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When it comes to the Federal Reserve and Fed policy, the bulk of today’s progressives can be sorted into two broad groups. There are those who, in the face of congressional sabotage of fiscal policy, shrug their shoulders and conclude that we might as well get behind QE because it’s the only game in town — thus setting the “progressive” pole of the debate in such a way that Milton Friedman represents the leftward edge of the possible — and there are those who largely cede the battlefield on Fed policy, either for lack of interest or due to skepticism that the Fed can do much to affect growth and employment anyway. There are, of course, some notable exceptions, but they are a minority — and this has the effect of narrowing the dialogue when it comes to central bank policy. Bill Greider, in two new policy notes drawn from his work at The Nation, shows us what it might look like to go beyond progressive indifference or hostility to the Fed and articulate a positive alternative agenda. Both of Greider’s notes focus on how the Federal Reserve’s money-creation power, which was used to great effect in propping up the financial system, might be redirected to aiding the “real” economy: The Federal Reserve’s most distinctive asset is money—its awesome and… Read More

On the face of it, the troika’s (ECB/IMF/EU) bailouts of Greece, with their attendant demands for budget austerity, privatization, and labor market reforms, have failed and failed again — whether we’re talking about basic material well-being or debt ratios: Currently, the official unemployment rate stands at 27 percent, while youth unemployment is above 62 percent and more than 30 percent of the population lives near or below the poverty line. In a nation of less than 11 million people, more than half a million children live in poverty—that’s one out of three—with nearly 60 percent of them living in households that experience “severe material deprivation.” The debt-to-GDP ratio declined from 170 percent at the end of 2011 to 156 percent at the end of 2012 (following a rather sizable “haircut” among private holders of Greek bonds) and will remain at unsustainable levels for the unforeseeable future. In fact, the best scenario envisioned by Greece’s international lenders is that the country’s debt-to-GDP ratio will be reduced to 120 percent by 2020 — only 6.8 percent less than what it was when the debt crisis began in late 2009. When the same policies are tried over and over again, with the same dismal results, there are plenty of potential reasons for an unwillingness to change course. As frequently noted, the allure of… Read More

The Congressional Budget Office’s analyses of the Senate immigration bill were a boon (at least rhetorically) to those pushing for comprehensive immigration reform. The CBO estimated the bill would produce some significant budgetary savings and a macroeconomic boost, helping undermine the argument that comprehensive reform would prove too costly. However, the Senate bill contains some slightly more popular provisions — those related to increasing high-skill immigration — packaged together with some decidedly less popular provisions — like offering a pathway to legal immigration (and eventual citizenship) to currently undocumented immigrants. The latter seems to be the biggest obstacle to getting House Republicans on board with comprehensive reform. So what happens when we look exclusively at the economic impact of something like the “pathway to citizenship”? Selçuk Eren, drawing on research he conducted with Hugo Benítez-Silva and Eva Cárceles-Poveda, provides the answer. Legalizing 50 percent of the undocumented population, far from being a massive burden, would actually add $36 billion per year to GDP. And these macroeconomic benefits would be large enough that there would be little perceptible net impact on the social insurance system (they examined Social Security and unemployment insurance in particular). Now, in a roughly $14 trillion economy, adding $36 billion per year isn’t a huge deal (the Senate bill would involve more like 70 percent legalization, so… Read More

Dimitri Papadimitriou, Levy Institute president and one of the coauthors of a new macroeconomic report on the Greek economy, appeared on Skai TV to discuss the new austerity measures passed by that country’s parliament last week. Segment (in Greek) begins at 36:00.

October 2—4, 2013 International Conference on Applied Business and Economics The Levy Institute is cosponsoring the 2013 edition of the International Conference on Applied Business and Economics (ICABE), which will be held in Manhattan at the John Jay College of Criminal Justice, City University of New York. The main goal of this annual conference is to provide a place for academics and professionals from a variety of fields to meet and exchange ideas and expertise. ICABE 2013 focuses on the role of financial accountability and transparency in economic activities, and aims to address issues arising from financial speculation and limited disclosure in the buildup to financial and economic crises. Special sessions for graduate students are scheduled, and selected papers will be published in one of the 12 international journals participating in the conference. The deadline for registration is September 1. For more information, including fee schedules, special events, and logistics, visit the conference website.

