In the Media

  • In the Media | November 2021

    New US Consumption Gauge To Include Unpaid Work, Housing


    By Jean Yung
    New US Consumption Gauge To Include Unpaid Work, Housing

    The U.S. Bureau of Labor Statistics will incorporate estimates of the value of unpaid household work and home ownership into a new measure of consumption, aiming for a more comprehensive view of living standards at a time when policymakers are increasingly concerned with addressing inequality.

    Read more at: https://marketnews.com/homepage/mni-us-bls-to-develop-novel-consumption-measure
  • In the Media | March 2019

    For Overspending Governments, an Alternative View on Borrowing Versus Raising Taxes


    By Katia Dmitrieva
    Bloomberg Quick Take with the Washington Post, March 13, 2019. All rights reserved.

    Outlining the basics of Modern Monetary Theory, Bloomberg's Katia Dmitrieva cites the work of Levy Research Associate Pavlina Tcherneva as a leading voice in the field.

    Read more: https://www.washingtonpost.com/business/for-overspending-governments-an-alternative-view-on-borrowing-versus-raising-taxes/2019/03/12/13945b5a-44dc-11e9-94ab-d2dda3c0df52_story.html?noredirect=on&utm_term=.ee3a91c52dc5
  • In the Media | July 2018

    Is a Job Guarantee Possible in America?


    By Bianca Facchinei
    Newsy, July 6, 2018. All Rights Reserved.

    With recent polling showing nearly half of American support a job guarantee program, Levy Research Associate Pavlina Tcherneva speaks with Newsy’s Bianca Facchinei about the costs and benefits of guaranteed employment.

    Read more: https://www.newsy.com/stories/job-guarantee-bill-can-the-u-s-ensure-jobs-for-all/
  • In the Media | July 2018

    What Is A Federal Jobs Guarantee?


    by Laura Paddison
    Huffington Post, July 6, 2018. All Rights Reserved.

    Though official unemployment numbers are currently low, there are still many who feel they have been left behind. Levy Research Scholar Stephanie Kelton and the coauthors of the Levy Institute research project report “Public Service Employment: A Path to Full Employment” think the answer lies in a federally funded job guarantee that will “eliminate involuntary unemployment by creating living-wage, [and] socially beneficial jobs for the millions of Americans who want and need work ― essentially making employment a fundamental right.” 

    Read more: https://www.huffingtonpost.com/entry/federal-job-guarantee-explained_us_5b363f4ae4b007aa2f7f59fc
  • In the Media | May 2018

    Stephanie Kelton has the biggest idea in Washington


    By Zach Carter
    Huffington Post, May 20, 2018. All Rights Reserved.

    Highlighting the recent Public Service Employment program proposal by Stephanie Kelton, L. Randall Wray, Pavlina Tcherneva, Scott Fullwiler, and Mathew Forstater, Huffington Post's Zach Carter offers a profile of Levy Research Associate Stephanie Kelton's work in academia and Washington.

    Read more: https://www.huffingtonpost.com/entry/stephanie-kelton-economy-washington_us_5afee5eae4b0463cdba15121
  • In the Media | May 2017

    Greek Economy to Grow Over 2 Percent in 2017, Papadimitriou Says


    By Georgios Georgiou
    Bloomberg, May 11, 2017. All Rights Reserved.

    Greece is confident that the country’s economic output will exceed 2 percent in 2017 boosted by investments, privatizations and exports, Economy and Development Minister Dimitri Papadimitriou said.

    Read more: https://www.bloomberg.com/news/articles/2017-05-11/greek-economy-to-grow-over-2-percent-in-2017-papadimitriou-says
  • In the Media | May 2017

    EBRD Sees "Enormous Opportunities" in Greece


    By Axel Reiserer
    EBRD, May 11, 2017. All Rights Reserved.

    The EBRD has reiterated its support for Greece and sees “enormous opportunities” in the country. Alain Pilloux, the Bank’s Vice President, Banking, told a well-attended panel on the investment outlook for Greece: “We will continue to ramp up operations in Greece so that our contribution to economic recovery is maximised during our temporary mandate in the country.” . . .

    Read more: http://www.ebrd.com/news/2017/ebrd-sees-enormous-opportunities-in-greece.html
  • In the Media | May 2017

    The Rock-Star Appeal of Modern Monetary Theory


    By Atossa Araxia Abrahamian
    The Nation, May 22–28, 2017. All Rights Reserved.

    In early 2013, Congress entered a death
 struggle—or a debt struggle, if you will—over the future of the US economy. A spate of old tax cuts and spending programs were due to expire almost simultaneously, and Congress couldn’t agree on a budget, nor on how much the government could borrow to keep its engines running. Cue the predictable partisan chaos: House Republicans were staunchly opposed to raising the debt ceiling without corresponding cuts to spending, and Democrats, while plenty weary of running up debt, too, wouldn’t sign on to the Republicans’ proposed austerity....

     Read more: https://www.thenation.com/article/the-rock-star-appeal-of-modern-monetary-theory/
  • In the Media | April 2017

    Remember Quantitative Easing? It Could Make a Comeback, Says Boston Fed President


    By Deirdre Fernandes
    The Boston Globe, April 19, 2017. All Rights Reserved.

    The next recession will likely force the Federal Reserve to once again buy up large amounts of assets to boost the supply of money and stimulate the economy, a move that nearly a decade ago was considered drastic and unconventional, according to Boston Federal Reserve President Eric Rosengren....

    Read more: https://www.bostonglobe.com/business/2017/04/19/remember-quantative-easing-could-make-comeback-says-boston-fed-president/FjNnoluxXb2WPXHJzjgQxO/story.html
  • In the Media | April 2017

    Fed’s Rosengren Wants to Shrink Balance Sheet So Slowly that Rate Hikes Can Continue at Same Time


    MarketWatch, April 19, 2017. All Rights Reserved.

    The Federal Reserve should start shrinking its balance sheet relatively soon but do it so slowly that it doesn’t disturb the central bank’s plans to continue to gradually raise short-term interest rates, said Boston Fed President Eric Rosengren on Wednesday....

    Read more: http://www.marketwatch.com/story/feds-rosengren-wants-to-shrink-balance-sheet-so-slowly-that-rate-hikes-can-continue-2017-04-19
  • In the Media | April 2017

    Rosengren: Balance Sheet Will Be Policy Tool Going Forward


    Bu Gary Siegel
    The Bond Buyer, April 19, 2017. All Rights Reserved.

    The Federal Reserve's balance sheet will probably continue to be used as a monetary policy tool in the future, since interest rates remain low, Federal Reserve Bank of Boston President and CEO Eric S. Rosengren said Wednesday....

    Read more: https://www.bondbuyer.com/news/rosengren-balance-sheet-will-be-policy-tool-going-forward
  • In the Media | April 2017

    Fed Should Shed Bonds Soon, Keep Hiking Rates: Rosengren


    CNBC, April 19, 2017. All Rights Reserved.

    The U.S. Federal Reserve should begin shedding its bond holdings soon but do so in a very gradual way that has little effect on its planned interest rate hikes, Boston Fed President Eric Rosengren said on Wednesday....

    Read more: http://www.cnbc.com/2017/04/19/fed-should-shed-bonds-soon-keep-hiking-rates-rosengren.html
  • In the Media | April 2017

    Fed’s Rosengren: Balance-sheet Reduction Can Start "Relatively Soon"


    By Jessica Dye
    Financial Times, April 19, 2018. All Rights Reserved.

    Eric Rosengren, president of the Boston Fed, has added his voice to the chorus of policymakers who say they are prepared to start the process of unwinding the central bank’s massive balance sheet....

    Read more: https://www.ft.com/content/14e638f2-b0d8-347b-9eb5-5eff9d83d497
  • In the Media | April 2017

    Fed's Rosengren Calls For Trimming Balance Sheet Soon but Slowly


    By Christopher Condon
    Bloomberg, April 19, 2017. All Rights Reserved.

    Federal Reserve Bank of Boston President Eric Rosengren said the central bank should shrink its out-sized balance sheet slowly enough that officials don’t need to alter the path of interest-rate increases....

    Read more: https://www.bloomberg.com/news/articles/2017-04-19/fed-s-rosengren-calls-for-trimming-balance-sheet-soon-but-slowly
  • In the Media | April 2017

    Fed Should Shed Bonds Soon, Keep Hiking Rates: Rosengren


    By Jonathan Spicer
    Reuters, April 19, 2017. All Rights Reserved.

    The U.S. Federal Reserve should begin shedding its bond holdings soon but do so in a very gradual way that has little effect on its planned interest rate hikes, Boston Fed President Eric Rosengren said on Wednesday....

    Read more: http://www.reuters.com/article/us-usa-fed-rosengren-idUSKBN17L276
  • In the Media | April 2017

    Boston Fed President Rosengren: Balance Sheet Reduction Should Begin 'Soon'


    By Giovanni Bruno
    The Street, April 19, 2017. All Rights Reserved.

    Boston Fed President Eric Rosengren today said that he is prepared to begin the process of reducing the Federal Reserve's vast balance sheet, according to the Financial Times

    "In my view that process could begin relatively soon, and should not significantly alter the (Federal Open Market Committee's) continuing gradual normalization of short-term interest rates," Rosengren said today at the Hyman P Minsky Conference at Bard College....

    Read more: https://www.thestreet.com/story/14093318/1/boston-fed-president-rosengren-balance-sheet-reduction-should-begin-soon.html
  • In the Media | April 2017

    Stocks Mostly Higher, but Dow Dragged Down by IBM


    By Wallace Witkowski
    Fox Business, April 19, 2017. All Rights Reserved.

    Economic news: Boston Federal Reserve President Eric Rosengren said at Bard College's Levy Economics Institute that he would like the Fed to start shrinking the balance sheet but at such a gradual rate (http://www.marketwatch.com/story/feds-rosengren-wants-to-shrink-balance-sheet-so-slowly-that-rate-hikes-can-continue-2017-04-19) that it doesn't disrupt the central bank's raising of interest rates.

    Read more: http://www.foxbusiness.com/features/2017/04/19/market-snapshot-stocks-mostly-higher-but-dow-dragged-down-by-ibm.html
  • In the Media | April 2017

    FDIC's Hoenig Warns Against Scrapping a US Bankruptcy Reform


    Reuters, April 19, 2017. All Rights Reserved.

    A top U.S. financial regulator on Wednesday warned against scrapping, as some American lawmakers urge, the "Title II" part of the 2010 Dodd-Frank legislation that created an alternative insolvency process for large firms, saying further reforms would be needed to protect the economy....

    Read more: http://www.reuters.com/article/us-usa-banks-hoenig-idUSKBN17L1TO
  • In the Media | April 2017

    Fed's George Says 2017 Rate Hikes Depend on Economy


    Bloomberg Markets, April 18, 2017. All Rights Reserved.

    Federal Reserve Bank of Kansas City President Esther George discusses monetary policy and the state of the U.S. economy. She speaks with Bloomberg's Michael McKee on "Bloomberg Markets."

    Video: https://www.bloomberg.com/news/videos/2017-04-18/fed-s-george-says-2017-rate-hikes-depend-on-economy-video
  • In the Media | April 2017

    Fed's George Says Continuing with Rate Rises Is "Necessary"


    By Michael S. Derby
    The Wall Street Journal, April 18, 2017. All Rights Reserved.

    Federal Reserve Bank of Kansas City President Esther George said on Tuesday the U.S. central bank needs to press forward with rate rises, adding it should also begin reducing its massive balance sheet later in the year.

    Read more: https://www.wsj.com/articles/feds-george-says-continuing-with-rate-rises-is-necessary-1492520723
  • In the Media | April 2017

    Federal Official Backs Bond Paring This Year


    CNBC, April 18, 2017. All Rights Reserved.

    Another Federal Reserve policymaker on Tuesday backed an emerging U.S. central bank plan to begin trimming its bond holdings later this year, as Kansas City Fed President Esther George warned against waiting too long in order to "overheat" labor markets....

    Read more: http://www.cnbc.com/2017/04/18/fed-official-backs-bond-pairing-this-year.html
  • In the Media | April 2017

    George Calls For Fed's Balance Sheet to Shrink on "Autopilot"


    By Steve Matthews and Matthew Boesler
    Bloomberg Markets, April 18, 2017. All Rights Reserved.

    Federal Reserve Bank of Kansas City President Esther George urged the Federal Open Market Committee to start shrinking its $4.5 trillion balance sheet this year, making reductions automatic and not subject to a quick reversal....

    Read more: https://www.bloomberg.com/news/articles/2017-04-18/george-calls-for-fed-s-balance-sheet-to-shrink-on-autopilot
  • In the Media | April 2017

    Another Fed Official Backs Paring Bond Holdings This Year


    By Jonathan Spicer
    Reuters, April 18, 2017. All Rights Reserved.

    Another Federal Reserve policymaker on Tuesday backed an emerging U.S. central bank plan to begin trimming its bond holdings later this year, as Kansas City Fed President Esther George warned against waiting too long in order to "overheat" labor markets....

    Read more: http://mobile.reuters.com/article/idUSKBN17K1J9
  • In the Media | April 2017

    Another Fed Official Backs Paring Bond Holdings This Year


    Nasdaq, April 18, 2017. All Rights Reserved.

    Another Federal Reserve policymaker on Tuesday backed an emerging U.S. central bank plan to begin trimming its bond holdings later this year, as Kansas City Fed President Esther George warned against waiting too long in order to "overheat" labor markets....

    Read more: http://m.nasdaq.com/article/another-fed-official-backs-paring-bond-holdings-this-year-20170418-00756
  • In the Media | March 2017

    Greece Needs a New Technologically Upgraded and Extrovert Growth Model, Says Econ Min Papadimitriou


    Athens-Macedonian News Agency, March 19, 2017. All Rights Reserved.

    The country's development plan focuses on the attraction of investments to dynamic and innovative businesses, stated Economy Minister Dimitris Papadimitriou in a statement to the Sunday edition of Ethnos newspaper....

    Read more: http://www.amna.gr/english/article/17744/Greece-needs-a-new-technologically-upgraded-and-extrovert-growth-model--says-Econ-Min-Papadimitriou  
  • In the Media | February 2017

    Greece’s Economy Minister Confident of Reaching Deal With Creditors


    By Nektaria Stamouli

    The Wall Street Journal, February 9, 2017. All Rights Reserved.

    ATHENS—Greece’s economy minister said he is optimistic the country can resolve its deadlock with its international creditors this month over how to fulfill its bailout program, allowing Greece to bring down its borrowing costs and return to bond markets late this year....

    Read more: https://www.wsj.com/articles/greeces-economy-minister-confident-of-reaching-deal-with-creditors-1486651074

  • In the Media | February 2017

    Alt Labour Minister Antonopoulou Highlights Potential of "Social Economy" in Greece


    Athens-Macedonian News Agency, February 6, 2017. All Rights Reserved.

    Developing the social economy in Greece could help stem the emigration of young Greek scientists and professionals abroad, putting the brakes on the so-called "brain drain," Alternate Labour Minister for fighting unemployment Rania Antonopoulou said in an interview with the Athens-Macedonian New Agency (ANA) released on Sunday.

    Read more: http://www.amna.gr/english/article/17055/Alt-Labour-Minister-Antonopoulou-highlights-potential-of-social-economy-in-Greece  
  • In the Media | January 2017

    Why a Universal Basic Income Is a Poor Substitute for a Guaranteed Job


    By Claire Connelly
    ABC News, January 18, 2017. All Rights Reserved.

    Creating a universal basic income as a means of addressing unemployment and productivity problems has become the topic du-jour as workers become increasingly separated from the means of production, with even modest salaries failing to cover the cost of living. 

    Consequently, Australian taxpayers have had to take on a greater burden of debt to support themselves....

    Read more: http://www.abc.net.au/news/2017-01-19/universal-basic-income-vs-job-guarantee/8187688  
  • In the Media | January 2017

    "Wildcard" Trump Could Affect Markets, Economic Outlook in 2017


    CBC News, January 2, 2017. All Rights Reserved.

    Donald Trump, who will be inaugurated as the next U.S president on Jan. 20, brings with him a high level of uncertainty for 2017, investment managers and economists say.

    Following the election of Trump on Nov. 8, U.S. stocks took off, with key indices hitting multiple records highs. The Dow Jones industrial average — the benchmark index of blue chip companies — came tantalizingly close to topping the 20,000-point plateau for the first time before the rally petered out in the last trading days of 2016....

    Read more: http://www.cbc.ca/news/business/markets-economy-2017-lookahead-1.3916631  
  • In the Media | December 2016

    Assessing Demonetisation: Minsky Provides the Link That Traditional Economics Misses


    By Vidhu Shekhar
    Swarajya, December 30, 2016. All Rights Reserved.

    With the end of demonetisation in sight, and partial remonetisation underway, it may be a good time to reassess the much-maligned economics of demonetisation.

    Over this 50-day period, several economists have denounced demonetisation as poor economics, so much so that reading them has made us feel like we were experiencing mass famine. This, despite the fact that even the hard, early days were nearly-incident-free in spite of the enormity of the scale of operations....

    Read more: http://swarajyamag.com/economy/assessing-demonetisation-minsk-provides-the-link-that-traditional-economics-misses  
  • In the Media | December 2016

    Greek Minister Sees Progress Despite Latest Debt Drama


    By David R. Sands
    The Washington Times, December 16, 2017. All Rights Reserved.

    It was a chain of events which neatly captured the grinding economic crisis that plagues Greece: Just as a light appeared at the end of the tunnel, the train broke down once again.

    In an interview last week, new Greek Economy and Development Minister Dimitri Papadimitriou said he was “very optimistic” the country had “turned the corner” addressing a crushing six-year public debt crisis that has left it wrangling with its fellow European Union members and the International Monetary Fund over bailouts, austerity and the best way to jump-start the economy....

    Read more: http://www.washingtontimes.com/news/2016/dec/16/greek-minister-sees-progress-despite-debt-drama/
  • In the Media | December 2016

    Papadimitriou: Goal for Greece to Participate in QE


    Bloomberg Radio, December 13, 2016. All Rights Reserved.

    Dimitri Papadimitriou, Greece’s new minister of economy and development, talks to Pimm Fox and Lisa Abramowicz about the outlook for the Greek economy, the IMF, and the EU. The minister spoke at Capital Link’s 18th Annual Invest in Greece Forum in NYC.

