Commentary

In a presentation here at the Levy Institute, Emilios Avgouleas argued that financial regulatory changes since the crisis have become so complex they represent a source of financial instability, and that new liquidity and capital requirements have contributed to the problem of “short-termism” in finance. Avgouleas proposed regulatory simplification and a reorientation that would create greater relative incentives for funding long-term investment projects (e.g., infrastructure), including a lower regulatory and tax burden on long-term instruments. Empowering issuers of long-term instruments like project bonds with intellectual property rights could, he suggested, help control the quality of these financial products by preventing “slicing and dicing” in derivatives markets, on pain of losing prescribed privileges. You can watch the presentation below: “The Financial Regulation Conundrum: Why We Should Discriminate in Favor of Long-Term Finance” [iframe width=”427″ height=”240″ src=”https://www.youtube.com/embed/1jFUkSdp7J8″ frameborder=”0″ allowfullscreen></iframe]

If you’re a grad student or just starting out your career and want to learn more about the work of Hyman Minsky and Wynne Godley, and wouldn’t mind doing so in a turn-of-the-century manor on the banks of the Hudson, you’re in luck. The Levy Institute’s annual Minsky Summer Seminar is now accepting applications for the June 2017 session: The Levy Economics Institute is pleased to announce that it will hold the eighth Minsky Summer Seminar June 10–16, 2017. The Seminar will provide a rigorous discussion of both the theoretical and applied aspects of Minsky’s economics, with an examination of meaningful prescriptive policies relevant to the current economic and financial outlook. It will also provide an introduction to Wynne Godley’s stock-flow consistent modeling methods via hands-on workshops. The Summer Seminar will be of particular interest to graduate students, recent graduates, and those at the beginning of their academic or professional careers. The teaching staff will include well-known economists working in the tradition of Minsky. To apply, send a letter of application and current curriculum vitae to Kathleen Mullaly at the Levy Institute ([email protected]). Admission to the Summer Seminar includes room and board on the Bard College campus. A registration fee of $250 is required upon acceptance. Due to space constraints, the Seminar will be limited to 30 participants. Applications will be reviewed on a rolling…more

*Post Updated Below* Fiscal Consolidation, Budget Deficits and the Macro Economy, by Research Associate Lekha Chakraborty, deals with debates about the macroeconomic effects of budget deficits in the context of examining fiscal policy in India over the period 1980/81–2012/13. From the Introduction: In India, efforts were … made to contain the fiscal deficit by both the central and state governments. The Fiscal Responsibility and Budget Management (FRBM) Act was enacted by the Government of India in 2000 with the aim to … reduce the fiscal deficit to three per cent of GDP by 2008-09. All the states in India also have introduced FRBM legislation. The rationale behind the reduction in fiscal deficits emanated from the theoretical paradigms of macroeconomics which argued that excessive fiscal deficits often trigger inflationary pressures in the economy, increase the rate of interest and crowd out private capital formation, create balance of payments crises and in turn debt spiraling. However, considerable ambiguity exists about the link between fiscal deficit and macroeconomic activity. For more, visit Sage:   Update: Reviews of the book by Pulapre Balakrishnan, Vito Tanzi, and Janet Stotsky may be of interest to potential readers.

Pavlina Tcherneva joins Laura Flanders to discuss the need for a more gender-aware economics: [iframe width=”427″ height=”240″ src=”https://www.youtube.com/embed/fqmy5F98SAs” frameborder=”0″ allowfullscreen></iframe]

Designed as a terminal degree with a professional focus, the Levy Economics Institute Master of Science in Economic Theory and Policy offers students an alternative to mainstream graduate programs in economics and finance. This innovative two-year program combines a rigorous course of study with exceptional opportunity to participate in advanced economics research, with direct access to the Institute’s global network of researchers. Application deadlines are November 15 for Early Decision and January 15 for Regular Decision. Scholarships are available. Visit bard.edu/levyms for more information. Click here to apply. Learn about the Levy M.S. by joining one of our online information sessions hosted by Institute scholars: Wednesday, October 5, 3:00 p.m. EDT, with Research Scholar Michalis Nikiforos Tuesday, October 11, 11:00 a.m. EDT, with Ajit Zacharias, Senior Scholar and Distribution of Income and Wealth Program Director Tuesday, October 18, 10:00 a.m. EDT, with Senior Scholar and Bard College Professor of Economics L. Randall Wray The program application fee will be waived for all prospective students who attend. Click here for details.

