikolaos Rodousakis, Gennaro Zezza
    The 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.

  • Can Biden Build Back Better?


    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.

  • Another Bretton Woods Reform Moment


    Public Policy Brief No. 154, 2021 | February 2021 | Jan Kregel
    Let Us Look Seriously at the Clearing Union
    This 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.

  • A Recovery for Whom?


    Policy Note 2021/4 | November 2021 | Vlassis Missos, Nikolaos Rodousakis, George Soklis
    The Case of the Greek Tourism Sector
    The COVID-19 pandemic has revealed multiple risks faced by economies whose production structures depend on the volatility of international conditions. In the case of Greece, this has manifested itself in the severe impact the pandemic has had on one of the linchpins of the Greek economy: the tourism sector. Vlassis Missos, Nikolaos Rodousakis, and George Soklis document the impact of the pandemic on tourism and the significance of tourism revenues for Greece’s 2021 GDP recovery. They argue that the distributional effect of the tourism sector plays a significant role in overall income inequality in Greece and develop a number of policy recommendations aiming to correct some of the problematic aspects of the country’s tourism sector.
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    Author(s):
    Vlassis Missos Nikolaos Rodousakis George Soklis
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  • Why President Biden Should Eliminate Corporate Taxes to Build Back Better


    Policy Note 2021/3 | June 2021 | Edward Lane, L. Randall Wray
    Edward 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.

  • What Is MMT’s State of Play in Washington?


    e-pamphlet, August 2021 | August 2021 | L. Randall Wray
    Modern 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.

  • 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 Debt
    On 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 Omar

  • 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 Africa
    Gender 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.

  • Public Service Employment


    Research Project Report, April 2018 | April 2018 | L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, Stephanie A. Kelton
    A Path to Full Employment
    Despite 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.

  • The Macroeconomic Effects of Student Debt Cancellation


    Research Project Report, February 2018 | February 2018 | Scott Fullwiler, Stephanie A. Kelton, Catherine Ruetschlin, Marshall Steinbaum
    Among 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.
     

  • Are Concerns over Growing Federal Government Debt Misplaced?


    One-Pager No. 68 | November 2021 | L. Randall Wray
    With the US Treasury cutting checks totaling approximately $5 trillion to deal with the COVID-19 crisis, Senior Scholar L. Randall Wray argues that when it comes to the federal government, concerns about affordability and solvency can both be laid to rest. According to Wray, the question is never whether the federal government can spend more, but whether it should. And while there are still strongly held beliefs about the negative impacts of deficits and debt on inflation, interest rates, growth, and exchange rates, with two centuries of experience the evidence for these concerns is mixed at best.

  • Should Corporate Tax Hikes Be Included in Biden’s “Build Back Better” Plans?


    One-Pager No. 67 | June 2021 | Edward Lane, L. Randall Wray
    President 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.

  • The Employer of Last Resort Scheme and the Energy Transition


    Working Paper No. 995 | November 2021 | Giuliano Toshiro Yajima
    A Stock-Flow Consistent Analysis
    The health and economic crises of 2020–21 have revived the debate on fiscal policy as a major tool for stabilization and meeting long-term goals. The massive surge in unemployment, due to the economic disruption of the lockdown measures, has increased the interest in policies that target employment directly instead of trying to achieve it via a general “demand push.” One of the proposals currently under debate is the job guarantee. Under such a policy the government would act as an “employer of last resort” by offering a job to everyone that is able and wants to work but cannot find a job in the private sector. This paper argues that a carefully designed scheme of direct employment and public provision by the state—addressing both the low- and high-skill workforce—can have permanent effects and promote the economy’s structural transformation, in particular by fostering energy transition and a lower carbon footprint. Starting from this point, a stock-flow consistent model is developed to study the long-run effect of the job guarantee’s implementation, inspired by the work of Godin (2013) and Sawyer and Passarella (2021).
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    Author(s):
    Giuliano Toshiro Yajima
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  • Production Function Estimation


    Working Paper No. 994 | October 2021 | Jesus Felipe, John McCombie, Aashish Mehta, Donna Faye Bajaro
    Biased Coefficients and Endogenous Regressors, or a Case of Collective Amnesia?
    The possible endogeneity of labor and capital in production functions, and the consequent bias of the estimated elasticities, has been discussed and addressed in the literature in different ways since the 1940s. This paper revisits an argument first outlined in the 1950s, which questioned production function estimations. This argument is that output, capital, and employment are linked through a distribution accounting identity, a key point that the recent literature has overlooked. This identity can be rewritten as a form that resembles a production function (Cobb-Douglas, CES, translog). We show that this happens because the data used in empirical exercises are value (monetary) data, not physical quantities. The argument has clear predictions about the size of the factor elasticities and about what is commonly interpreted as the bias of the estimated elasticities. To test these predictions, we estimate a typical Cobb-Douglas function using five estimators and show that: (i) the identity is responsible for the fact that the elasticities must be the factor shares; (ii) the bias of the estimated elasticities (i.e., departure from the factor shares) is, in reality, caused by the omission of a term in the identity. However, unlike in the standard omitted-variable bias problem, here the omitted term is known; and (iii) the estimation method is a second-order issue. Estimation methods that theoretically deal with endogeneity, including the most recent ones, cannot solve this problem. We conclude that the use of monetary values rather than physical data poses an insoluble problem for the estimation of production functions. This is, consequently, far more serious than any supposed endogeneity problems.