    Listen to the podcast here: https://www.bloomberg.com/news/audio/2016-12-13/papadimitriou-goal-for-greece-to-participate-in-qe  
  • In the Media | December 2016

    Papadimitriou on Greek Economy, 2017 Budget


    Bloomberg News, December 12, 2017. All Rights Reserved.

    Dimitri B. Papadimitriou, president of the Levy Institute and Minister of Economy and Development for Greece, talks to Bloomberg's Mike McKee about the country's 2017 budget plan, GDP growth forecast, and expectations for concluding its second bailout review later this month.

    Read more: http://www.bloomberg.com/news/videos/2016-12-12/papadimitriou-on-greek-economy-2017-budget 
  • In the Media | December 2016

    Give Greece Credit, Even Just for Treading Water


    By Mark Gilbert
    Bloomberg, December 6, 2016. All Rights Reserved.

    Here are two things I'll bet most people don't know about Greece. The country's just-appointed minister of economy and development, Dimitri Papadimitriou, was lured away from his position as head of the Levy Economics Institute at Bard College in America. He's not a member of the ruling Syriza party. And the man appointed secretary general for public revenue in January is Giorgos Pitsillis, a professional tax lawyer. He's not a party member either....

    Read more: https://www.bloomberg.com/view/articles/2016-12-06/greece-deserves-credit-for-its-reform-efforts
  • In the Media | November 2016

    IMF Indecision on Bailout Faulted by Greek Economy Minister


    By Marcus Bensasson
    Bloomberg, November 28, 2016. All Rights Reserved.
     
    The time has come for the International Monetary Fund to make up its mind on Greece, according to the country’s economy minister.

    The path to recovery runs sequentially through completion of Greece’s bailout review, debt relief and then admission to the European Central Bank’s quantitative easing program, said Dimitri Papadimitriou, an economist who joined the government this month after a career championing alternatives to the macroeconomics espoused by the IMF. Now, the Washington-based fund must decide whether the Greek recovery will happen with or without it, he said in an interview.

    Read more: http://www.bloombergquint.com/global-economics/2016/11/27/imf-indecision-on-bailout-criticized-by-greek-economy-minister
  • In the Media | November 2016

    Bard Professor Appointed Greece’s Minister of Economy and Development


    Daily Freeman, November 6, 2016. All Rights Reserved.

    Economist Dimitri B. Papadimitriou, president of the Levy Economics Institute of Bard College and executive vice president and Jerome Levy Professor of Economics at Bard College, was appointed Greece’s minister of economy and development....

    Read more: http://www.dailyfreeman.com/general-news/20161106/bard-professor-appointed-greeces-minister-of-economy-and-development
  • In the Media | November 2016

    Greek Prime Minister Reshuffles Cabinet to Boost Bailout Reforms


    The Guardian, November 6, 2016. All Rights Reserved.

    The Greek prime minister, Alexis Tsipras, has reshuffled his government to boost bailout reforms in the hope of getting the EU to agree to critical debt relief by the end of the year....

    Read more: https://www.theguardian.com/world/2016/nov/06/greek-prime-minister-tsipras-reshuffles-cabinet-to-boost-bailout-reforms
  • In the Media | November 2016

    Greek Cabinet Reshuffle Leaves Key Ministers in Place


    New Delhi Times, November 5, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras, beset by plummeting popularity and tough bailout talks, reshuffled his cabinet late Friday, retaining his ministers of finance and foreign affairs and enhancing the powers of his top official for immigration.

    U.S.-educated economics professor Dimitri Papadimitriou was appointed development minister, government spokeswoman Olga Gerovassili said....

    Read more: http://www.newdelhitimes.com/greek-cabinet-reshuffle-leaves-key-ministers-in-place123/
  • In the Media | November 2016

    Tsipras Chases Political Revival with Greek Cabinet Reshuffle


    By Marcus Bensasson, Nikos Chrysoloras, and Eleni Chrepa
    Chicago Tribune, November 5, 2016. All Rights Reserved.

    Greece's president swore in a new Cabinet after Prime Minister Alexis Tsipras sought to turn around his political fortunes and work toward better terms from creditors by naming new ministers.

    Tsipras appointed George Stathakis as energy minister late Friday, replacing Panos Skourletis, who repeatedly clashed with the country's creditors and investors such as mining company Eldorado Gold Corp. Skourletis was moved to the interior ministry, while Stathakis' replacement as economy minister was Dimitri Papadimitriou, president of the Levy Economics Institute at Bard College in New York. President Prokopis Pavlopoulos inaugurated the new cabinet in Athens on Saturday....

    Read more: http://www.chicagotribune.com/news/sns-wp-blm-greece-16ea3e96-a362-11e6-8864-6f892cad0865-20161105-story.html
  • In the Media | November 2016

    Greek PM Tsipras Reshapes Cabinet in Bid to Speed Up Reform


    By Renee Maltezou and Lefteris Papadimas
    Reuters, November 5, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras promised "brighter days" on Saturday after a cabinet reshuffle aimed at speeding up reforms Athens has agreed to implement under its latest international bailout deal and to shore up his government's popularity....

    Read more: http://www.reuters.com/article/us-eurozone-greece-reshuffle-idUSKBN12Z2NE
     
  • In the Media | November 2016

    Tsipras Chases Political Revival with Greek Cabinet Reshuffle


    By Marcus Bensasson, Nikos Chrysoloras, and Eleni Chrepa
    Bloomberg, November 4, 2016. All Rights Reserved.

    Greece’s president swore in a new cabinet after Prime Minister Alexis Tsipras sought to turn around his political fortunes and work toward better terms from creditors by naming new ministers.

    Tsipras appointed George Stathakis as energy minister late Friday, replacing Panos Skourletis, who repeatedly clashed with the country’s creditors and investors such as mining company Eldorado Gold Corp. Skourletis was moved to the interior ministry, while Stathakis’s replacement as economy minister was Dimitri Papadimitriou, president of the Levy Economics Institute at Bard College in New York. President Prokopis Pavlopoulos inaugurated the new cabinet in Athens on Saturday....

    Read more: http://www.bloomberg.com/news/articles/2016-11-04/tsipras-shakes-up-greek-cabinet-to-boost-support-ahead-of-review
  • In the Media | November 2016

    Greek Cabinet Reshuffle Leaves Key Ministers in Place


    Newsday, November 4, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras, beset by plummeting popularity and tough bailout talks, reshuffled his cabinet late Friday, retaining his ministers of finance and foreign affairs and enhancing the powers of his top official for immigration.

    U.S.-educated economics professor Dimitri Papadimitriou was appointed development minister, government spokeswoman Olga Gerovassili said.

    Papadimitriou, 70, is the president of the Levy Economics Institute of Bard College, New York. He replaces George Stathakis, who moved to the energy ministry....

    Read more: http://www.newsday.com/news/world/greek-cabinet-reshuffle-leaves-key-ministers-in-place-1.12562414
  • In the Media | November 2016

    Greek Cabinet Reshuffle Leaves Key Ministers in Place


    U.S. News & World Report, November 4, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras, beset by plummeting popularity and tough bailout talks, reshuffled his cabinet late Friday, retaining his ministers of finance and foreign affairs and enhancing the powers of his top official for immigration.

    U.S.-educated economics professor Dimitri Papadimitriou was appointed development minister, government spokeswoman Olga Gerovassili said.

    Papadimitriou, 70, is the president of the Levy Economics Institute of Bard College, New York. He replaces George Stathakis, who moved to the energy ministry....

    Read more: http://www.usnews.com/news/world/articles/2016-11-04/greek-cabinet-reshuffle-leaves-key-ministers-in-place
  • In the Media | November 2016

    Greek Cabinet Reshuffle Leaves Key Ministers in Place


    Miami Herald, November 4, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras, beset by plummeting popularity and tough bailout talks, reshuffled his cabinet late Friday, retaining his ministers of finance and foreign affairs and enhancing the powers of his top official for immigration.

    U.S.-educated economics professor Dimitri Papadimitriou was appointed development minister, government spokeswoman Olga Gerovassili said.

    Papadimitriou, 70, is the president of the Levy Economics Institute of Bard College, New York. He replaces George Stathakis, who moved to the energy ministry....

    Read more: http://www.miamiherald.com/news/business/article112603703.html
  • In the Media | November 2016

    Greek Cabinet Reshuffle Leaves Key Ministers in Place


    San Francisco Chronicle, November 4, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras, beset by plummeting popularity and tough bailout talks, reshuffled his cabinet late Friday, retaining his ministers of finance and foreign affairs and enhancing the powers of his top official for immigration.

    U.S.-educated economics professor Dimitri Papadimitriou was appointed development minister, government spokeswoman Olga Gerovassili said.

    Papadimitriou, 70, is the president of the Levy Economics Institute of Bard College, New York. He replaces George Stathakis, who moved to the energy ministry....

    Read more: http://www.sfchronicle.com/news/article/Greek-cabinet-reshuffle-leaves-key-ministers-in-10594178.php
  • In the Media | November 2016

    Greek Cabinet Reshuffle Leaves Key Ministers in Place


    ABC News, November 4, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras, beset by plummeting popularity and tough bailout talks, reshuffled his cabinet late Friday, retaining his ministers of finance and foreign affairs and enhancing the powers of his top official for immigration.

    U.S.-educated economics professor Dimitri Papadimitriou was appointed development minister, government spokeswoman Olga Gerovassili said.

    Papadimitriou, 70, is the president of the Levy Economics Institute of Bard College, New York. He replaces George Stathakis, who moved to the energy ministry....

    Read more: http://abcnews.go.com/Politics/wireStory/greek-cabinet-reshuffle-leaves-key-ministers-place-43312887
  • In the Media | November 2016

    Greek Cabinet Reshuffle Leaves Key Ministers in Place


    The Washington Post, November 4, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras, beset by plummeting popularity and tough bailout talks, reshuffled his cabinet late Friday, retaining his ministers of finance and foreign affairs and enhancing the powers of his top official for immigration.

    U.S.-educated economics professor Dimitri Papadimitriou was appointed development minister, government spokeswoman Olga Gerovassili said.

    Papadimitriou, 70, is the president of the Levy Economics Institute of Bard College, New York. He replaces George Stathakis, who moved to the energy ministry....

    Read more: https://www.washingtonpost.com/world/europe/greek-cabinet-reshuffle-leaves-key-ministers-in-place/2016/11/04/78b2bef8-a2ce-11e6-8864-6f892cad0865_story.html
  • In the Media | November 2016

    Greek Cabinet Reshuffle Leaves Key Ministers in Place


    The New York Times, November 4, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras, beset by plummeting popularity and tough bailout talks, reshuffled his cabinet late Friday, retaining his ministers of finance and foreign affairs and enhancing the powers of his top official for immigration.

    U.S.-educated economics professor Dimitri Papadimitriou was appointed development minister, government spokeswoman Olga Gerovassili said.

    Papadimitriou, 70, is the president of the Levy Economics Institute of Bard College, New York. He replaces George Stathakis, who moved to the energy ministry....

    Read more: http://www.nytimes.com/aponline/2016/11/04/world/europe/ap-eu-greece-cabinet-reshuffle.html?_r=0
  • In the Media | November 2016

    Greek Cabinet Reshuffle Leaves Key Ministers in Place


    Salon, November 4, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras, beset by plummeting popularity and tough bailout talks, reshuffled his cabinet late Friday, retaining his ministers of finance and foreign affairs and enhancing the powers of his top official for immigration.

    U.S.-educated economics professor Dimitri Papadimitriou was appointed development minister, government spokeswoman Olga Gerovassili said.

    Papadimitriou, 70, is the president of the Levy Economics Institute of Bard College, New York. He replaces George Stathakis, who moved to the energy ministry....

    Read more: http://www.salon.com/2016/11/04/greek-cabinet-reshuffle-leaves-key-ministers-in-place/

  • In the Media | November 2016

    PM Removes Some Who Opposed Reforms, Brings In New Faces


    Kathimerini, November 4, 2016. All Rights Reserved.

    Prime Minister Alexis Tsipras proceeded on Friday with a long-awaited government reshuffle, moving out some ministers who have opposed bailout reforms and bringing some new blood into the administration.

    Read more: http://www.ekathimerini.com/213441/article/ekathimerini/news/pm-removes-some-who-opposed-reforms-brings-in-new-faces
  • In the Media | November 2016

    Greek Prime Minister Reorders Cabinet


    By Nektaria Stamouli
    The Wall Street Journal, November 4, 2016. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras reshuffled his cabinet late Friday to speed up talks with Greece’s creditors and revive the morale of his ruling left-wing Syriza party after heavy setbacks....

    Read more: http://www.wsj.com/articles/greek-prime-minister-reorders-cabinet-1478295602
  • In the Media | September 2016

    Tsipras Defeat in Attica Battle Bolsters Bank of Greece Governor


    By Marcus Bensasson
    Bloomberg, September 21, 2016. All Rights Reserved.

    Advantage Yannis Stournaras.

    In the battle of wits between Greece’s central bank governor and Prime Minister Alexis Tsipras, the former seems to have won the latest round, giving him a leg up should he harbor any ambitions of a return to politics....

    Read more:
    http://www.bloomberg.com/news/articles/2016-09-21/tsipras-defeat-in-attica-battle-bolsters-bank-of-greece-governor  
  • In the Media | August 2016

    Imagining Economics in an Age of Stein, Clinton, Trump, or Johnson


    Manhattan Neighborhood Network, August 25, 2016. All Rights Reserved.

    "Radical Imagination" host Jim Vrettos talks to Senior Scholar L. Randall Wray about what the US economy might look like under a Stein, Clinton, Trump, or Johnson administration.

    Full video of the interview is available here.
  • In the Media | August 2016

    Hillary Clinton's Economic Dream Team


    By Jeff Spross
    The Week, August 22, 2016. All Rights Reserved.

    The election isn't here yet, but it's looking more and more likely Hillary Clinton will trounce Donald Trump in November. Speculation over who she might appoint as advisors and agency heads has already commenced. And like anyone else, I have got my own opinions about who Clinton should pick, particularly when it comes to the economics positions….

    Read more: http://theweek.com/articles/643874/hillary-clintons-economic-dream-team
     
  • In the Media | August 2016

    Tcherneva on Job Guarantee over a Basic Income


    RT America, August 20, 2016. All Rights Reserved.

    In this interview on "Boom Bust" Research Associate Pavlina R. Tcherneva advocates in favor of a public job guarantee program over universal basic income as a means of alleviating poverty and stabilizing the business cycle. (Interview begins at 15:00.) 

    Watch here:
    https://www.rt.com/shows/boom-bust/356572-louisiana-crisis-turkey-economy/ 
  • In the Media | August 2016

    Time for a US Job Guarantee?


    RT America TV, August 9, 2016. All Rights Reserved.

    Research Associate Pavlina R. Tcherneva appears on "Boom Bust" to discuss sluggish growth, labor markets, and her proposal for a job guarantee. 

    Watch here: https://www.youtube.com/watch?v=GvFliCk1osE#t=13m15s  
  • In the Media | July 2016

    Minsky's Moment


    The Economist, July 28, 2016. All Rights Reserved.

    From the start of his academic career in the 1950s until 1996, when he died, Hyman Minsky laboured in relative obscurity. His research about financial crises and their causes attracted a few devoted admirers but little mainstream attention: this newspaper cited him only once while he was alive, and it was but a brief mention. So it remained until 2007, when the subprime-mortgage crisis erupted in America. Suddenly, it seemed that everyone was turning to his writings as they tried to make sense of the mayhem....

    Read more: http://www.economist.com/news/economics-brief/21702740-second-article-our-series-seminal-economic-ideas-looks-hyman-minskys />
  • In the Media | July 2016

    Connecting the Dots: Debt, Savings and the Need for a Fiscal Growth Policy


    Andrea Terzi
    Public Debt Project, July 14, 2016. All Rights Reserved.

    Twice in the second half of the twentieth century, in the midst of a robust economy, economists optimistically talked about the taming and even “the death of the business cycle” based on the belief that advances in macroeconomics had reached a point of perfection. Yet, both times, the economy underwent serious turbulence and the policies that seemed to have “solved the problem” proved inadequate to the challenges presented by unexpected realities. In the 1970s, the “neo-classical synthesis,” with its faith in forecasting and macroeconomic “fine tuning,” succumbed to stagflation and a new theory, the Monetarist paradigm, came to prominence....

    Read more: http://privatedebtproject.org/view-articles.php?Connecting-the-Dots-Debt-Savings-and-the-Need-for-a-Fiscal-Growth-Policy-21
    Associated Program:
    Author(s):
  • In the Media | July 2016

    Keep Unemployment From Mushrooming With Preventative Policies


    Pavlina R. Tcherneva
    The New York Times, July 11, 2016. All Rights Reserved.

    Though job growth surged in June, by and large, this recovery has been the slowest in postwar history and 7.8 million people continue to look, unsuccessfully, for work.

    There is nothing inevitable or natural about jobless recoveries....

    Read more:
    http://www.nytimes.com/roomfordebate/2016/07/11/are-we-ready-for-the-next-recession/keep-unemployment-from-mushrooming-with-preventative-policies
     
  • In the Media | June 2016

    The Argument Against Basic Income


    Bloomberg, June 7, 2016. All Rights Reserved.

    Research Associate Pavlina R. Tcherneva argues against a universal basic income policy and in favor of a job guarantee in this interview with Bloomberg’s Joe Weisenthal. Click here for the video.
  • In the Media | May 2016

    Glut: Storing Oil at a Loss, Greece in Need of Money


    Boom Bust (RT), May 25, 2016. All Rights Reserved.

    Anti-austerity protests take hold in Belgium as tens of thousands take to the streets in opposition. And the Eurogroup meets to discuss the Greek bailout as tension builds between creditors. Ameera David reports....

    After the break, Ameera is joined by Levy Economics Institute research associate Marshall Auerback to discuss the situation concerning Greece’s Troika debt and austerity program.... Full video of the interview is available here (15:52).
  • In the Media | May 2016

    Can the US "Print Money" to Pay Down the National Debt?


    Bloomberg, May 12, 2015. All Rights Reserved.

    Senior Scholar L. Randall Wray discusses the US national debt and inflation with Bloomberg’s Joe Weisenthal on “What’d You Miss?” 

    Full video of the interview is available here.
  • In the Media | May 2016

    Trump Is Now Running to the Left of Sanders on Federal Debt


    By Michelle Jamrisko
    Bloomberg, May 11, 2016. All Rights Reserved.

    Donald Trump’s about-face on the relevance of a ballooning U.S. debt continues his campaign’s hallmark of zigging and zagging on policy issues, landing him now on economic proposals favored by economists to the left of Bernie Sanders.