by Felipe Rezende Part IV This last part of the series (see Part I, II, and III here, here, and here) will focus on the Brazilian response to the crisis.   1. What Should Brazil Do? The current Brazilian crisis fits with Minsky’s theory of instability (see here, here, and here). The traditional response to a Minsky crisis involves government deficits to allow the non-government sector to net save. That is, if the private sector desire to net save increases, then fiscal deficits increase to allow it to accumulate net financial assets. The sharp increase in budget deficits in 2015 comes as no surprise. Rezende (2015a) simulated a scenario in which we have rising government deficits to offset current account deficits, to allow the domestic private sector balance to generate financial surpluses. In this case, in the presence of current account deficits equal to 4% of GDP, to allow the private sector to net save 2% of GDP, it would require government deficits equal to 6% of GDP.  If the private sector is going to save 5% of GDP (equal to the 2002-2007 average pre-crisis) and a current account deficit equal to 4% of GDP then we must have an overall government budget in deficit equal to 9% of GDP. Given the current state of affairs, government deficits of this…more

by Felipe Rezende Part III This part of the series (see Parts I and II, here and here) will focus on macroeconomic and microeconomic aspects of financial fragility and the provision of liquidity. Minsky’s framework not only sheds light on how to detect unsustainable financial practices, but the position adopted in this paper is that the current Brazilian crisis does fit with Minsky’s instability theory. This is a Minsky crisis in which during economic expansions market participants show greater tolerance for risk and forget the lessons of past crises so economic units gradually move from safe financial positions to riskier positions and declining cushions of safety.

Jim Vrettos, a sociologist at John Jay College and host of “The Radical Imagination”, interviewed the Levy Institute’s Randy Wray on how the discipline of economics has gone astray. Wray’s story begins in the late 1960s, with what he describes as a reaction against “New Deal economics.” The interview ends with a discussion of the ongoing US presidential election. [iframe width=”427″ height=”240″ src=”https://www.youtube.com/embed/5P_J9IJqxaY?;start=200″ frameborder=”0″ allowfullscreen></iframe]

by Felipe Rezende This series will discuss at length the underlying forces behind Brazil’s current crisis. (See Part I here) Part II Building on Keynes’s investment theory of the cycle, Minsky’s work suggests that the structure of the economy becomes more fragile over a period of tranquility and prosperity. That is, endogenous processes breed financial and economic instability. While Minsky adopted Keynes’s “investment theory of the cycle,” he added a financial theory of investment, with a detailed exposition of the theory in his book John Maynard Keynes (1975), which put at the forefront the interrelation between investment decisions and the financial structure designed to allow economic units to take positions in assets by issuing debt. In this regard, debt accumulation is at the core of Minsky’s instability theory. His financial theory of investment incorporated Kalecki’s approach in which aggregate profits are created, mostly, by the autonomous components of demand (Minsky 1986, 1989). One can add to this analysis Godley’s three balances approach, which explores the interlinkages between the government sector, the private sector, and the external sector. This means that a surplus must be matched by an equal deficit and flows accumulate to stocks. In this regard, Godley’s framework sheds light on the identification of financial fragility at the macro level, in which, to accumulate financial wealth, the private sector…more

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A crowdfunding campaign starting October 2016, on Indiegogo: Overall aim:  To complete the publication of all of Keynes’s remaining unpublished writings of academic significance. Only about one third were published in the Royal Economic Society edition. A huge quantity of valuable unpublished material remains, scattered across 60 archives in 6 countries. Aim of this campaign:  Preparation of the Eton and early Cambridge volumes. Campaign start:  11 October 2016. To locate project: Google ‘JMK Writings Project Indiegogo.’ It is also planned, with publisher cooperation, for the campaign to assist selected universities in developing countries. How you can help: Spread the word prior to the campaign launch – to academic colleagues (in economics or elsewhere), students in classes, conference participants, policy-makers, parliamentarians, philanthropists etc. Make, and encourage, donations, of ANY size, according to your situation. Especially on the first or second day of the campaign. Experience shows that strong starts are correlated with strong finishes. Editor: Professor Rod O’Donnell, University of Technology Sydney, Australia. Contact:  [email protected] See also https://www.uts.edu.au/staff/rod.odonnell

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