  • Summary Fall 2021


    Volume 30, No. 3 | November 2021 | Elizabeth Dunn, Michael Stephens
    This issue of the Summary features two Strategic Analyses, which are focused on the United States and Greece. In the report for the United States the likely impact of President Biden’s infrastructure and families plans is examined to highlight persistent structural weaknesses that continue to threaten the US economy’s stability; the report on the Greek economy examines the Greek experience to analyze its state of acute macrofinancial instability and evaluate different policy scenarios for the near term. A public policy brief urges the Biden administration to reconsider its commitment to the “pay-for” approach to budgeting for its social and physical infrastructure packages, while a policy note explains that corporate taxes are poorly suited to either containing inflationary pressures or reducing inequality. Continuing the Institute’s work on tracing the COVID-19 crisis’s impact on inequality, a second policy note assesses the importance of the “emergency benefit” (Auxílio Emergencial) in containing increases in poverty and extreme poverty in Brazil, and analyzes changes in poverty gaps based on race and gender. Working papers in this issue contribute to the literature on whether utilization is endogenous to demand in the long run by examining the potential determinants of capacity utilization over the period 1989–2019; examine the Keynesian nature of the relationship between the short- and long-term interest rate in new models that incorporate the Keynesian approach while allowing other macroeconomic factors, such as the central bank’s policy rate, inflation targets, and inflation expectations to have a role; compare the trajectory of the Souk al-Manakh, an over-the-counter market in Kuwait, to US markets today, where both featured historically low official interest rates and elevated moral hazard; discuss the important turning points in the evolution of Keynes’s business cycle theory; and assesses the fly-paper effects of ecological fiscal transfers in India.
     
     
    INSTITUTE RESEARCH
    The State of the US and World Economies
    DIMITRI B. PAPADIMITRIOU, MICHALIS NIKIFOROS, and GENNARO ZEZZA, The Pandemic, the Stimulus, and the Future Prospects for the US Economy
     
    DIMITRI B. PAPADIMITRIOU, CHRISTOS PIERROS, NIKOLAOS RODOUSAKIS, and GENNARO ZEZZA, Restarting the Greek Economy?
     
    YEVA NERSISYAN and L. RANDALL WRAY, Can Biden Build Back Better?
     
    LUIZA NASSIF PIRES, LUÍSA CARDOSO, and ANA LUÍZA MATOS DE OLIVEIRA,
    Gender and Race in the Spotlight during the COVID-19 Pandemic: The Impact of the Emergency Benefit on Poverty and Extreme Poverty in Brazil
     
    MICHALIS NIKIFOROS, The Endogeneity-to-Demand of the National Emergency Utilization Rate
     
    Monetary Policy and Financial Structure
    TANWEER AKRAM, Multifactor Keynesian Models of the Long-Term Interest Rate
     
    TANWEER AKRAM, A Keynesian Approach to Modeling the Long-Term Interest Rate
     
    FRANK VENEROSO and MARK PASQUALI, The Souk Al-Manakh: The Anatomy of a Pure Price-Chasing Bubble
     
    PABLO GABRIEL BORTZ, Keynes’s Theories of the Business Cycle: Evolution and Contemporary Relevance
     
    Economic Policy for the 21st Century
    EDWARD LANE and L. RANDALL WRAY, Why President Biden Should Eliminate Corporate Taxes to Build Back Better
     
    AMANDEEP KAUR, RANJAN KUMAR MOHANTY, LEKHA CHAKRABORTY, and DIVY RANGAN, Ecological Fiscal Transfers and State-level Budgetary Spending in India: Analyzing the Flypaper Effects
     
     
    INSTITUTE NEWS
    Minsky Conference Video and Audio Available Online
    Save the Date: Minsky Summer Seminar
    Senior Scholar L. Randall Wray Wins Veblen–Commons Award
     
    Download:
    Author(s):
    Elizabeth Dunn Michael Stephens

  • A Great Leap Forward


    Book Series, January 2020 | January 2020 | L. Randall Wray
    Heterodox Economic Policy for the 21st Century
    A 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
Ford-Levy Institute Projects
 
Levy Institute Publications in Greek

From the Press Room

New US Consumption Gauge To Include Unpaid Work, Housing


Levy Institute Wins Contract to Help Department of Labor Broaden Measures of Economic Well-Being


Videos from the 29th Annual Minsky Conference now Available Online

Videos from the 29th Annual Minsky Conference now Available Online


Senior Scholar L. Randall Wray debated the Heritage Foundation's Stephen Moore at an April 22 event sponsored by CFA Society Chicago.

Senior Scholar L. Randall Wray debated the Heritage Foundation's Stephen Moore at an April 22 event sponsored by CFA Society Chicago.


Senior Scholar L. Randall Wray and Yeva Nersisyan pen an April 17 op-ed for <em>The Guardian</em>

Senior Scholar L. Randall Wray and Yeva Nersisyan pen an April 17 op-ed for The Guardian