    The billionaire businessman has advocated for the federal government to take advantage of cheap interest rates by boosting spending on initiatives such as rebuilding infrastructure -- a position shared by traditional Keynesian economists and skewered by budget hawks who say his numbers won’t add up. Now, Trump’s post-Keynesian approach is throwing out budget balancing, and declaring American immunity to a default....

    Read more: http://www.bloomberg.com/politics/articles/2016-05-11/trump-is-now-running-to-the-left-of-sanders-on-federal-debt  
  • In the Media | May 2016

    Book Review: Why Minsky Matters


    Reviewed by William J. Bernstein
    Seeking Alpha, May 5, 2016. All Rights Reserved.

    A few decades ago, Paul Samuelson wrote a letter to Robert Shiller and John Campbell, in which he discussed the notion that while the stock market was “micro efficient,” it was also “macro inefficient,” by which he meant that although profitable security choices were swiftly arbitraged away, the stock market as a whole irrationally swung between extremes of valuation.

    Hyman Minsky would have made a similar point about the economy: While it is highly efficient, it is also unstable….

    Read more: http://seekingalpha.com/article/3971589-book-review-minsky-matters 
  • In the Media | May 2016

    Levy Economics: 90% of Americans Worse Off Today Than in 1970s


    By Gary D. Halbert
    ValueWalk, May 3, 2016. All Rights Reserved.

    Today we will focus on a recent study from the Levy Economics Institute which found that 90% of Americans were worse off financially in 2015 than at any time since the early 1970s. Furthermore, for the vast majority of Americans, the nation’s economy is in a prolonged period of stagnation, worse even than that of Japan.

    So are we really worse off today than Japan? This latest study concludes that the answer isYES, when it comes to real income – that is, income adjusted for inflation. According to their findings, 90% of Americans earn roughly the same real income today as the average American earned back in the early 1970s. It’s an eye-opening look at how the vast majority of Americans are struggling to make ends meet....

    Read more: http://www.valuewalk.com/2016/05/americans-worse-off/
     
  • In the Media | April 2016

    Trump Says American Dream Is Dead; Is He Right?


    By Dora Mekouar
    Voice of America, April 25, 2016. All Rights Reserved.

    Donald Trump has famously declared that the American Dream is dead, but the majority of middle class Americans seem to disagree with the Republican presidential frontrunner.

    Sixty-three percent of people surveyed earlier this year believe they are living the American Dream. That finding suggests American optimism hasn’t been a casualty of the recession, despite a report that says 90 percent of Americans are worse off today than they were in the 1970s....

    Read more: http://blogs.voanews.com/all-about-america/2016/04/25/trump-says-american-dream-is-dead-is-he-right/ 
  • In the Media | April 2016

    How Regulators Mess With Bankers’ Minds, and Why That’s Good


    By Peter Eavis
    The New York Times, April 14, 2016. All Rights Reserved.

    Bank regulators on Wednesday sent a message that big banks are still too big and too complex. They rejected special plans, called living wills, that the banks have to submit to show they can go through an orderly bankruptcy.

    The thinking behind the regulators’ call for living wills is that if a large bank crash is orderly, there will be no need to save it and no need for taxpayer bailouts....

    Read more:
    http://www.nytimes.com/2016/04/15/upshot/how-regulators-mess-with-bankers-minds-and-why-thats-good.html  
  • In the Media | April 2016

    EZB/Constancio: Instrument der Negativzinsen hat Grenzen


    Von Tom Fairless
    Finanz Nachrichten, 14 April 2016. Alle Rechte vorbehalten.

    Für das Instrument der negativen Zinsen gibt es nach Aussage des EZB-Vizepräsidenten Vitor Constancio "klare Grenzen". Die Schwelle, an der die Leute anfangen, Geld abzuziehen, um die Negativzinsen zu umgehen, scheine aber noch weit weg zu sein, sagte Constancio in einer Rede beim Bard College in New York....

    Weiterlesen: http://www.finanznachrichten.de/nachrichten-2016-04/37060417-ezb-constancio-instrument-der-negativzinsen-hat-grenzen-015.htm
  • In the Media | April 2016

    Speech Vítor Constâncio: International Headwinds and the Effectiveness of Monetary Policy


    Foreign Affairs, April 14, 2016. All Rights Reserved.

    Speech by Vítor Constâncio, Vice-President of the ECB, at the 25th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies at the Levy Economics Institute of Bard College, Blithewood, Annandale-on-Hudson, New York, 13 April 2016 

    Ladies and Gentlemen,

    I want to start by thanking the Levy Institute for inviting me again to address this important conference honouring Hyman Minsky, the economist that the Great Recession justifiably brought into the limelight. His work provides crucial insights not only identifying the key mechanisms by which periods of financial calm sow the seeds for ensuing crises, but also the specific challenges that economies face in recovering from such crises....

    Read more: http://foreignaffairs.co.nz/2016/04/14/speech-vitor-constancio-international-headwinds-and-the-effectiveness-of-monetary-policy/
  • In the Media | April 2016

    ECB's Constancio Says Negative-Rate Policy Has "Clear Limits"


    By Alessandro Speciale and Matthew Boesler
    The Washington Post, April 14, 2016. All Rights Reserved.

    European Central Bank Vice President Vitor Constancio on Wednesday said there was only so much that negative interest rates can do to boost the economy and defended the central bank’s strategy as positive for the euro area as a whole.

    It is “important to recall that there are clear limits to the use of negative deposit facility rates as a policy instrument,” he said in a speech at the Levy Economics Institute of Bard College in New York state. “Tier systems that simply pass direct costs at the margin can mitigate this concern but cannot dispel it altogether.” ...

    Read more: http://washpost.bloomberg.com/Story?docId=1376-O5LE8T6TTDS101-597LUN1M75BN1J81FK32I14G7R
  • In the Media | April 2016

    Negative Rates Not Needed in US for Now—ECB's Constancio


    By Richard Leong
    Reuters, April 14, 2016. All Rights Reserved.

    Negative deposit rates are not required as a monetary fix for the United States at the moment, in contrast with the euro zone, which is struggling with deflation risk, a top European Central Bank official said on Wednesday.

    The U.S. economy, while far from robust, has been growing at a steady pace, and has seen some improvement in price growth since hitting a post-crisis low earlier this year.

    Read more: http://uk.reuters.com/article/uk-ecb-policy-constancio-negativerates-idUKKCN0XA2Q4
  • In the Media | April 2016

    AMB/Constancio: Negatif faiz politikasının limitleri var


    Bloomberg, 14 Nisan 2016. Her Hakkı Saklıdır.

    Avrupa Merkez Bankası (AMB) Başkan Yardımcısı Vitor Constancio Çarşamba günü yaptığı açıklamada, negatif faiz oranının ekonomiyi destekleme konusunda yapabileceklerinin sınırlı olduğunu söyleyerek AMB'nin stratejisinin euro bölgesinin tamamı için olumlu olduğunu söyledi.

    Constancio, New York eyaletinde Bard College'de Levy Economics Institute'de yaptığı konuşmada, "Negatif mevduat faiz oranını bir politika aracı olarak kullanmanın açık sınıları olduğunu hatırlamak önemli, kademeli faiz sistemi bu endişeyi azaltabilir ama tamamen yok edemez" dedi....

    Daha fazla oku: http://www.bloomberght.com/haberler/haber/1872569-ambconstancio-negatif-faiz-politikasinin-limitleri-var
  • In the Media | April 2016

    Negative Rates Not Needed in US for Now—ECB's Constancio


    By Richard Leong
    Yahoo! Finance, April 13, 2016. All Rights Reserved.

    Negative deposit rates are not required as a monetary fix for the United States at the moment, in contrast with the euro zone, which is struggling with deflation risk, a top European Central Bank official said on Wednesday.

    Read more: http://finance.yahoo.com/news/negative-rates-not-needed-u-225239865.html
  • In the Media | April 2016

    Update 1—Negative Rates Not Needed in US for Now—ECB's Constancio


    By Richard Leong
    Reuters, April 13, 2016. All Rights Reserved.

    Negative deposit rates are not required as a monetary fix for the United States at the moment, in contrast with the euro zone, which is struggling with deflation risk, a top European Central Bank official said on Wednesday.

    The U.S. economy, while far from robust, has been growing at a steady pace, and has seen some improvement in price growth since hitting a post-crisis low earlier this year....

    Read more: http://www.reuters.com/article/ecb-policy-constancio-negativerates-idUSL2N17G2GK
  • In the Media | April 2016

    EZB-Vizepräsident: Negativzinsen sind kein Allheilmittel!


    Finanzen 100, 13 April 2016. Alle Rechte vorbehalten.

    Die vielumstrittenen Negativzinsen der EZB haben klare Grenzen der Wirksamkeit. Obwohl der EZB-Vizepräsident Vítor Constâncio die Strategie der Notenbank am Mittwochabend als positiv für die Eurozone verteidigt hat, gab er zu, dass negative Zinsen die Konjunktur nur beschränkt ankurbeln können....

    Weiterlesen: http://www.finanzen100.de/finanznachrichten/wirtschaft/geldpolitik-ezb-vizepraesident-negativzinsen-sind-kein-allheilmittel_H609679858_263944/
  • In the Media | April 2016

    ECB's Constancio Says Negative-Rate Policy Has "Clear Limits"


    By Alessandro Speciale and Matthew Boesler
    Bloomberg, April 13, 2016. All Rights Reserved.

    European Central Bank Vice President Vitor Constancio on Wednesday said there was only so much that negative interest rates can do to boost the economy and defended the central bank’s strategy as positive for the euro area as a whole.

    It is “important to recall that there are clear limits to the use of negative deposit facility rates as a policy instrument,” he said in a speech at the Levy Economics Institute of Bard College in New York state. “Tier systems that simply pass direct costs at the margin can mitigate this concern but cannot dispel it altogether.” ...

    Read more: http://www.bloomberg.com/news/articles/2016-04-13/ecb-s-constancio-says-negative-rate-policy-has-clear-limits
  • In the Media | April 2016

    Negative Rates Not Needed in US for Now: ECB's Constancio


    By Richard Leong
    The Fiscal Times, April 13, 2016. All Rights Reserved.

    Negative deposit rates are not required as a monetary fix for the United States at the moment, in contrast with the euro zone, which is struggling with deflation risk, a top European Central Bank official said on Wednesday....

    Read more: http://www.thefiscaltimes.com/latestnews/2016/04/13/Negative-rates-not-needed-US-now-ECBs-Constancio
  • In the Media | March 2016

    Ignored for Years, a Radical Economic Theory Is Gaining Converts


    In an American election season that’s turned into a bonfire of the orthodoxies, one taboo survives pretty much intact: Budget deficits are dangerous.

    A school of dissident economists wants to toss that one onto the flames, too....

    Read more:
    http://www.bloomberg.com/news/articles/2016-03-13/ignored-for-years-a-radical-economic-theory-is-gaining-converts
     
  • In the Media | February 2016

    European Disunion: EU Negotiates UK on #Brexitb


    Reuters, February 19, 2016. All Rights Reserved.

    All eyes are on Brussels as European leaders converge for meetings that could ultimately redefine the region, and the Organization for Economic Cooperation and Development has lowered its global economic forecast. Ameera David weighs in and then sits down with Marshall Auerback—research associate at the Levy Economics Institute—to continue the discussion on Europe….

    Interview begins at 4:45: https://www.rt.com/shows/boom-bust/332954-european-disunion-eu-negotiations/

  • In the Media | January 2016

    The Fed Puts Rates on Ice


    By Sheyna Steiner
    Federal Reserve Blog, January 27, 2016. All Rights Reserved.

    After raising interest rates in December for the first time since the financial crisis and Great Recession, the Federal Reserve has gone into a January freeze. The central bank on Wednesday announced no change in interest rates, meaning the target for the Fed's benchmark federal funds rate will remain between 0.25% and 0.50%, the range set last month.

    For consumers, the outcome of this week's meeting means more of the same. Savers will continue to suffer low interest rates on savings while debtors continue to enjoy extremely low borrowing costs....

    Read more: http://www.bankrate.com/financing/federal-reserve/the-fed-puts-rates-on-ice/
  • In the Media | January 2016

    Why Minsky Matters: An Introduction to the Work of a Maverick Economist (a Review)


    By William J. Bernstein
    CFA Institute, January 20, 2016. All Rights Reserved.

    A few decades ago, Paul Samuelson wrote a letter to Robert Shiller and John Campbell in which he discussed the notion that while the stock market was “micro efficient,” it was also “macro inefficient,” by which he meant that although profitable security choices were swiftly arbitraged away, the stock market as a whole irrationally swung between extremes of valuation.

    Hyman Minsky would have made a similar point about the economy: While it is highly efficient, it is also unstable....

    Read more: http://www.cfapubs.org/doi/full/10.2469/br.v11.n1.2
  • In the Media | December 2015

    The Enduring Relevance of “Manias, Panics, and Crashes”


    By Joseph P. Joyce
    EconoMonitor, December 14, 2015. All Rights Reserved.

    The seventh edition of Manias, Panics, and Crashes has recently been published by Palgrave Macmillan. Charles Kindleberger of MIT wrote the first edition, which appeared in 1978, and followed it with three more editions. Robert Aliber of the Booth School of Business at the University of Chicago took over the editing and rewriting of the fifth edition, which came out in 2005. (Aliber is also the author of another well-known book on international finance, The New International Money Game.) The continuing popularity of Manias, Panics and Crashes shows that financial crises continue to be a matter of widespread concern.

    Kindleberger built upon the work of Hyman Minsky, a faculty member at Washington University in St. Louis. Minsky was a proponent of what he called the “financial instability hypothesis,” which posited that financial markets are inherently unstable. Periods of financial booms are followed by busts, and governmental intervention can delay but not eliminate crises. Minsky’s work received a great deal of attention during the global financial crisis (see here and here; for a summary of Minsky’s work, see Why Minsky Matters by L. Randall Wray of the University of Missouri-Kansas City and the Levy Economics Institute)….

    Read more: http://www.economonitor.com/blog/2015/12/the-enduring-relevance-of-manias-panics-and-crashes/
  • In the Media | December 2015

    Auerback on ISIS Funding and ECB Negative Rates


    RT, December 4, 2015. All Rights Reserved.

    Edward Harrison sits down with Research Associate Marshall Auerback to talk about Europe in this broadcast interview (04:17): https://www.rt.com/shows/boom-bust/324713-auerback-isis-funding-turkey/
  • In the Media | November 2015

    Review: Another "Minsky Moment" May Be on the Way


    By Edward Chancellor
    Reuters, November 27, 2015. All Rights Reserved.

    Forget the living canon of great economists – Paul Krugman, Joe Stiglitz, Larry Summers and the rest. Hyman Minsky was the only contemporary thinker to have predicted with uncanny precision the global financial crisis. This is no small achievement since Minsky died more than a decade before Lehman Brothers filed for bankruptcy. Minsky’s unorthodox vision of capitalism, with its emphasis on the central role of finance and the system’s inherent tendency to crash, was vindicated by the subprime crisis.

    In a new book, “Why Minsky Matters: An Introduction to the Work of a Maverick Economist,” L. Randall Wray suggests that he would have approved of policymakers’ initial response to the crisis precipitated by Lehman’s collapse in the fall of 2008. However, by now, Minsky would be fretting that another “Minsky moment” is not far away and pondering what lies ahead....

    Read more: http://blogs.reuters.com/breakingviews/2015/11/27/review-another-minsky-moment-may-be-on-the-way/ 
  • In the Media | November 2015

    Want More—and Better—Jobs? Put Women in Charge


    By Tamar Khitarishvili
    Voices from Eurasia, November 24, 2015. All Rights Reserved.

    I was recently in Tbilisi to participate in a conference that took stock of what we know about the challenges of job creation in the South Caucasus and Western CIS. While researching gender inequalities in labour markets of these countries, I searched for evidence on how the challenge of job creation can be overcome without perpetuating gender inequalities in the region, and preferably, by reducing them....

    Read more: http://europeandcis.undp.org/blog/2015/11/24/want-more-and-better-jobs-put-women-in-charge/
    Associated Program:
    Author(s):
  • In the Media | November 2015

    Greek Banks Ask Investors to Take Uncertain Leap of Faith


    By Nikos Chrysoloras and Christos Ziotis
    Bloomberg, November 13, 2015. All Rights Reserved.

    The National Bank of Greece SA and Eurobank Ergasias SA joined Piraeus Bank SA and Alpha Bank AE on Thursday in starting book-building processes as they seek to fill part of 14.4 billion-euro ($15.5 billion) hole in their accounts identified by the European Central Bank. The state-owned Hellenic Financial Stability Fund will contribute the rest from loans from Greece’s latest bailout, but not before imposing mandatory losses or "burden sharing” on shareholders and creditors of the banks....

    Read more: http://www.bloomberg.com/news/articles/2015-11-13/greek-banks-ask-investors-to-take-leap-of-faith-amid-uncertainty
  • In the Media | November 2015

    Recapitalization of Battered Greek Banks Entering Critical Phase, New Levy Economics Institute Report Says


    Investorideas.com, November 12, 2015. All Rights Reserved.

    The battered Greek banks will soon face yet another round of recapitalization this November and December. For the banks to have any prospect of returning to their precrisis role as liquidity providers to the Greek economy, it is imperative that the country’s EU creditors and supervisors avoid the pitfalls of previous recapitalizations, argues a new report from the Levy Economics Institute of Bard College. In their Policy Note What Should Be Done with Greek Banks to Help the Country Return to a Path of Growth? Emilios Avgouleas, professor and chair of international banking law and finance at the University of Edinburgh School of Law, and Levy Institute President Dimitri B. Papadimitriou stress that the recapitalization of Greek banks—perhaps the central issue for the Greek state today—has entered its most critical stage.... 

    Read more: http://www.investorideas.com/news/2015/main/11123.asp
  • In the Media | October 2015

    2015’s Most & Least Recession-Recovered Cities


    By Richie Bernardo
    WalletHub, October 12, 2015. All Rights Reserved.

    For many Americans today, the Great Recession is nothing more than the distant shadow of a troubled economic past. The longest downturn since the Great Depression officially ended six years ago. Cities coast to coast have completely bounced back — some even surpassing their pre-recession economic levels, thanks to lucrative industries that helped them rebuild or stay afloat through the crisis.