Yanis Varoufakis and Stuart Holland have come out with a new version of their “Modest Proposal” for resolving the euro crisis (an earlier version of the Proposal appeared as a Levy Institute policy note in 2011). The latest iteration (4.0) adds a new co-author in James Galbraith and an additional “sub-crisis” to the original three: the eurozone, they say, faces a banking crisis, a public debt crisis, a crisis of under-investment, and now, after five years of policy failure (due in part to treating the situation as only a debt crisis) Europe faces a social crisis. The “modesty” of the authors’ policy approach hinges on avoiding what they describe as a false choice between “draconian austerity and a federal Europe.” They argue that we can make substantial progress on addressing these multiple crises without resorting to things like national guarantees, fiscal transfers, or treaty changes. For instance, here is the outline of their proposal for dealing with sovereign debt: The Maastricht Treaty permits each European member-state to issue sovereign debt up to 60% of GDP. Since the crisis of 2008, most Eurozone member-states have exceeded this limit. We propose that the ECB offer member-states the opportunity of a debt conversion for their Maastricht Compliant Debt (MCD), while the national shares of the converted debt would continue to be serviced separately… Read More

Casey B. Mulligan, of whom I have written before, has a new post on the New York Times Economix blog, in which he attempts to school the less wise what policy impact assessment is all about. It is not about Red Herrings, for example. He references one of his recent posts that I opted to mostly let go at the time. Though I did make a comment not unlike the one he disparages. In this post he says that the point of policy impact assessment is to compare what will happen if a policy is implemented to a baseline, without the policy. Fair enough, but is that enough? He says: Policy impact quantifies how things are different as a consequence of the policy. [emphasis mine] His analysis of the impact of the Affordable Care Act on the part-time labor market concludes that two of the things that keep people in full-time employment, access to health insurance coverage and higher pay, will be eroded by the ACA. The bit about the insurance coverage is obvious enough. Well done! The bit about the higher pay is not quite as obvious. The numbers Mulligan uses are telling, however.

(This is a prequel, Part 1 on BIG; I already did Part 2. Sorry it is longish, but not technical.) Last week I criticized an article by Allan Sheahan who argued that “Jobs Are Not the Answer” to America’s unemployment problem. The thesis was based on two propositions. First, labor productivity has grown so we’d never be able to find sufficient work for all. Second, we don’t need jobs anyway because: “Job creation is a completely wrong approach because the world doesn’t need everyone to have a job in order to produce what is needed for us to live a decent, comfortable life. We need to re-think the whole concept of having a job. When we say we need more jobs, what we really mean is we need is more money to live on. One answer is to establish a basic income guarantee (BIG), enough at least to get by on — just above the poverty level — for everyone. Each of us could then try to find work to earn more.” I devoted most of the space in my response to the first point. Labor productivity has been rising since caveman first grabbed a club. Productivity’s importance as a cause of unemployment is at best of second order importance and certainly not new. The real cause is money. To… Read More

Dimitri Papadimitriou, Gennaro Zezza, and Michalis Nikiforos have put together a stock-flow consistent model for Greece in order to analyze the path of that nation’s struggling economy and assess alternatives to reigning austerity policies. This is a macroeconomic model based on the New Cambridge approach of Wynne Godley and is the same sort of model used for the Levy Institute’s US strategic analysis series. One thing the results of their simulations make clear is that the European Commission (EC) and International Monetary Fund (IMF) have been consistently too optimistic about the Greek economy and the effects of continuing with austerity policies — and still are, even after the IMF’s admission that it had overestimated the benefits of fiscal contraction. Here, for instance, are the EC’s past and current projections for Greek unemployment, compared to the actual results and the Levy Institute’s projections through 2016. As you’ll notice, the baseline projection generated by the Levy Institute model for Greece (LIMG) shows a rather more dire path for unemployment going forward, compared to the EC’s latest projections. If current policies continue, the unemployment rate could rise from its ruinous 27.4 percent to almost 34 percent by the end of 2016. The troika’s (EC/IMF/ECB) “internal devaluation” strategy — based on the idea that forcing a reduction in wages will increase competitiveness and boost… Read More

Here’s a piece from yesterday’s NYTimes by Annie Lowrey: “Warren Mosler, a Deficit Lover With a Following.” In the piece, Lowrey quotes blogger Mark Thoma as follows: “They [followers of MMT] deny the fact that the government use of real resources can drive the real interest rate up,” said Mark Thoma, an economics professor and widely followed blogger who teaches at the University of Oregon. After delving into the technical details of modern monetary theory for a few minutes, he paused, then added, “I think it’s just nuts.” Thoma might have been misquoted, but the “real interest rate” is a compound term, comprised of the nominal interest rate and the rate of inflation. Technically, the real rate is the nominal rate less expected inflation. As we know, the Fed sets the overnight nominal rate. The real rate is then the Fed’s target rate less expected inflation. Now, it is possible that “government use of real resources” might raise expectations of inflation. That is what gold buggism is all about. So let us say Ron Paul whips up inflationary expectations. What happens to the real rate? Well, we are subtracting a bigger expected inflation number from the Fed’s target rate. So the real rate goes down! Now, Thoma might think the Fed will also react to Ron Paul’s gold buggism and… Read More

Segment (in Greek) begins at 49:35.

In this Skai TV interview, Dimitri Papadimitriou focuses on the eurozone banking crisis and rising unemployment in the southern tier, arguing that the approval of 200 million euros to combat unemployment in Greece is far too small to reach the desired outcome.  (Segment, in Greek, begins at 23:30)