    Yet the effects of the recession still reverberate in various parts of the U.S., falling deeper into debt and leaving millions of Americans wondering whether the recession has indeed blown over. ...

    Read more: https://wallethub.com/edu/most-least-recession-recovered-cities/5219/#pavlina-r-tcherneva 
  • In the Media | September 2015

    Is It Time for a New New Deal?


    By James M. Larkin and Zach Goldhammer
    The Nation, September 30, 2015. All Rights Reserved.

    To close out our series on work, produced in partnership with Open Source with Christopher Lydon and The Nation, we’re looking ahead to the big proposals and spiritual realignments that might spell a major change for working- and middle-class people who feel as though the recession never ended.

    For proof of the problems we face, look no further than this chart, produced by one of our big thinkers this week, the Bulgarian-American economist Pavlina Tcherneva….

    Read more: http://www.thenation.com/article/is-it-time-for-a-new-new-deal/
  • In the Media | September 2015

    Kregel: "Do nothing about vulture funds; let the case sit there"


    By Fermin Koop
    Buenos Aires Herald, September 27, 2015. All Rights Reserved.

    Jan Kregel, one of the world’s most eminent Post-Keynesian economists specialized in financial crises and structural problems of developing economies, has written several papers on Argentina’s economy after the 2001–2002 economic meltdown. The director of research at the Levy Economics Institute at Bard College in upstate New York, Kregel served as rapporteur of the president of the UN General Assembly’s Commission on Reform of the International Financial System.

    In Buenos Aires for a conference, Kregel met with the Herald and discussed the country’s economy, highlighting that the currency is in desperate need of a devaluation. At the same time, he said the country shouldn’t take action regarding the “vulture” funds, which he linked to late special AMIA prosecutor Alberto Nisman....

    Read more: http://www.buenosairesherald.com/article/199670/kregel-‘do-nothing-about-vulture-funds-let-the-case-sit-there’
  • In the Media | September 2015

    Jan Kregel: “Lo importante es generar empleo”


    Página|12, 26 Septiembre 2015. Reservados todos los derechos.

    “No se puede mirar el crecimiento económico sin empleo. Si se va a desarrollar la economía, no importa la tasa de inversión o de crecimiento si no se genera empleo”, destacó el prestigioso economista estadounidense Jan Kregel, durante su intervención en el Congreso sobre Pensamiento Económico Latinoamericano. El investigador poskeynesiano compartió el panel junto con el especialista francés Pascal Petit, quien advirtió que hacia fin de año habrá 19 millones de desempleados en la Eurozona, unos siete millones más que durante 2008....

    Lee más: http://www.pagina12.com.ar/diario/economia/2-282499-2015-09-26.html
  • In the Media | September 2015

    Alexis Tsipras and Greece Are Still Trapped


    By John Cassidy
    The New Yorker, September 21, 2015. All Rights Reserved.

    How long will the smile on the face of Alexis Tsipras last? On Monday night, Tsipras was sworn in as the head of a new Greek government that looks very similar to the previous one. The left-wing Syriza party is again forming a coalition with a small nationalist party, Independent Greeks; together, the two parties will have a small majority in parliament….

    Read more: http://www.newyorker.com/news/john-cassidy/alexis-tsipras-and-greece-are-still-trapped
  • In the Media | August 2015

    Papadimitriou on Latest from Greece


    Bloomberg Radio, August 20, 2015. All Rights Reserved.

    Levy Institute President Dimitri B. Papadimitriou talks to Bloomberg's Michael McKee and Kathleen Hays about the resignation of Greek PM Alex Tsipras, public reaction to the latest bailout package, and the forthcoming snap elections. 

    Podcast: http://media.bloomberg.com/bb/avfile/v8Dhep9k7w6o.mp3
  • In the Media | July 2015

    Nine People Who Saw the Greek Crisis Coming Years Before Everyone Else Did


    By Julie Verhage and Alex Balogh
    Bloomberg Business, July 15, 2015. All Rights Reserved.

    Although the problems in Greece didn't begin making big headlines until 2009, a number of economists, politicians and professors spotted cracks in the European currency union as early as the 1990s. Among the nine listed here? Levy Institute scholars Wynne Godley, L. Randall Wray, Stephanie A. Kelton, and Mathew Forstater. 

    Read more: http://www.bloomberg.com/news/articles/2015-07-15/nine-people-who-saw-the-greek-crisis-coming-years-before-everyone-else-did
  • In the Media | July 2015

    Episode 75: Your Greece Bailout Explainer and the Coming Healthcare Revolution


    The American Prospect, July 14, 2015. All Rights Reserved.

    Good evening, podcast listeners! We’ve got a great episode for you this week as Richard Aldous speaks with his Bard colleague Pavlina Tcherneva about the recently announced deal with Greece before discussing the promise of disruptive new healthcare technologies with Philip Auerswald....

    Full audio of the interview is available here.

     


  • In the Media | July 2015

    Antonopoulos: Greece “Back in Serious Recession” despite Rescue


    By Robert Peston
    BBC News, July 13, 2015. All Rights Reserved.

    Greece's economy will contract a further 3%, Athens minister Rania Antonopoulos has told me in a BBC interview.

    The alternate minister for combating unemployment, who was a professional economist, said that the combination of the closure of the banks and austerity measures being forced on the country by eurozone and IMF creditors will tip Greece back into serious recession.... 

    Full video of the interview is available here.
  • In the Media | July 2015

    Greece Is Committed to Staying in Euro Zone: Antonopoulos


    Bloomberg Business, July 10, 2015. All Rights Reserved.

    Ahead of Greek PM Alex Tsipras's meeting with eurozone finance ministers on July 11, Syriza MP and Levy Institute economist Rania Antonopoulos expressed confidence that a "mutually beneficial" agreement between Greece and its creditors would be put in place within the week, and stated that the government's commitment to remaining in the eurozone "is as strong as ever."

    Full video of the interview is available here.
  • In the Media | July 2015

    Levy's Papadimitriou on Narrowing Options for Greece


    Bloomberg Radio, July 8, 2015. All Rights Reserved.

    Dimitri Papadimitriou talks to Kathleen Hays about anti-left sentiment in the eurozone, the possibility of a Grexit, and Greece's strategic value, as the deadline for submitting a new reform proposal to its creditors approaches.

    Full audio of the interview is available here.
  • In the Media | July 2015

    Negotiations between the Greek and European Finance Ministers Go Nowhere


    Background Briefing with Ian Masters, July 7, 2015. All Rights Reserved.

    From Athens, Greece, Levy President Dimitri B. Papadimitriou provides an update on emergency negotiations between the new Greek finance minister and his European counterparts, amid warnings by German Chancellor Angela Merkel that “it is no longer about weeks, but a matter of days” before time runs out on striking a deal.

    Listen to the complete interview here: 
    http://ianmasters.com/sites/default/files/bbriefing_2015_07_07c_dimitri%20papadimitrou.mp3  
  • In the Media | July 2015

    Greece Defaults on IMF


    RT, July 2, 2015. All Rights Reserved.

    Research Associate Pavlina R. Tcherneva outlines the conditions that would encourage Greece to accept a bailout offer and provides her take on the government’s debt reconstruction deal.

    Video of the interview is available here (3:35):  http://rt.com/shows/boom-bust/271168-greece-defaults-imf-creditors/  
  • In the Media | June 2015

    Bard’s Papadimitriou on Outcomes of Greece Debt Crisis


    Bloomberg Radio, June 29, 2015. All Rights Reserved.

    Papadimitriou provides a picture of what it’s like on the ground in Athens, where the prevailing mood is defined by “negotiation fatigue” and anxiety about the end of the bailout agreement on June 30. Greece is being asked to do the impossible, says Papadimitriou: to impose extra austerity measures to maintain a primary surplus—a prescription even the IMF concedes just doesn’t work. The solution, he says, is to roll over Greek debt and put austerity policies aside. “We’re talking about simple economics here, not ideology.”

    The full interview is available here (01:25): http://media.bloomberg.com/bb/avfile/Markets/Analyst_Calls/vXNvCeDOi46M.mp3
  • In the Media | June 2015

    La crisi negli USA: Il punto di vista di Jan Kregel


    Economia, June 23, 2015. All Rights Reserved.

    All'interno del quadro economico internazionale, Jan Kregel, direttore del programma “Politica Monetaria” presso il Levy Economic Institute negli USA, analizza qual è stato il ruolo degli Stati Uniti all'interno della crisi economica. Uno degli elementi che viene messo maggiormente in evidenza, è l' importanza data al settore finanziario, rispetto all'economia reale: ciò ha portando ad una minore attenzione a problemi come la disoccupazione, che rappresenta ancora una delle questioni irrisolte dell'Europa, ma soprattutto dell'Italia. 

    Una volta che la crisi economica è scoppiata negli Usa, si è diffusa a macchia d'olio specie nel continente europeo, dove la forbice presente tra europa meridionale e settentrionale, si è notevolmente ampliata.   A tale ritratto, Kregel, aggiunge anche un'attenta le politiche economiche messe in atto da Cina e Giappone e dalle loro ripercussioni sul sistema economico mondiale.

    intervista videoregistrata:
    http://www.economia.rai.it/articoli/la-crisi-negli-usa-il-punto-di-vista-di-jan-kregel/30575/default.aspx
    Associated Program:
    Author(s):
    Jan Kregel
  • In the Media | June 2015

    What Is Reform? The Strange Case of Greece and Europe


    By James K. Galbraith
    The American Prospect, June 12, 2015. All Rights Reserved.

    On our way back from Berlin on Tuesday, Greek Finance Minister Yanis Varoufakis remarked to me that current usage of the word “reform” has its origins in the middle period of the Soviet Union, notably under Khrushchev, when modernizing academics sought to introduce elements of decentralization and market process into a sclerotic planning system. In those years when the American struggle was for rights and some young Europeans still dreamed of revolution, “reform” was not much used in the West. Today, in an odd twist of convergence, it has become the watchword of the ruling class....

    Read more: http://prospect.org/article/what-reform-strange-case-greece-and-europe
  • In the Media | June 2015

    Idealogues Are Crippling Recovery and Undermining an Otherwise Healthy Economy


    Background Briefing, June 11, 2015. All Rights Reserved.

    Levy President Dimitri B. Papadimitriou and Ian Masters discuss the Institute’s latest Strategic Analysis of the US economy, and how destructive political ideology is crippling recovery and undermining an otherwise healthy economy. Full audio of the interview is available here.
  • In the Media | June 2015

    Time to End Europe’s Disgrace of Holding Greek People Hostage


    Jörg Bibow
    The Conversation, June 10, 2015. All Rights Reserved.

    It was never going to be easy. That much was known from the outset.

    Greece’s newly elected government and the country’s creditors started from too far apart to quickly settle on anything that would be easily sellable to their respective constituencies....

    Read more: https://theconversation.com/time-to-end-europes-disgrace-of-holding-greek-people-hostage-42939
    Associated Program:
    Author(s):
  • In the Media | June 2015

    Papadimitriou: "Los fondos buitre deben ser abolidos del sistema"


    Genaro Grasso
    Tiempo, 07 de Junio de 2015. Todos los derechos reservados.

    El economista griego señala que los especuladores deberían estar regulados de la misma manera que las entidades financieras, tanto en forma global como a nivel país.

    Apunta contra los efectos de la globalización en tanto ha sido el canal de difusión de una nueva ola de determinismo neoliberal, en los países en desarrollo y también en los desarrollados....

    Leer más:
    http://tiempo.infonews.com/nota/154525/los-fondos-buitre-deben-ser-abolidos-del-sistema
  • In the Media | May 2015

    Railing Against Bailing


    Congress Launches New Attacks on America's Central Bank
    The Economist, May 16, 2015. All Rights Reserved.

    During a financial panic, said Walter Bagehot, a former editor of The Economist, a central bank should help the deserving and let the reckless go under. Bagehot reckoned that the monetary guardians should follow fourrules: lend freely, but only to solvent firms, against good collateral and at high rates. Many American politicians complain that the Federal Reserve is all too happy to lend, but that it ignores Bagehot's other dictums. On May 13th two senators of very different hues—Elizabeth Warren, a darling of the left, and David Vitter, a southern conservative—joined forces to introduce a bill that would restrict the Fed's ability to lend during the next financial panic. Does that make sense?

    Emergency lending under Section 13(3) of the Federal Reserve Act was one of the most controversial policy responses to the financial crisis. In a letter to Janet Yellen, the chair of the Fed, Ms Warren and Mr Vitter say that from 2007 to 2009 the Fed provided over $13 trillion to support financial institutions. The loans were cheap. A study from 2013 by the Levy Institute, a nonpartisan think-tank, found that many of them were "below or at the market rates" (sometimes less than 1%). Many of the banks that benefited were insolvent at the time. And much of the $13 trillion went to just three banks (Citigroup, Merrill Lynch and Morgan Stanley), leading many to suspect that the Fed was indulging favoured firms.

    Critics focus on details but miss the big picture, counters the Fed. Elizabeth Duke, a former governor, says that the Fed targeted its lending programmes at the right markets, such that it helped to stop the crisis from getting even worse. Jerome Powell, a current governor, points out that "every single loan we made was repaid in full,on time, with interest."

    But whether the Fed should be able to offert his kind of financial support at all is a different question. Choosing certain firms or markets to receive credit over others is inherently problematic, says a recent paper from the Federal Reserve Bank of Richmond. The prospect of easy money encourages firms to take excessive risks. And according to a paper by Alexander Mehra, then of Harvard Law School, the Fed "exceeded the bounds of its statutory authority" when it bought privately issued securities as well as making loans.

    The Dodd-Frank Act, passed in 2010, was supposed to ensure that the Fed never again made such large, open-ended commitments. Congress told the Fed's board to ensure that emergency lending propped up the financial system as a whole, not individual firms. However, say Ms Warren and Mr Vitter, the Fed has not implemented the new rules in the spirit of the law. The new bill proposes a number of Bagehot-like changes: to toughen up the definition of insolvency, such that the Fed lends only to viable firms; to offer any lending programme to many different institutions; and to ensure that when the Fed does lend, it charges punitive rates.

    This battle is not the only one the Fed faces. On May 12th Richard Shelby, a Republican senator and chair of the Senate Banking Committee, introduced his own bill, which he hopes will rein in the Fed's powers in different ways. It would increase the threshold at which a financial institution became "systemically important" (and thus subject to tougher regulatory scrutiny) from assets of $50 billion to $500 billion. Mr Shelby also wants to shake up the structure of the Federal Reserve System, including changing how the president of the New York Fed, which oversees big banks, is appointed. They may have different complaints, but lots of America's lawmakers agree that the Fed must change.

    From the print edition: Finance and economics
  • In the Media | May 2015

    Will Greece Get Through This Coming Week's Crisis?


    Background Briefing, May 10, 2015. All Rights Reserved.

    From Athens, Levy Institute President Dimitri B. Papadimitriou updates Ian Masters on the financial crisis as Greece teeters on the brink of default, with an $840 million payment to the IMF looming and fears that there is no credible plan to reach an agreement with the country’s eurozone creditors.

    Full audio of the interview is available here.
  • In the Media | April 2015

    Wall Street Watchdogs Should Prevent Crises, Not Build Buffers


    By Pedro Nicolaci da Costa
    The Wall Street Journal, April 22, 2015. All Rights Reserved.

    The effort by financial regulators to ensure big banks and other financial institutions have adequate levels of capital is misguided since that will only help lessen the impact of a crisis, not prevent one.

    That’s the conclusion of Eric Tymoigne, an economist at Lewis & Clark Collegein a presentation last week at the Levy Economics Institute‘s 24th Minsky Conference.

    Read more:
    http://blogs.wsj.com/economics/2015/04/22/wall-street-watchdogs-should-prevent-crises-not-build-buffers/  
  • In the Media | April 2015

    Elizabeth Warren: “The Unfinished Business of Financial Reform”


    Moyers & Company, April 18, 2015. All Rights Reserved.

    Last Wednesday, Senator Elizabeth Warren delivered this speech at a conference at the Levy Institute in Washington which lays out the banking reform she believes still needs to happen.  The Nation’s George Zornick called it “a blueprint for how Warren thinks Democrats should attack continued financial reform.”

    Read more: http://billmoyers.com/2015/04/18/elizabeth-warren-speech/
  • In the Media | April 2015

    Paul Tucker Warns of Global Financial Risk


    By Robert Feinberg
    NewsMax, April 17, 2015. All Rights Reserved.

    Perhaps the highlight of the 24th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies was a speech by Paul Tucker, senior fellow at both the Kennedy School and the Business School at Harvard, who served as deputy governor of the Bank of England (BOE) from 2009 to 2013.... 

    Read more: http://www.newsmax.com/finance/robertfeinberg/tucker-financial-dodd-frank-bank/2015/04/17/id/639147/
  • In the Media | April 2015

    ‘Game of Thrones’ and the darkness that awaits us


    By Jim Tankersley
    The Washington Post, April 17, 2015. All Rights Reserved.

    It still isn’t winter in Westeros, at least not on television, although there is no shortage of reminders that it is coming. The seasons in George R.R. Martin’s “Game of Thrones” aren’t regular or celestial. Summer can last a few minutes or many years. At this point in the show, the start of the fifth season, it has gone on for a decade, the longest in the realm’s recorded history. The balmy weather is about to give way to snows and famine, and astoundingly, no one in the land seems prepared....

    Read more: http://www.washingtonpost.com/blogs/wonkblog/wp/2015/04/17/game-of-thrones-and-the-economic-darkness-that-awaits-us/
  • In the Media | April 2015

    What Elizabeth Warren Has That Hillary Clinton Needs


    By David Dayen
    The Fiscal Times, April 17, 2015. All Rights Reserved.

    “Rules are not the enemy of markets,” Sen. Elizabeth Warren told me yesterday, on the heels of her major address on the unfinished business of financial reform at the Levy Institute’s Hyman Minsky Conference. “Rules promote innovation and competition. Rules prevent markets from blowing up. We learned that in 1929 and we should have learned it again in 2008.” 

    Read more:
     http://www.thefiscaltimes.com/Columns/2015/04/17/What-Elizabeth-Warren-Has-Hillary-Clinton-Needs
  • In the Media | April 2015

    Free Lunch: Finance and the Rule of Law


    By Martin Sandbu
    Financial Times, April 17, 2015. All Rights Reserved.

    Elizabeth Warren may not be running for president but she does not relent in gunning for Wall Street. On Wednesday she gave a speech arguing powerfully that the task of taming finance is far from finished. It is an important speech that deserves to be widely read. The location she chose to give it was, incidentally, as apt as can be. The Levy Institute has covered itself in more glory than the economics profession at large, with research less marred by the blind spots that once distracted so many economists from the looming crisis. (It was Hyman Minsky's home institution.)

    Read more:
     http://www.ft.com/intl/cms/s/0/a37b9244-e386-11e4-9a82-00144feab7de.html#axzz3Xfu2l4dm
  • In the Media | April 2015

    Fed's Bullard, FDIC's Hoenig and Sen. Warren Talk Financial Policy


    By Robert Feinberg
    NewsMax, April 16, 2015. All Rights Reserved.

    On the first day of the Levy Institute's two-day annual Hyman P. Minsky Conference, held at the National Press Club in Washington, high-powered speakers held forth on the most prominent issues in the financial world that will affect the economy as Congress begins to try to legislate during the two years that the Republican Congress has to make its mark as the Obama administration winds down. 

    Read more:
     http://www.newsmax.com/finance/robertfeinberg/bullard-hoenig-warren-financial/2015/04/16/id/638861/
  • In the Media | April 2015

    Elizabeth Warren Just Laid Out All the Financial Reforms She Wants to Push Through


    By Portia Crowe
    Business Insider Australia, April 16, 2015. All Rights Reserved.

    Elizabeth Warren made a speech at the Levy Institute’s Minsky Conference on Wednesday and laid out some major financial reforms she wants to push through.

    “The culture of cheating on Wall Street didn’t stop with the 2008 crash,” the populist Massachusetts Senator said.

    Read more:
     http://www.businessinsider.com.au/elizabeth-warren-new-reforms-2015-4  
  • In the Media | April 2015

    Warren: It’s Time to Break Up Too-Big-to-Fail Banks


    MPA Magazine, April 16, 2015. All Rights Reserved.

    U.S. Senator Elizabeth Warren has called on lawmakers to break up too-big-to-fail by capping the size of the largest financial institutions and separating commercial and investment banking. She also proposed limiting emergency lending by the Federal Reserve to troubled institutions by the Federal Reserve.

    Speaking at the Levy Institute’s 24thannual Hyman Minsky conference, Warren said the fact that the Federal Reserve and the Federal Deposit Insurance Corp. say 11 banks threaten the entire U.S. economy means they are too big.

    Read more:
     http://www.mpamag.com/mortgage-originator/warren-its-time-to-break-up-toobigtofail-banks-22121.aspx
  • In the Media | April 2015

    If Elizabeth Warren Were Running for President, This Would Be Her Agenda


    By George Zornick
    The Nation, April 16, 2015. All Rights Reserved.

    If Elizabeth Warren ran for president, a key part of her campaign—if not the centerpiece—would likely involve how to restructure the financial sector in a less dangerous and more productive way. Dodd-Frank was by many accounts a good start, but it’s clear the economy is still over-financialized and too-big-to-fail banks continue to pose an existential threat.

    Warren isn’t running for president, but she unveiled that exact agenda in a sweeping speech Wednesday in a conference at the Levy Institute in Washington. It advocated an array of specific, often ambitious policy proposals, many of which have circulated in Washington for years and that Warren, at various times, has already called for.

    Read more:
     http://www.thenation.com/blog/204433/big-elizabeth-warren-speech-how-finish-financial-reform#  
  • In the Media | April 2015

    ECB Monetary Policy to Be Accommodative in the Foreseeable Future—Constancio


    By Jan Strupczewski
    Reuters, April 16, 2015. All Rights Reserved.

    The European Central Bank's monetary policy will be accommodative in the foreseeable future, the bank's Vice President Vitor Constancio said on Thursday.

    "... Monetary policy needs to be accommodative, as I expect to be the case for the foreseeable future in the euro area," Constancio told a seminar at the Levy Economics Institute. 
       
  • In the Media | April 2015

    ECB Constancio: Eurozone Monetary Policy Needs to Stay Accommodative


    By Harriet Torry
    The Wall Street Journal, April 16, 2015. All Rights Reserved.

    Vitor Constancio, vice president of the European Central Bank, said Thursday that economic recovery in Europe remains “gradual and moderate,” underscoring the need for loose monetary policy in the eurozone for the foreseeable future.

    “Monetary policy has to remain accommodative with low interest rates,” Mr. Constancio said, adding that “getting Europe growing again is one of the most important challenges we face at present.”

    But Mr. Constancio also highlighted the importance of being aware of the limitations of monetary policy, in remarks at a conference hosted by the Levy Institute.

    Read more:
     http://blogs.wsj.com/economics/2015/04/16/ecb-constancio-eurozone-monetary-policy-needs-to-stay-accommodative/
  • In the Media | April 2015

    The Senator Professor Drops By the Shebeen


    By Charles Pierce
    Esquire, April 16, 2015. All Rights Reserved.

    It's been an interesting week for Senator Professor Elizabeth Warren. First, in Time Magazine's annual 100 Groovy Folks list, she gets a rapturous shout-out from none other than Hillary Rodham Clinton, currently touring the silos of Iowa and the clam shacks of New Hampshire....

    Read more:
     http://www.esquire.com/news-politics/politics/news/a34418/a-visit-from-senator-professor-warren/
  • In the Media | April 2015

    Warren Lays Out Detailed Plan to Take on Wall Street


    By Victoria Finkle
    American Banker, April 15, 2015. All Rights Reserved.

    WASHINGTON — Sen. Elizabeth Warren, D-Mass., delivered a sweeping speech Wednesday aimed at what she's calling "the unfinished business of financial reform."

    Warren laid out a number of broad policy goals for the banking industry, arguing that while the Dodd-Frank Act "made some real progress," more needs to be done to resurrect a safe financial system.

    Read more:
     http://www.americanbanker.com/news/law-regulation/warren-lays-out-detailed-plan-to-take-on-wall-street-1073764-1.html  
  • In the Media | April 2015

    Elizabeth Warren Has a Game-changing Idea That Doesn’t Require Congress


    By Matthew Yglesias
    Vox, April 15, 2015. All Rights Reserved.

    Elizabeth Warren isn't running for president. But she does have an agenda for reining in the big banks that would go well beyond the Obama administration's (underrated) bank regulation moves and substantially alter the role of Wall Street in American life.

    In a speech delivered on April 15 at the Levy Institute's 24th annual Hyman Minsky conference, Warren laid out the most comprehensive and ambitious version of her agenda yet.

    Read more:
     http://www.vox.com/2015/4/15/8420789/elizabeth-warren-prosecutions  
  • In the Media | April 2015

    Warren Calls for Breaking Up the Banks


    By Holly LeFon
    US News & World Report, April 15, 2015. All Rights Reserved.

    Sen. Elizabeth Warren, D-Mass., called Wednesday for breaking up big banks through structural reforms that would bring a decisive end to “too big to fail.”

    Warren told a Levy Economics Institute conference she has worked with other lawmakers to advance a bill that would build a wall between commercial banking and investment banking.

    Read more:
     http://www.usnews.com/news/articles/2015/04/15/warren-calls-for-breaking-up-the-banks  
  • In the Media | April 2015

    Anti-Wall Street Senator Lambasts Bank Non-prosecution Deals


    By Barney Jopson and Gina Chon
    Financial Times, April 15, 2015. All Rights Reserved.

    Elizabeth Warren, the anti-Wall Street senator, has lashed out at US regulators for being soft on misbehaving banks, describing settlements that extracted billion dollar fines as a “slap on the wrist” and demanding that banks be put on trial.

    The remarks by Ms Warren, who has emerged as a standard bearer of the Democratic left, are designed to put pressure on the US authorities as they come close to concluding their investigation into the manipulation of the foreign exchange market.

    Read more:
     http://www.ft.com/cms/s/0/bce88134-e394-11e4-9a82-00144feab7de.html?siteedition=intl#axzz3XQnJg6ZU  
  • In the Media | April 2015

    Fed's Bullard Renews Call for Rate Hike


    By Sam Fleming
    Financial Times, April 15, 2015. All Rights Reserved.

    US growth is set to remain relatively "robust" and low inflation is due largely to temporary factors, St Louis Federal Reserve president James Bullard said in a speech on Wednesday morning in Washington DC. 

    He renewed his recent calls for higher interest rates, in part because of the risks of stoking up asset bubbles by leaving them at near zero levels, reports the FT's Sam Fleming.

    Read more:
     http://www.ft.com/intl/fastft/308482/us-growth-remain-relatively-robust-feds-bullard  
  • In the Media | April 2015

    FDIC’s Thomas Hoenig: Banks Should Meet Capital Minimum to Get Regulatory Relief


    By Ryan Tracy
    The Wall Street Journal, April 15, 2015. All Rights Reserved.

    WASHINGTON—The No. 2 official at the Federal Deposit Insurance Corp. said banks should get “regulatory relief” if they meet minimum capital requirements and other criteria, weighing in as Congress considers measures to ease rules on smaller banks.

    FDIC Vice Chairman Thomas Hoenig, who favors breaking up the largest banks and is influential with members of Congress on both sides of the aisle, said banks should only get regulatory relief if they hold foreign exchange and interest rate derivatives worth less than $3 billion, maintain an equity-to-asset ratio of at least 10%, and don’t engage in trading activity.

    Read more:
     http://www.wsj.com/articles/fdic-banks-should-meet-capital-minimum-to-get-regulatory-relief-1429107301  
  • In the Media | April 2015

    Bullard Says Zero Policy Rate Risks Asset-Price Bubbles


    By Steve MatthewsChristopher Condon
    Bloomberg, April 15, 2015. All Rights Reserved.

    Federal Reserve Bank of St. Louis President James Bullard repeated his call for beginning to normalize monetary policy and said maintaining interest rates near zero risks destructive asset-price bubbles.

    “A risk of remaining at the zero lower bound too long is that a significant asset-market bubble will develop,” Bullard said in prepared remarks in Washington on Wednesday. “If a bubble in a key asset market develops, history has shown that we have little ability to contain it,” he said, citing the housing bubble that preceded the last recession.

    Read more:
     http://www.bloomberg.com/news/articles/2015-04-15/fed-s-bullard-says-zero-policy-rate-risks-asset-price-bubbles  
  • In the Media | April 2015

    Fed's Bullard Says "No Problem" with Hiking Then Returning to Zero


    Reuters, April 15, 2015. All Rights Reserved.

    (Reuters) – A top Federal Reserve official said on Wednesday that it's okay for the Fed to raise interest rates and then return to near-zero levels if the economic data shows that the central bank needs to retreat.

    "I don't think there's a problem with that," St. Louis Federal Reserve President James Bullard said, referring to the issue of hiking rates soon and then lowering them shortly afterward if economic growth drops.

    Read more:
     http://www.reuters.com/article/2015/04/15/usa-fed-bullard-rates-idUSN9N0WC01O20150415  
  • In the Media | April 2015

    FDIC's Hoenig: Blanket Small Bank-Exemption from Volcker Unwise


    By Brai Odion-Esene
    MNI Deutsche Börse Group, April 15, 2015. All Rights Reserved.

    WASHINGTON (MNI) - The vice chair of the Federal Deposit Insurance Corp. Wednesday argued against giving all small banks an exemption from the ban on proprietary trading by traditional banks, commonly known as the Volcker Rule, arguing that it does not impose any added regulatory burdens on smaller institutions.

    "A blanket exemption for smaller institutions to engage in proprietary trading and yet be exempt from the Volcker Rule is unwise," Thomas Hoenig said in remarks prepared for delivery at the Levy Institute's Hyman Minsky conference in Washington.

    Read more:
     https://mninews.marketnews.com/content/fdics-hoenigblanket-small-bank-exemption-volcker-unwise
  • In the Media | April 2015

    Warren pitches ideas for stronger Wall Street curbs


    By Annie Linskey
    The Boston Globe, April 15, 2015. All Rights Reserved.

    Massachusetts Senator Elizabeth Warren wants to limit to just one the number of deals financial institutions accused of wrongdoing can cut with the government, a change that she believes would force corporations to follow the rules or face criminal charges.

    It’s among several new ideas that Warren unveiled in a speech at the National Press Club on Wednesday. The senator offered new initiatives that would require banks to par far higher “mandatory minimum” fines when they avoid prosecution after violating rules. She also suggested a tax incentive aimed at prodding highly leveraged banks to use capital to finance deals rather than debt.

    Read more: http://www.bostonglobe.com/news/politics/2015/04/15/elizabeth-warren-pitches-ideas-for-stronger-wall-street-curbs/4OHy5tGIOxcEhtAyEr7YYL/story.html  
  • In the Media | April 2015

    Warren Says Banks Should Face Bigger Tax Burden to Balance Risks


    By Jesse Hamilton and Silla Brush
    Chicago Tribune, April 15, 2015. All Rights Reserved.

    Wall Street banks and their top executives should face new tax penalties to keep them from engaging in risky practices that can pose threats to the financial system, Sen. Elizabeth Warren said Wednesday.

    Warren, who has been a leading defender of the Dodd-Frank Act, called on the Republican-led Congress to relent from attacks on the 2010 law and close a tax loophole that she said encourages bank chief executive officers to seek quick gains.

    Read more: http://www.chicagotribune.com/news/sns-wp-blm-news-bc-warren15-20150415-story.html  
  • In the Media | April 2015

    Elizabeth Warren Hammers the Endless Failures of Wall Street Regulators


    By Zach Carter
    The Huffington Post, April 15, 2015. All Rights Reserved.

    WASHINGTON -- Sen. Elizabeth Warren (D-Mass.) assailed the nation's top bank regulators on Wednesday for coddling Wall Street offenders and ducking the responsibilities Congress assigned them in the wake of the 2008 financial meltdown.

    At a conference hosted by the Levy Economics Institute, Warren called not only for structural change to the banking system but for a revamping of the weak enforcement culture at the Federal Reserve, the Securities and Exchange Commission and the Department of Justice....

    Read more:
     http://www.huffingtonpost.com/2015/04/15/elizabeth-warren-wall-street_n_7073040.html  
  • In the Media | April 2015

    How Warren's Banking Agenda Could Influence Clinton


    By Victoria Finkle
    American Banker, April 15, 2015. All Rights Reserved.

    WASHINGTON — Hillary Clinton just kicked off her presidential bid on Sunday, but progressives have already begun a campaign of their own to shape the financial policy debate ahead of the 2016 elections.

    Sen. Elizabeth Warren, D-Mass., delivered a wide-ranging address on Wednesday, laying out an agenda for tending to "unfinished business" in the financial industry in the wake of the financial crisis and the Dodd-Frank Act.

    Read more:
     
    http://www.americanbanker.com/news/law-regulation/cheat-sheet-how-warrens-banking-agenda-could-influence-clinton-1073782-1.html?utm_campaign=daily%20briefing-apr%2016%202015&utm_medium=email&utm_source=newsletter&ET=americanbanker%3Ae4197921%3A4562712a%3A&st=email  
  • In the Media | April 2015

    Warren on the Warpath: Slams SEC, Pitches Financial Reforms


    By Joe Mont
    Compliance Week, April 15, 2015. All Rights Reserved.

    If she had not already emphatically dismissed the idea of running for president, Sen. Elizabeth Warren (D-Mass.) delivered what would have been a headline-grabbing stump speech on Wednesday.

    Speaking at Bard College’s Levy Economics Institute, Warren presented her view of what is needed for continuing financial reforms beyond the Dodd-Frank Act....

    Read more:
     https://www.complianceweek.com/blogs/the-filing-cabinet/warren-on-the-warpath-slams-sec-pitches-financial-reforms#.VTFJtL6itUR  
  • In the Media | April 2015

    Elizabeth Warren: The Unfinished Business of Financial Reform


    Value Walk, April 15, 2015. All Rights Reserved.

    In a speech at the Levy Institute’s annual Hyman P. Minsky Conference today, Senator Elizabeth Warren laid out a set of proposals to advance the process of financial reform that began with the enactment of the Dodd-Frank Act of 2010.

    Read more:
     http://www.valuewalk.com/2015/04/elizabeth-warren-financial-reform/
  • In the Media | April 2015

    Elizabeth Warren's New Agenda for Democrats on Financial Reform


    By Eric Garcia
    National Journal, April 15, 2015. All Rights Reserved.

    For Sen. Elizabeth Warren, the Dodd-Frank financial reform law was an important first step to taming financial markets. On Wednesday, she laid out a series of bold next steps for financial reform that could provide a road map for the Democratic Party in 2016.

    Speaking at the Levy Economics Institute of Bard College's 24th Annual Hyman P. Minsky Conference on Wednesday, Warren gave a message that could serve as strong ammunition for Democrats in the future, saying that opponents of financial regulation often pit the argument as between being pro-market and supporting deregulation versus being anti-market and supporting more regulation.

    Read more:
     http://www.nationaljournal.com/economy/elizabeth-warren-s-new-agenda-for-democrats-on-financial-reform-20150415  
  • In the Media | April 2015

    This Unorthodox Plan May Keep Greece in the Eurozone


    By Joseph Adinolfi
    MarketWatch, April 8, 2015. All Rights Reserved.

    NEW YORK (MarketWatch) — The idea has been bandied about for years by economists who fear a Greek exit from the euro could trigger a global financial crisis. 

    To create the fiscal flexibility that Greece’s economy so sorely needs to reinvigorate economic growth, meet its debt payments and, ultimately, stay in the eurozone, the Greek government could adopt what economists at the Levy Institute call a “parallel financial system” that would allow the government to make payments without using hard currency.

    Read more:
     http://www.marketwatch.com/story/this-unorthodox-plan-may-keep-greece-in-the-eurozone-2015-04-08  
  • In the Media | April 2015

    Greece's Overtures to Russia May Not Be a Sideshow


    By C. J. Polychroniou
    Al Jazeera, April 8, 2015. All Rights Reserved.

    Greek Prime Minister Alexis Tsipras' visit to Moscow this week for talks with President Vladimir Putin has fuelled wild speculations about the real intentions of the Greek government.

    The visit is taking place while bailout talks between Greece and Europe have reached a very critical juncture.

    Read more:
     https://en-maktoob.news.yahoo.com/greeces-overtures-russia-may-not-sideshow-110052332--finance.html
     
    Associated Program:
    Author(s):
    C. J. Polychroniou
  • In the Media | March 2015

    Quantitative Easing Won't Cure Europe's Economic Woes


    By C. J. Polychroniou
    Al Jazeera, March 20, 2015. All Rights Reserved.

    The European Central Bank's (ECB) quantitative easing (QE) programme seems to have created a state of euphoria among global investors, but it will do very little to ameliorate Europe's economic problems.

    A close look into the state of Europe's economies reveals a much ignored fact by most professional economists and the media alike: Europe is the sick man of the global economy once again.

    Read more:
     https://uk.news.yahoo.com/quantitative-easing-wont-cure-europes-economic-woes-070940559.html#ITWWghr  
    Associated Program:
    Author(s):
    C. J. Polychroniou
  • In the Media | March 2015

    Forced Austerity: Nothing but a Ponzi Scheme?


    By Klaus Jurgens
    Today's Zaman, March 18, 2015. All Rights Reserved.

    The current escalation of disagreement between Athens and Berlin symbolizes that there may be more at stake than simply extending repayment deadlines. Could perhaps the entire monetary union project and thus the vision of political union be at stake?

    Nothing less is what a brand-new study published by the Levy Economics Institute of Bard College suggests. In it Senior Scholar Jan Kregel analyzes the creation of the eurozone and how Germany is trying to deal with the recent currency problems -- actually, problems almost exclusively in a limited number of eurozone family members, notably Greece.

    Read more:
     http://www.todayszaman.com/columnist/klaus-jurgens/forced-austerity-nothing-but-a-ponzi-scheme_375591.html  
  • In the Media | March 2015

    Greek Debt: Do the Right Thing


    By Dimitri B. Papadimitriou
    The Huffington Post, March 18, 2015. All Rights Reserved.

    "Greece's government and people have indulged in excesses and corruption; now it is time to pay the price." The argument for full repayment of Greece's debt is well known, easily understood, and widely accepted, particularly in Germany. Sacrifice, austerity and repayment are righteous, fair, and just.

    That view is coloring this and next week's coming meetings between Greece and its international lenders, and with European leaders. A revision of Greece's debt terms has not been on the agenda. 

    Read more:
     http://www.huffingtonpost.com/dimitri-b-papadimitriou/greek-debt-do-the-right-t_b_6894678.html
  • In the Media | March 2015

    Teoría monetaria moderna y trabajo garantizado


    El Salmon Contracorriente, 5 Marzo 2015. Reservados todos los derechos. 

    Randall Wray abrió el acto explicando al público una de las bases de su enfoque teórico: la apertura del discurso económico hacia una perspectiva distinta a la que se imparte en la universidad. El profesor estadounidense planteó que para criticar el actual modelo económico es necesario conocer la teoría y se desmarcó de la idea predominante al afirmar que “existen cosas primordiales que son más importantes que el déficit público”, antes de profundizar en la propuesta de Trabajo Garantizado, que calificó de “sentido común”....

    Leer más:
     http://www.elsalmoncontracorriente.es/?Teoria-monetaria-moderna-y-trabajo
  • In the Media | March 2015

    Alberto Garzón plantea un plan para crear un millón de empleos en un año


    El Correro, 4 Marzo 2015. Reservados todos los derechos.

    Izquierda Unida quiere que el trabajo esté "garantizado" en Espaã como elemento de inserción social imprescindible y, para ello, propone implantarlo de forma gradual y por etapas con la creación de un millón de empleos el primer aõ con menos del 1% del PIB....

    Leer más:
     http://www.elcorreo.com/bizkaia/politica/201503/04/alberto-garzon-plantea-plan-20150304155358-rc.html
  • In the Media | March 2015

    IU plantea un plan de 9.600 millones para crear un millón de empleos en un año


    Público, 04 de marzo 2015. Reservados todos los derechos.

    MADRID — El portavoz económico de la Izquierda Plural (IU-ICV-CHA) y próximo candidato de Izquierda Unida a la Presidencia del Gobierno, Alberto Garzón, ha presentado este miércoles una propuesta para crear un millón de empleos por una inversión neta de 9.600 millones de euros en su primer año de aplicación.   Este programa de trabajo garantizado, que será una de las piezas angulares de su programa electoral en el ámbito laboral, se inspira en la teoría monetaria moderna y en el libro del profesor L. Randall Wray sobre este asunto, que aporta un discurso alternativo a las teorías convencionales sobre cómo debe gastar e invertir el Estado para mejorar el bienestar social y garantizar el derecho al trabajo que tienen los ciudadanos.

    Leer más:
     http://m.publico.es/Pol%C3%ADtica/1903984/iu-plantea-un-plan-de-9-600-millones-para-crear-un-millon-de-empleos-en-un-ano
  • In the Media | March 2015

    Do Cryptocurrencies Such as Bitcoin Have a Future?


    By Campbell R. Harvey and Éric Tymoigne
    The Wall Street Journal, March 1, 2015. All Rights Reserved.

    Despite the mystery, the whiff of scandal, and general public unfamiliarity with the concept, somebody out there is buying, and selling, not just bitcoin but dozens of other cryptocurrencies as well. The total market capitalization for these unregulated electronic forms of payment was roughly $4.04 billion as of mid-February, according to coinmarketcap.com, a website that tracks trading in alternative currencies. More than 500 altcoins, as they are also known, were represented on the site recently.

    Read more:
     http://www.wsj.com/articles/do-cryptocurrencies-such-as-bitcoin-have-a-future-1425269375
    Associated Program:
    Author(s):
  • In the Media | February 2015

    The Greek Debt and the German Acquiescence


    Interview with James K. Galbraith
    The Real News Network, February 27, 2015. All Rights Reserved.

    Initially, Germany stood firm in saying that Greece would have to sign the existing loan program in order to secure an extension, but this was always an untenable position, says Research Scholar James K. Galbraith. 

    For the complete interview: http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=13320
  • In the Media | February 2015

    Bard's Papadimitriou on Greece


    Interview with Dimitri B. Papadimitriou
    Bloomberg Radio, February 24, 2015. All Rights Reserved.

    Levy Institute President Dimitri Papadimitriou discusses the approval of Greece’s reform package and the four-month extension of the bailout agreement with its eurozone partners in this interview with Kathleen Hays.

    To listen to the podcast: http://media.bloomberg.com/bb/avfile/Economics/On_Economy/vLaWHOte5hq4.mp3 
  • In the Media | February 2015

    Tax Anticipation Notes: A Timely Alternative Financing Instrument for Greece


    By Robert W. Parenteau
    Credit Writedowns, February 16, 2015. All Rights Reserved.

    The recent election of an explicitly anti-austerity party in Greece has upset the prevailing policy consensus in the eurozone, and raised a number of issues that have remained ignored or suppressed in policy circles. Expansionary fiscal consolidations have proven largely elusive. The difficulty of achieving GDP growth while reaching primary fiscal surplus targets is very evident in Greece. Avoiding rapidly escalating government debt to GDP ratios has consequently proven very challenging. Even if the arithmetic of avoiding a debt trap can be made to work, the rise of opposition parties in the eurozone suggests there are indeed political limits to fiscal consolidation. The Ponzi like nature of requesting new loans in order to service prior debt obligations, especially while nominal incomes are falling, is a third issue that Syriza has raised, and it is one that informed their opening position of rejecting any extension of the current bailout program. 

    Read more:
     https://www.creditwritedowns.com/2015/02/tax-anticipation-notes-timely-alternative-financing-instrument-greece.html
  • In the Media | February 2015

    The Workers' Think Tank


    By Sasha Abramsky
    The Nation, February 2, 2015. All Rights Reserved.

    By many measures, the American economy has recovered from the 2008 implosion. The stock market is soaring, housing values in many markets have rebounded and GDP is growing at a healthy rate of more than 4 percent. Compared to Spain and Greece, where debt, mass unemployment and hardship remain widespread following the Eurozone crisis, America looks to be on easy street.

    Yet scratch below the surface and you’ll see that the United States still has a considerable economic problem. While the official unemployment rate has fallen to 5.6 percent, the lowest since 2008, the percentage of the adult population participating in the labor market remains far lower than it was at the start of the recession. At least in part, headline unemployment numbers look respectable because millions of Americans have grown so discouraged about their prospects of finding work that they no longer try, and thus are no longer counted among the unemployed. Depending on the measures, only 59 to 63 percent of the working-age population is employed, far below recent historical norms.

    Read more:
     http://www.thenation.com/article/196721/workers-think-tank
  • In the Media | January 2015

    Syriza Is Offering a New Deal for the People of Greece


    By C. J. Polychroniou
    The New York Times, January 28, 2015. All Rights Reserved.

    The reason for the meteoric rise of Syriza is clear. The Greek electorate has had enough of the imposition of the harsh austerity measures that are behind the bailout loan agreements that have been in effect since May 2010 when Greece was on the brink of an official default. Undoubtedly, a Greek default would have had a catastrophic impact on Europe’s major banks and could have led to the dissolution of the eurozone, at least in its present form, so a bailout by Greece’s euro partners was inevitable.

    Read more:
     http://www.nytimes.com/roomfordebate/2015/01/27/can-greeces-anti-austerity-government-succeed/syriza-is-offering-a-new-deal-for-the-people-of-greece
    Associated Program:
    Author(s):
    C. J. Polychroniou
  • In the Media | January 2015

    Greek Voters Set Stage for Tense Austerity Negotiation


    By Ned Resnikoff
    Al Jazeera America, January 26, 2015. All Rights Reserved.

    Greece’s socialist left has won power. Now it needs to wield it.

    For Syriza, the left-wing, anti-austerity party that seized control of the government in Sunday’s snap parliamentary elections, that means following through on its number one campaign promise: to renegotiate the terms of Greece’s economic bailout with the International Monetary Fund (IMF), the World Bank, and the European Central Bank (ECB). Those three financial institutions, collectively known as the “Troika,” have made their economic assistance contingent on Greece’s willingness to pass a series of draconian austerity cuts.

    Read more:
     http://america.aljazeera.com/articles/2015/1/26/greek-voters-set-stage-for-tense-austerity-negotiation.html
  • In the Media | January 2015

    Thank You Greece!


    By Maria Helena dos Santos André
    Social Europe, January 26, 2015. All Rights Reserved.

    In a time when in Paris Marine Le Pen is “Ante Portas”, when xenophobic populists are marching through the streets of Dresden, when in London the UKIP sets the tone for an ever more anti-European hysteria, and when in Helsinki the Finnish government becomes the most ardent proponent of more austerity for Greece, for no other reason but the fear of a success of the “Real Finns” at the next ballot box, the Greek people have given a clear signal, voting against more austerity and for the European values of democracy, the welfare state, tolerance and inclusive societies.

    Read more:
     http://www.socialeurope.eu/2015/01/thank-greece/
  • In the Media | January 2015

    Hello 2015. Goodbye Austerity?


    By Dimitri B. Papadimitriou
    The World Post, January 8, 2015. All Rights Reserved.

    Greece is facing front, looking towards the new year and the upcoming January elections. But it would be foolish not to learn from a look backwards, as well.

    At the Athens economics conference, Europe At The Crossroads, the participants were a diverse collection of policymakers, overflowing with disagreements on the very best route to growth. Nonetheless, with one notable exception (the leader of Ireland's central bank, endorsing European Central Bank policy), the overwhelming majority united on a single principle:

    The bailout and its related austerity programs have failed miserably.

    Read more: http://www.huffingtonpost.com/dimitri-b-papadimitriou/hello-2015-goodbye-auster_b_6438328.html
  • In the Media | January 2015

    Markets Tank with Greece Poised to Leave the Euro: Ian Masters Interviews Dimitri B. Papadimitriou


    Background Briefing with Ian Masters, January 5, 2015. All Rights Reserved.

    Papadimitriou joins Masters to discuss the upcoming January 25 election in Greece that is likely to bring the anti-austerity left-wing Syriza party to power, sparking fears that Greece will reject the terms of the EU, ECB, and IMF bailouts and exit the euro.

    Listen to the complete interview here: http://ianmasters.com/content/january-5-markets-tank-greece-poised-leave-euro-weaponization-finance-gop-114th-congress-80-
  • In the Media | December 2014

    Despite Growth, Experts Skeptical US Recovering from Recession


    By Mustafa Caglayan
    Anadolu Agency, December 24, 2014. All Rights Reserved.

    The U.S. economy on Tuesday posted its fastest expansion in more than a decade, but experts warn that there may be a dark cloud to this silver lining.

    Official figures show that the gross domestic product—the broadest measure of economic output and growth—grew at its fastest rate since 2003, surging 5 percent in the third quarter.

    Read more:
     http://www.aa.com.tr/en/economy/440452--despite-growth-experts-skeptical-us-recovering-from-recession
  • In the Media | December 2014

    Dimitri B. Papadimitriou: "Juncker's Stimulus Plan Is Unrealistic on Many Fronts"


    Interview with Dimitris Rapidis
    Bridging Europe, December 16, 2014. All Rights Reserved.

    As part of the Bridging Dialogue Initiative, Dimitris Rapidis discusses with Levy Institute President Dimitri B. Papadimitriou the ECB's interest rates policy, deflation, EC President Jean-Claude Junckers's fiscal stimulus plan, debt management and the Stability Pact, the US economy, and the economic crisis in Greece. 

    Read more:
     http://www.bridgingeurope.net/interview-with-dimitri-b-papadimitriou-president-of-the-levy-economics-institute.html
  • In the Media | October 2014

    Central Banks: Where Do They Go from Here


    By Ronald Find
    Global Finance, October 29, 2014. All Rights Reserved.

    Governors of the world’s central banks face difficult choices as they are increasingly tasked with promoting financial stability and providing a boost to growth. Not all central bankers—or other stakeholders—believe this is, or should be, their role. What’s more, the tools at their disposal may have limited effects and unforeseen consequences, leaving the bankers between a rock and a hard place. . . .

    Read more: https://www.gfmag.com/magazine/october-2014/central-banks-where-do-they-go-here
  • In the Media | September 2014

    Smart Charts: An Economic Recovery for the 1%


    By Joshua Holland
    Moyers & Company, September 29, 2014. All Rights Reserved.

    Matthew Yglesias calls this chart, from Pavlina Tcherneva, an economist at the Levy Economic Institute at Bard College, “the most important chart about the American economy you’ll see this year.” It illustrates how much income gains those at the top have enjoyed during each of our post-war expansions....

    Read more:
     http://billmoyers.com/2014/09/29/smart-charts-economic-recovery-1-percent/
  • In the Media | September 2014

    This Really Depressing Graph About the Economy Is Turning Heads


    By Aaron Abbruzzese
    Mashable, September 27, 2014. All Rights Reserved.

    If it seems like the rich are getting richer, well, the data might just back you up. A new graph based on data from times of growth backs up growing concern that the current economic system is disproportionately favoring those that are already wealthy....

    Read more:
     http://mashable.com/2014/09/25/this-really-depressing-graph-about-the-u-s-economy-is-turning-heads/
  • In the Media | September 2014

    The Benefits of Economic Expansions Are Increasingly Going to the Richest Americans


    By Neil Irwin
    The New York Times, September 25, 2014

    Economic expansions are supposed to be the good times, the periods in which incomes and living standards improve. And that’s still true, at least for some of us....

    Read more:
     http://www.nytimes.com/2014/09/27/upshot/the-benefits-of-economic-expansions-are-increasingly-going-to-the-richest-americans.html?hp&action=click&pgtype=Homepage&version=HpSum&module=second-column-region®ion=top-news&WT.nav=top-news&abt=0002&abg=0    
  • In the Media | September 2014

    This Depressing Chart Shows that the Rich Aren't Just Grabbing a Bigger Slice of the Income Pie—They're Taking All of It


    By Christopher Ingraham
    The Washington Post, September 25, 2014

    Take a look at this chart, from Bard College economist Pavlina Tcherneva. In an August 2013 paper, she wrote:

    An examination of average income growth [in the U.S.] during every postwar expansion (from trough to peak) and its distribution between the wealthiest 10% and bottom 90% of households reveals that income growth becomes more inequitably distributed with every subsequent expansion during the entire postwar period.

    In other words, the wealthy are capturing more and more of the overall income growth during each expansion period....

    Read more:
     http://www.washingtonpost.com/blogs/wonkblog/wp/2014/09/25/this-depressing-chart-shows-that-the-rich-arent-just-grabbing-a-bigger-slice-of-the-income-pie-theyre-taking-all-of-it/
  • In the Media | September 2014

    How the Rich Conquered the Economy, in One Chart


    By Jordan Weissmann
    Slate, September 25, 2014

    When you write about the economy every day for a living, you can start feeling numb toward charts about income inequality. After all, the story doesn't change much week to week, and usually neither do the visualizations. But this one, from Bard College economist Pavlina Tcherneva, somehow still feels astonishing, and has stirred up a bunch of attention today. It shows how much of U.S. income growth has been claimed by the top 10 percent of households during economic expansions, and how much was claimed by the bottom 90 percent. Guess who's gotten the lion's share in recent years?

    Read more: 
    http://www.slate.com/blogs/moneybox/2014/09/25/how_the_rich_conquered_the_economy_in_one_chart.html
  • In the Media | September 2014

    Will Lindsay Lohan Save Greece?


    By Dimitri B. Papadimitriou
    New Geography, September 25, 2014

    It's September, but island beaches from the Aegeans to Zante are still buzzing in Greece. Mykonos has been the summer's Go-To spot for superstars and supermodels; the mainland and cities are also seeing the British and Europeans coming back....

    Read more:
     http://www.newgeography.com/content/004533-will-lindsay-lohan-save-greece
  • In the Media | September 2014

    The Most Important Chart about the American Economy You'll See This Year


    By Matthew Yglesias
    Vox, September 25, 2014. All Rights Reserved.

    Pavlina Tcherneva's chart showing the distribution of income gains during periods of economic expansion is burning up the economics internet over the past 24 hours and for good reason. The trend it depicts is shocking....

    Read more:
     http://www.vox.com/xpress/2014/9/25/6843509/income-distribution-recoveries-pavlina-tcherneva
  • In the Media | September 2014

    The Rich Are Getting Richer, Part the Millionth


    By Kevin Drum
    Mother Jones, September 27, 2014. All Rights Reserved.

    It's not easy finding new and interesting ways to illustrate the growth of income inequality over the past few decades. But here are a couple of related ones. The first is from "Survival of the Richest" in the current issue of Mother Jones, and it shows how much of our total national income growth gets hoovered up by the top 1 percent during economic recoveries. The super-rich got 45 percent of total income growth during the dotcom years; 65 percent during the housing bubble years; and a stunning 95 percent during the current recovery. It's good to be rich....

    Read more:
     http://www.motherjones.com/kevin-drum/2014/09/rich-are-getting-richer-part-millionth
  • In the Media | August 2014

    Greek Crisis and the Dark Clouds over the American Economy: An Interview with Dimitri B. Papadimitriou


    By C. J. Polychroniou
    Truthout, August 27, 2014

    Is the Greek crisis nearly over as the International Monetary Fund, the European Commission and the Greek government like to proclaim because of the sharp decline in Greek bond yields, the attainment of a primary surplus and an increase in foreign tourism? If so, what about the 27.2 per cent of the population that remains unemployed and the widespread poverty across the nation, the ever growing public debt ratio and the dismal state of Greek exports? And what about the United States? Is America on the way to becoming Greece as many Republicans claimed a couple of years ago? Dimitri B. Papadimitriou, executive vice president and Jerome Levy professor of economics at Bard College, and president of the Levy Economics Institute at Bard, who foresees Greece emerging into a debt prison and a rather gloomy economic future for the United States, discusses these questions in an exclusive interview for Truthout with C. J. Polychroniou.

    Read the entire post here: 
    http://www.truth-out.org/news/item/25796-greek-crisis-and-the-dark-clouds-over-the-american-economy-an-interview-with-dimitri-b-papadimitriou
  • In the Media | August 2014

    COLOMBIA: 'Ingreso de Colombia a la Ocde es un gran error': Jan Kregel


    Etorno Inteligente, August 22, 2014. All Rights Reserved.

    Portafolio
     / Colombia comete un gran error en perseguir el objetivo de entrar a la Organización para la Cooperación y el Desarrollo Económicos (Ocde), porque eso debe ser para países con un grado similar de desarrollo, dice el economista Jan Kregel, investigador del Levy Economics Institute of Board College de Estados Unidos.

    El experto, relator de la Comisión de la ONU sobre la reforma al sistema financiero internacional, participa en la Décima Semana Económica de la Universidad Central.

    Colombia ha basado su crecimiento en productos básicos. ¿Cómo mantener esa tendencia a largo plazo? 

    Lo que se puede predecir para una economía como la colombiana es una crisis externa sustantiva porque, si se mira el déficit externo, algo así como el 50 por ciento de las exportaciones de Colombia provienen del petróleo. Si hay una disminución de los precios, el primer impacto es empeorar el déficit externo y reducir los flujos financieros y habrá una presión fuerte sobre la tasa de cambio y la posición de los exportadores empeorará.

    ¿Qué debe el país hacer para reactivar la industria? 

    Hay un impacto de la enfermedad holandesa. Las exportaciones de materias primas han tenido una elevación de precios y han apreciado la tasa de cambio. Por eso, otras exportaciones son menos competitivas. Otro factor es la redistribución de las manufacturas globalmente. Si uno mira el impacto de las importaciones en la economía colombiana, hay un gran incremento de las compras a Asia.

    ¿Colombia tiene enfermedad holandesa? 

    Absolutamente sí. La enfermedad holandesa se puede clasificar de dos maneras: una es simplemente el impacto de los productos básicos, creando una mejora en los términos de comercio y un aumento de los ingresos del país. Pero el impacto de la tasa de cambio en la competitividad acaba con un incremento de los ingresos nacionales y al mismo tiempo se abaratan los bienes importados.

    El peligro real de la enfermedad holandesa no está solamente en la tasa de cambio, sino que se ve en la distribución del consumo de productos nacionales a importados.

    Una mejora en los precios de las materias primas es lo mismo que un incremento en los ingresos nacionales pero, al mismo tiempo, esto causa una apreciación en la tasa de cambio y el ingreso doméstico incrementado se va a gastar en bienes más baratos y estos son los importados. Entonces es un factor doble.

    ¿Es sano para Colombia ingresar a la Ocde? 

    Es un gran error. México y Corea cometieron el mismo error y ambos sufrieron crisis financieras sustantivas como resultado de esto. Si nos remontamos a las viejas teorías de los economistas estructuralistas, se alegó que una de las condiciones básicas para ingresar a cualquier tipo de acuerdo de esta naturaleza es que hubiese un nivel similar de desarrollo, de productividad y de competitividad.

    Colombia va a entrar a la Ocde sin preocuparnos por competir con Estados Unidos, y estamos hablando de competir con México. La pregunta es si Colombia va a ser capaz de competir en los mercados internacionales con otros países en desarrollo que ya están en la Ocde y no parece prometedor. ¿Por qué se quiere entrar a la Ocde? Es básicamente para darles confianza a los inversionistas extranjeros para que inviertan en Colombia, pero esto implica empoderar más la enfermedad holandesa.

    Pero Colombia es hoy uno de los países de Latinoamérica que más crece. 

    Es un crecimiento que desilusiona. No se puede mirar crecimiento sin empleo. Si se va a desarrollar la economía no importa qué tan alta sea la tasa de inversión ni qué tan alto sea el crecimiento si no se genera empleo. Si no se reduce el sector informal no se está generando desarrollo.

    Pero el desempleo ha bajado… 

    Ha bajado, pero no es mucho y sigue siendo sumamente alto. Hay un problema de desempleo disfrazado que debe ser de 40 por ciento. La pregunta es ¿Por qué? La explicación proviene de la enfermedad holandesa y del impacto sobre el sector de manufacturas.

    ¿HAY QUE REGULAR MERCADOS? 

    La dificultad es que nunca habrá una regulación que dé estabilidad a los mercados financieros en el mundo, porque estos siempre van adelante de los reguladores.

    La reglamentación está para reducir la rentabilidad de los bancos y estos existen solo si pueden tener utilidades sustanciales en su negocio.

    Fernando González P. Subeditor Economía y Negocios 

    −−> Colombia comete un gran error en perseguir el objetivo de entrar a la Organización para la Cooperación y el Desarrollo Económicos (Ocde), porque eso debe ser para países con un grado similar de desarrollo, dice el economista Jan Kregel, investigador del Levy Economics Institute of Board College de Estados Unidos.

    El experto, relator de la Comisión de la ONU sobre la reforma al sistema financiero internacional, participa en la Décima Semana Económica de la Universidad Central.

    Colombia ha basado su crecimiento en productos básicos. ¿Cómo mantener esa tendencia a largo plazo? 

    Lo que se puede predecir para una economía como la colombiana es una crisis externa sustantiva porque, si se mira el déficit externo, algo así como el 50 por ciento de las exportaciones de Colombia provienen del petróleo. Si hay una disminución de los precios, el primer impacto es empeorar el déficit externo y reducir los flujos financieros y habrá una presión fuerte sobre la tasa de cambio y la posición de los exportadores empeorará.

    ¿Qué debe el país hacer para reactivar la industria? 

    Hay un impacto de la enfermedad holandesa. Las exportaciones de materias primas han tenido una elevación de precios y han apreciado la tasa de cambio. Por eso, otras exportaciones son menos competitivas. Otro factor es la redistribución de las manufacturas globalmente. Si uno mira el impacto de las importaciones en la economía colombiana, hay un gran incremento de las compras a Asia.

    ¿Colombia tiene enfermedad holandesa? 

    Absolutamente sí. La enfermedad holandesa se puede clasificar de dos maneras: una es simplemente el impacto de los productos básicos, creando una mejora en los términos de comercio y un aumento de los ingresos del país. Pero el impacto de la tasa de cambio en la competitividad acaba con un incremento de los ingresos nacionales y al mismo tiempo se abaratan los bienes importados.

    El peligro real de la enfermedad holandesa no está solamente en la tasa de cambio, sino que se ve en la distribución del consumo de productos nacionales a importados.

    Una mejora en los precios de las materias primas es lo mismo que un incremento en los ingresos nacionales pero, al mismo tiempo, esto causa una apreciación en la tasa de cambio y el ingreso doméstico incrementado se va a gastar en bienes más baratos y estos son los importados. Entonces es un factor doble.

    ¿Es sano para Colombia ingresar a la Ocde? 

    Es un gran error. México y Corea cometieron el mismo error y ambos sufrieron crisis financieras sustantivas como resultado de esto. Si nos remontamos a las viejas teorías de los economistas estructuralistas, se alegó que una de las condiciones básicas para ingresar a cualquier tipo de acuerdo de esta naturaleza es que hubiese un nivel similar de desarrollo, de productividad y de competitividad.

    Colombia va a entrar a la Ocde sin preocuparnos por competir con Estados Unidos, y estamos hablando de competir con México. La pregunta es si Colombia va a ser capaz de competir en los mercados internacionales con otros países en desarrollo que ya están en la Ocde y no parece prometedor. ¿Por qué se quiere entrar a la Ocde? Es básicamente para darles confianza a los inversionistas extranjeros para que inviertan en Colombia, pero esto implica empoderar más la enfermedad holandesa.

    Pero Colombia es hoy uno de los países de Latinoamérica que más crece. 

    Es un crecimiento que desilusiona. No se puede mirar crecimiento sin empleo. Si se va a desarrollar la economía no importa qué tan alta sea la tasa de inversión ni qué tan alto sea el crecimiento si no se genera empleo. Si no se reduce el sector informal no se está generando desarrollo.

    Pero el desempleo ha bajado… 

    Ha bajado, pero no es mucho y sigue siendo sumamente alto. Hay un problema de desempleo disfrazado que debe ser de 40 por ciento. La pregunta es ¿Por qué? La explicación proviene de la enfermedad holandesa y del impacto sobre el sector de manufacturas.

    ¿HAY QUE REGULAR MERCADOS? 

    La dificultad es que nunca habrá una regulación que dé estabilidad a los mercados financieros en el mundo, porque estos siempre van adelante de los reguladores.

    La reglamentación está para reducir la rentabilidad de los bancos y estos existen solo si pueden tener utilidades sustanciales en su negocio.
    Associated Program:
    Author(s):
    Jan Kregel
  • In the Media | August 2014

    Are EU Bankers Trying to Increase Unemployment in Greece?


    By Dimitri B. Papadimitriou
    The Huffington Post, August 21, 2014

    Do European lenders want unemployment to keep rising in Greece?

    It looks that way. The commitment to economic austerity policies by the "troika"–the European Central Bank, the European Commission, and the International Monetary Fund–hasn't wavered. Meanwhile, the country's unemployment rate has soared to yet another unexpected high. In a population of 9.3 million, 1.3 million are out of work....

    Read the full article here: http://www.huffingtonpost.com/dimitri-b-papadimitriou/are-eu-bankers-trying-to-_b_5696270.html
  • In the Media | July 2014

    Flat? Actually Many Wages Have Been Declining


    By Jon Talton
    The Seattle Times, July 7, 2014. All Rights Reserved.

    It has been well documented that wages adjusted for inflation for most workers have been stagnant since the mid-1970s. The one exception: from the late 1990s until 2002. This is a key driver of rising inequality. But researchers at the Levy Economics Institute of Bard College have added a new twist.

    The labor force is aging and becoming better educated. Workers are also putting off retirement, having been hammered by the bubble collapses of 2001 and 2008. The result: real wages for many workers likely have been declining between 2002 and 2012, especially for those with less than a college degree. But a degree may not alone guarantee future results. “Going forward, as baby boomers retire, the average experience in the labor force will decline, pulling average wages down.”

    Speaking of the labor market:
     The latest JOLTS report (Job Openings and Labor Turnover) is out. May is little changed from April. Especially disconcerting is the low level of “voluntary separations,” which would indicate workers feel confident in finding a new job and demand for labor is rising. But there are 2.1 times as many job seekers as openings. This is true across every industry. Economist Heidi Shierholz of the Economic Policy Institute goes into detail here.

    And furthermore:
     Seattle-based Payscale, which surveys cash compensation for full-time, private industry employees, released its second-quarter index. Real wages in the index are down about 8 percent from 2006. “Annual U.S. wage growth was 1.8 percent last quarter, but inflation in (the second quarter) was the highest it’s been in three years,” said Katie Bardaro, lead economist at PayScale. “As a result, the high inflation essentially wiped out wage growth and consumers experienced no real wage growth in terms of their actual purchasing power.”

    Consumer prices increased 2.1 percent over the 12 months ending in May. So inflation is very subdued — too subdued to really get the recovery going. The big problem is the weak labor market, so employers can hold down wages. After all, they have choices. Many workers don’t.
  • In the Media | June 2014

    The Coming "Tsunami of Debt" and Financial Crisis in America


    By Dimitri B. Papadimitriou

    The Guardian, June 15, 2014

    The US Congressional Budget Office is projecting a continued economic recovery. So why look down the road – say, to 2017 – and worry?

    Here's why: because the debt held by American households is rising ominously. And unless our economic policies change, that debt balloon, powered by radical income inequality, is going to become the next bust....

    Read the full article here: www.theguardian.com/money/2014/jun/15/us-economy-bubble-debt-financial-crisis-corporations
     

  • In the Media | May 2014

    Jeff Koons's Popeye Is the Fifth Column


    By Martin Sosnoff
    Forbes, May 19, 2014. All Rights Reserved.

    At the Sotheby’s May evening auction, Steve Wynn was the successful bidder for Jeff Koons’s life-sized Popeye sculpture, knocked down at a disappointing $28,115,000, and destined for one of Steve’s casino properties. Within this lot is some cautionary metaphor about conspicuous consumption reigning, again. The Koons piece is an immaculate, but exaggerated life sized presence in colorful, shiny sheet steel.

    When Wynn took control of the Golden Nugget Casino in Las Vegas some 40 years ago, I sold him my block of stock, a reportable position. He deserved all his successes, a great operator who made Vegas a family destination resort while competition still ran grind joints.

    I accept that there are hundreds of art buyers who easily qualify for spending $50 million or more on “name brand” work. Whether this is driven by connoisseurship, emotionality or trading savvy is another story. These big hitters are equivalent to whales at gaming casinos: Alice Walton (the Warhol Coca-Cola), Elaine Wynn (the Bacon) and corporate types like Russian oligarchs and Malaysian honchos, dealers – investors like the Mugrabi family, the jewelry purveyor Graff, even a handful of hedge fund operators.

    The economics of taste suggests, long term, elevated art prices don’t hold up, excepting masterpieces. More critical, overindulgence ultimately is divisive for the country by calling attention to how the top 0.1% conduct themselves. Eventually, a public outcry congeals. Congressmen begin to speak out on income inequality. Unions get their raucous voice back.

    Our middle-class holds minimal free capital for equity investment. A market rising 32% makes Buffett and his ilk billions richer, year-over-year. For the family with $50,000 in stocks, if that, we are talking chump change. Individual pension fund assets carry a discounted value based upon when they can be withdrawn.

    Republicans and major multinational corporations call for tax breaks on the repatriation of offshore earnings, but the facts suggest just the opposite is called for. Corporate income tax rates rest much lower than during the sixties and seventies. Wage earners gain no leverage when the unemployment rate is elevated. Take home pay rises at a measly 2% rate, unless you work for Twitter or other dot com operators and are richly vested in zero cost equity.

    Twitter’s insiders disgorged hundreds of millions of shares once their lockup ended. Employees drove Twitter down 17%, overnight. Such action is indicative of a middle class as yet capital starved. Not just machinists, even young computer code writers.

    If I were Dan Loeb, instead of coveting Sotheby’s, an overpriced piece of paper that just broke below $40, I’d be driving a Buick and seeking naming opportunities at hospitals and graduate business schools. Buffett and Bill Gates are great role models here, and as far as I know disinterested in $100 million Bacon canvases.

    The problem with conspicuous consumption is it can take decades, even centuries before it ends. Never happily. The French Revolution was preceded by bread riots but their political system for centuries exempted the nobility from taxation.

    When I compare our present Gilded Age with the past, I see major differentiation. End of 19th century, Robber Barons mainly were industrialists with controlling positions in oil (Rockefeller), steel (Carnegie), railroads (Vanderbilt), the Guggenheims (minerals), Rosenwalds and Hartfords (retailing). Yes – there was J.P. Morgan and Jules Bache and a few Russians, but no Chinese, Japanese and Malaysians throwing their money around in the art world.

    Land based wealth existed but yielded minimal returns in rents and farm income. There’s no material book value in Twitter and Facebook excepting cash and intellectual property. We have come a long way from when wealth rested in hard assets – minerals and chemicals, now in serious oversupply.

    Art world players mainly are linked to stock market wealth. They include a couple of dozen hedge fund operators. Likewise, private capital operators at KKR, Blackstone, Carlyle and Leon Black. Throw in a dozen VC’s and Internet founders. Although establishment corporate management has learned how to milk their income statements, only a handful walk away billionaires. Unconventionally designed yachts belong to Russians and headman owners like Larry Ellison at Oracle.

    If our S&P 500 Index puts together another year like 2013 in the next couple of years, the art market, surely goes through the roof. Deal proliferation would break out all over, too. Analysts would disremember how to punish tech houses with big disparity between GAAP and non-GAAP earnings.

    The stock market is capitalized currently at 16 times earnings, not 10 or 11, vulnerable to any sign of a decelerating economy. I don’t know where hedge fund capital comes out in a bearish setting. After all, most of them weren’t bullish enough last year and badly trailed the market.

    Obama doesn’t even have an inclination or the power to tax the carried interest of private capital operators at standard rates. Don’t expect any substantive tax reform that redistributes income downward to the poor and lower middle class categories. It could take decades. Infrastructure spending, what the country needs desperately to create jobs, is a stalled initiative for years to come.



    The Levy Economics Institute at Bard College rightly underscores that rising income inequality weighs down the economic setting. GDP momentum, absent positive numbers on exports, must depend on rising private borrowing. But, a high debt to income ratio is unsustainable unless the stock market shows late foot.

    The distribution of income over three decades flows to the top 1%. They control most of the assets in equities but are themselves vulnerable to a stock market bubble as denouement.

    In the sixties and seventies, from my ski chalet in Franconia, New Hampshire I’d zip out in zero degrees early mornings with my band of brown baggers. We sharpened our own skis at home, and ate tons of spaghetti together. My next door neighbor, a dermatologist who was coining money, even in New Hampshire, asked me if it was okay with the group if he bought a new Caddy.

    I told him to drop down one price point. The group might frown on such conspicuous consumption. Les did just that. Those days are gone but not forgotten.
  • In the Media | May 2014

    Income Inequality Undermines Growth


    By Barry Elias
    MoneyNews, May 8, 2014. All Rights Reserved.

    Future rises in income inequality will lead to a prolonged period of anemic economic growth and high unemployment.

    Income for the bottom 90 percent of households has stagnated during the past 35 years. Strong economic activity in the 1990s and 2000s was largely generated by consumption that was financed by borrowing. The resulting high levels of debt relative to income precipitated the financial and economic crisis.

    Since 2008, the bottom 90 percent of households have deleveraged, thereby reducing their debt-to-disposable-income ratio. This ratio for the top 10 percent has remained relatively stable. Should this deleveraging trend continue, by 2017, economic growth will be 1.7 percentage points lower than the post-recession period, and unemployment will rise 1.3 percentage points to 7.6 percent, according to the Levy Economics Institute.

    Future economic growth is unlikely to arise from the activities of the top 10 percent of households. Their consumption levels tend to remain relatively stable, and their investments are driven by short-term arbitrage opportunities of financial assets — not long-term direct investment in businesses that generate strong employment and income growth.

    Coupled with weak foreign demand and restrictive government fiscal policy, future economic growth may be driven by domestic deficits. This burden will fall primarily on the bottom 90 percent in the private sector and exacerbate income disparity. However, as debt-to-income levels rise, a financial and economic crisis becomes more probable.

    The only viable solution to this economic conundrum is greater income equality.
  • In the Media | May 2014

    Levy Economics Institute President Dissects the Myth of the Greek "Success Story"


    By C. J. Polychroniou
    Truthout, May 4, 2014. All Rights Reserved.

    When the global financial crisis of 2008 reached Europe's shores sometime in late 2009, Greece was the first victim of the euro system's failure. Facing persistently large deficits and very high public debt levels, the country ended up being shut out of the global bond markets, raising the prospect of a sovereign bankruptcy. In light of these developments, in May 2010, the Eurozone countries and the International Monetary Fund (IMF) agreed to provide a 110 billion euro bailout loan to Greece in exchange for severe austerity measures and strict conditions. The "rescue" plan, as has been openly admitted by now, was designed not for the purpose of reviving Greece's ailing economy but to save Europe's banks. Thus, as many economists had anticipated, the bailout plan made things worse, spreading havoc with its "economics of social disaster." Less than two years later - and with the debt-to-GDP ratio having increased substantially - a second international bailout plan went into effect for the sum of 130 billion euros. All the money lent to Greece was being used to pay off debt obligations on time while the radical budget cuts and sharp tax hikes that were adopted were meant to readjust the nation's fiscal condition, with no regard for the economic and social costs which these policies entailed.

    Four years later, Greece looks like a badly battered boxer. Its economy has shrunk by 20%; the unemployment rate has reached stratospheric levels; poverty has become widespread; the debt-to-GDP ratio has increased dramatically and Greeks are leaving the country in record numbers. However, both EU and Greek government officials are claiming that the country is moving in the right direction, hailing its recent re-emergence in international credit markets as a sign the economy is recovering. Indeed, the government now talks of the Greek "success story," hoping that this narrative will tilt the electoral balance as Greece's main opposition Radical Left Coalition party (Syriza) is expected to win the European Parliamentary and local elections in May.

    For an analysis of the latest developments in Greece, C. J. Polychroniou (a research associate and policy fellow at the Levy Economics Institute and a columnist for the Greek nationally distributed newspaper, The Sunday Eleftherotypia) interviewed Dimitri B. Papadimitriou, president of the Levy Economics Institute of Bard College, executive vice president and Jerome Levy Chair Professor of Economics, for Truthout. An edited and shorter version of the interview appears simultaneously in Greek on the Sunday edition of Eleftherotypia).  

    C.J. Polychroniou for Truthout: After four years as the pariah of the financial markets, in the course of which 330 billion euros was granted/guaranteed in international bailouts in order to avoid an official bankruptcy, Greece has made a successful return to the international bond markets. Why did Greece return to the bond markets now when the country's debt-to-GDP ratio is much bigger than it was back in 2010?

    Dimitri B. Papadimitriou:
     The return to the bond markets was an act of pure symbolism. The government purposely made the success of the austerity program dependent on achieving a primary surplus as opposed to the return to growth in output and employment. Recall that the idea of expansionary austerity embraced by the country's international lenders was spectacularly discredited. Thus, the Troika (IMF, EU and European Central Bank ) and Greece's compliant government needed to invent a new metric of success, and it was associated with achieving a primary surplus as large as it could be so that financial markets can be impressed. However, no one else is impressed, especially the international lenders, for three main reasons: (1) The primary surplus was achieved by a one-off (non-recurring) excess revenue from the gains of Greek bonds in the portfolios of Eurozone's central banks and the European Central Bank's (ECB) holding that were returned to Greece; (2) collections of old tax revenue; and (3) non-recurring spending cuts and delayed payment of the government's debt to the private sector, whether VAT refunds or non-payments to private sector vendors.

    Finally, the return to the markets was costly to the country - the apparent low interest rate of 4.95% notwithstanding - since the interest rate of the funds borrowed from the European Stability Mechanism (ESM) is at a very much lower interest rate. To be sure, the hedge funds and the private sector [parties] buying the new bonds knew that there was an implicit guarantee from the ECB that would accept these bonds under its Outright Monetary Transactions (OMT) program. So the bonds were not backed by the progress of the Greek economy - it would be ludicrous to assume so, for an economy in continuing recession and increasing debt to GDP ratio, especially if its credit rating is still below investment grade. So, all in all, it was an act of desperation and a strategy to give the government extra help in the soon-to-be-held local and European Parliament elections.

    The government has hailed the return to the financial markets as a sign that the crisis is over. Yet, the unemployment rate right now stands at 28%; the education and health care systems have been decimated; 1 out of 3 Greeks live below the poverty line and, according to some estimates, the debt could grow to 190% of GDP by the end of 2015. Do these numbers spell out an economic "success story" or a national tragedy?

    All these statistics point to the failure of the harsh program of fiscal consolidation, but if you are interested in presenting a portrait of success, you need to invent a condition that will persuade the non-critical mind that things are much better. No one likes Cassandras, even though they turn out to be quite accurate in the end. As has become clear by now, the Greek mass media industry has played an inappropriate role in persuading people that economic conditions are much better than they think, that the country has reached bottom and it is just about to turn the corner. How many times have we heard that we are seeing the light at the end of the tunnel? But the tunnel is unfortunately very, very long and it will take either a decade or more for conditions to be turned around if present policy continues, with more erosion of living standards and very high structural unemployment, or a relatively quick improvement with an immediate reversal of policy. For this, the omens are very clear, but the political will is not. And one should not expect any change of policy to happen without a change in political leadership. Brussels, Berlin and Frankfurt have a lot to lose with a change of the prevailing policy, and thus they must continue to enforce it despite the destroyed lives that it leaves behind as it moves forward. So we are seeing a tragedy which I am afraid will expand unless the European Parliamentary elections give a different message either with a significant showing of the extreme right or left parties. Marine Le Pen's impressive showing in the relatively recent local [French] elections speaks to my point. It would be ironic if voters, despite the catastrophic consequences they continue to endure, give the present European leadership another message of approval. It will be self-flagellation with a vengeance.

    The feeling one gets as a result of the implementation of austerity in the case of Greece and the other fiscallytroubled countries in the Eurozone is that this is not simply a fine-tuning policy. If that is indeed the case, what is then the ultimate strategy of austerity?

    In my view, the idea of austerity was not a policy of fine-tuning. To the contrary, it was a policy of radical change to allow markets to reign supreme with no government interference. This is a doctrine first put to test by the late US President Reagan and UK Prime Minister Thatcher. They both embraced the view that government is the problem to economic ills and not the solution. But the real world has taught us time and again that government at difficult times and downturns is the only solution. We saw it to be the case in the US, Germany, China, Japan and every other economy in trouble. Why Greece and the other fiscally troubled economies should become experiments of contrarian policy whose results were predicted is something that really boggles the mind. No one would dare apply the idea of austerity to the extent it has been applied to countries such as the US or even Germany and other countries of the industrial world irrespective of how high their debt-to-GDP ratios are. Why aren't we forcing Germany and France with their mighty GDP machines to have high public surpluses so they can decrease their debt to GDP ratios to the 69% limit as required by the Maastricht Treaty? After all, Germany is a growing economy. So it is clear that member states in the Eurozone are not equal. When Germany was the sick man in Europe, it was acceptable for the government to follow the Keynesian prescription, but now that its status has changed to that of hegemon, the laissez-faire paradigm returned in vogue. There will always be many thoughtless leaders, but sooner rather than later people take steps to remove them from positions of strength and power.

    The advocates of austerity claim that this policy will improve the external fundamentals of fiscally troubled countries in the Eurozone. Has this happened in the case of Greece?

    People who are not knowledgeable about structure of economies on which they impose policies should never be surprised with contrarian results. The Greek economy cannot be improved just because policy makers impose policies that supposedly restructure labor markets - read here, suppression of wages and eliminating labor rights and standards - if import and export elasticities are different than those assumed in the policy implementation. The sum of import and export elasticities in Greece is barely above one, which makes a substantial increase in net exports the goal of a wild imagination, at least in a relevant time frame. No wonder Greece's net exports have failed to offset the public spending cuts, and thus not contributed to the growth of GDP. And those increases are primarily from oil-related products that are volatile in concert with oil price volatility. To be sure, tourism is important, but despite last year's "huge" increase in foreign tourist arrivals to Greece, net employment continued to plummet. The external fundamentals are not dependent on labor reforms, but on large investment, public partnership with the private sector, which will not be forthcoming any time soon. It won't happen with the privatization of the old Athens airport or with other similar "privatization" schemes.

    Radical structural reforms, which include labor and product markets and blanket privatizations, constitute the second component of the conditions behind Greece's bailout plans. First, is there in economic literature a direct connection between labor market flexibility, productivity growth and national economic performance?

    The economic literature, as economists know, can produce conflicting results. It will not be surprising to find cases when statistics will prove that there is a positive outcome in terms of increasing productivity with flexible labor conditions, but this is always dependent on the level of technology diffusion. To be sure, German workers have the highest productivity in Europe along with those in the Netherlands, but it is not because they are paid less than other Eurozone workers but because of the high level of effective technology used. So they are about 70% more productive as compared to Greeks, Portuguese or Spaniards despite the fact that the latter work substantially many more hours during the week. Clearly, Germany's and other North European economies enjoy better economic performance, but this is not due to so-called labor flexibility only. Germany is successful because it is lucky, having an extraordinary number of idle and low-wage workers from East Germany when the unification took place. Unification gave Germany the ability to hold West German wages down. But this should not be used as an example of a successful application of a labor flexibility policy. The literature also abounds in studies showing that labor productivity is not dependent on labor flexibility. Indeed, the theory and policy of "efficiency" wages, promoted by none other than Nobel Laureate George Akerlof and current Fed Chair Janet Yellen, is part of the economic research which shows there are productivity gains and other positive outcomes to firms which pay higher than market wages. All in all, then, the argument of flexible wages does not, I am afraid, hold water.

    The international experience with privatizing electricity, gas, water, sanitation, and public health services indicates that there are anti-social effects behind privatization. So why are Greek governments so eager to privatize virtually everything in Greece?

    As has been shown in certain cases, the public sector can be inefficient, but this is not tantamount to the private sector being efficient either. There are key industries that must be in the public domain because their goods or services are considered public goods. In many advanced countries, such as in the US, the goods and services mentioned are mostly in the private sector's hands, but it does not mean that they are efficient or price competitive. To the contrary, whenever a service was privatized or became unregulated, it never gave the desired effects in being price competitive. For countries like Greece marked with high income distribution inequality, some of the services (such as health services, for example) must be the business of the public sector. Other services can be privatized, but they must be highly regulated. The privatization process in Greece is a fire sale of public property just because the international lenders have imposed it. If profitable, and in the public interest, then some of these services can be privatized, but should continue to be regulated. In the US, however, no one would dream of privatizing the national lotteries; they are the most profitable and high revenue sources of government revenue, yet in Greece it was the first public company to go on sale. There is no general rule that these services should be privatized. They need to be run efficiently either under the aegis of the government or the private sector - absent the corruption, nepotism or other ills of the up-to-now Greek clientist political system. The absence of transparency should not be the reason for privatizing them.

    You have argued in a number of publications in the recent past that what Greece needs is a European type of a Marshall Plan. Doesn't this suggestion run counter to existing political structures and economic realities in Europe?

    I am pleasantly surprised to read of late that even the government speaks of a European Marshall-type plan of aid to Greece. The existing political structure in Europe may be seeing such an aid program as anathema, but I believe it recognizes that if the European project is to be kept intact, it must begin to think along those lines. An economic and monetary union requires various types of support from the economically strong to the weak. This will eventually take place willingly or not, and the evidence shows that it not to the benefit of the weak only - but more so to the strong. The announcement of the creation of a Greek Investment Fund with the support of Germany's KfW is a step in the right direction even though the details of the plan are rather sketchy. Thus, even though I have been labeled by many the Cassandra of Greece, I want to be optimistic that such aid may not be that farfetched.

    The European Union and the International Monetary Fund have disagreed all along about the sustainability of the Greek debt load. Who is right, if any?

    There is no question in anyone's mind that the debt load is unsustainable. It was known from early on that a debt restructuring will be needed. The haircut that took place was ill-conceived and hurt the country more than it helped since it decimated the balance sheets of Greek and Cypriot banks along with public pension trust funds and middle-class Greek citizens. It occurred much too late after the German, French and Italian banks unloaded their Greek holdings to their counterparts in Greece and Cyprus. When it happened, it was a thoughtless decision despite the government celebrating it as a major accomplishment. I haven't agreed on anything with former ECB Vice President Papademos' views about the Greek economy except with his opposition to such a haircut when it happened. All in all, the IMF is, of course, correct - but Brussels, Berlin and Frankfurt are trapped, having convinced every European citizen that Greece's debt load is sustainable. The government will celebrate a new accomplishment after the European elections when the debt will be restructured by extending its maturity to perhaps 50 years and lowering the interest rate. This is in economic terms a present-value "haircut," but not a debt-load reduction. It is the proverbial kicking the can further down the road, which will subject the country to continued vigilance and restrict its sovereignty over its fiscal policy stance.

    Syriza represents itself as a viable alternative to the current economic, social and political malaise in Greece by claiming that, when it comes to power, it will put an end to austerity and will force the European Union to rethink its policies towards Greece. However, while a good percentage of Greek voters have shifted to the left, many others seem to believe that Syriza's political rhetoric rests either on naive thinking or plain opportunism. What are your own thoughts on this matter?

    I believe Syriza is the only viable alternative that Greece has at the present time if a change in policy direction is to be achieved. Its mandate to change policy would be very difficult indeed. But it can be done, although not free of risks. But risks are endemic in any policy prescription that would be implemented, and I believe the current policy being followed entails higher risks for the economic future of Greece. What I fear more is the disappearance of what used to be a middle class, let alone the immiseration of low-income, low-skilled workers. What these groups need right now is a lifeline - which, unfortunately, is not in the cards. Given the additional financing that will be needed in 2014 and 2015, more austerity will be needed which will affect even further the country's living standards, a process which will have even further adverse effects for the middle class and the low-income and low-skilled segments of the population. With conditions worsening, even more people are expected to question the prevailing policy. And if there is one political force which can offer a viable alternative to the current nightmare, it is none other than Syriza. Yes, perhaps there is an element of political naivete characterizing Syriza, but there is seriousness of purpose and the work of the gifted in its midst is very refreshing and encouraging. To be sure, political analysts talk about the importance of the incumbent candidates and this would be a very difficult problem to overcome. I want to believe, however, that despite the internal squabbling which frequently occurs among the different groups inside Syriza, the party will, at the end, prevail. At least I hope so. To those who oppose them, I can only respond by saying be careful what you wish for.

    If the economic "success story" of Greece turns out in the end to be nothing more than a politically constructed myth, and the prospects of the European integration project remain what they are today, why shouldn't Greeks opt to leave the euro?

    There is plenty of evidence that the success story is a politically constructed myth with the acquiescence of the European leadership. The question about the country remaining in the euro club is interesting and very important. I believe that Greece cannot leave the euro since the costs associated with an exit are very consequential. As I have written elsewhere, Greece has a number of options that it can follow, if the European leadership continues with its intransigence and continuing policy of the dangerous idea of austerity. If all other options fail, the introduction of a carefully designed parallel financial system is a very viable alternative in order to get a handle on both domestic financial market liquidity and employment growth and output. This is not a novel idea. The Greek government used a similar program in 2010, although very haphazardly conceived, but it was introduced nevertheless. It is not a crackpot idea and has been embraced by both conservative and liberal thinkers. This will address some of the most serious challenges the Greek economy and society face without endangering the country's membership in the euro. So, there are other alternatives available before the unthinkable becomes the only option.
  • In the Media | April 2014

    CEA's Furman Looks at "Great Moderation"


    By Robert Feinberg
    MoneyNews, April 30, 2014. All Rights Reserved.

    Jason Furman, the brilliant economist who chairs the Council of Economic Advisers, spoke recently at the 23rd Annual Hyman Minsky Conference, sponsored by the Levy Economics Institute of Bard College. 

    The title of Furman's presentation was "Whatever Happened to the Great Moderation?" He argued that with the right economic policies, as advocated by the administration, this mythical Great Moderation could be restored. 

    I suspect a priori that the Great Moderation was a result of official policies that suppressed normal adjustments that should have taken place in the economy, for example, by neglecting prudential and consumer protection regulation of "too big to fail" banks, so that when the 2008 episode of the permanent financial crisis erupted, it was much more costly and disruptive than it would otherwise have been. 

    Ironically, after having written this sentence, I found that a similar suggestion had been made by a famous economist — none other than Hyman Minsky. The very informative Wikipedia entry on the Great Moderation also contains a reference to a 2003 speech by University of Chicago economist Robert Lucas as president of the American Economic Association celebrating the idea that the profession had practically solved "the central problem depression prevention." 

    Furman defined the Great Moderation as the reduction in the volatility of a wide range of economic variables, and to the associated increase in the longevity of economic expansions and reduction in the frequency and severity of economic contractions. Among the economists cited as having contributed research on this subject are former Federal Reserve Chairman Ben Bernanke (2004) and Douglas Elmendorf (2006), currently director of the Congressional Budget Office. 

    Furman dated the beginning of the debate over the Great Moderation to the early 1990s. To his credit, Furman took time out to question, as I do, whether "there ever was a 'Great Moderation,' let alone that it has returned and rendered further policy steps unnecessary."

    Furman dismissed the idea that policy responses are not needed, because recessions serve a purpose and little can be done, on the ground that while this might be true in "normal times," these times are characterized by a large shortfall in output, and policy responses are needed. He seems not to have considered that maybe these are "normal times," and that the slow growth and shortfall in output are due to previous misguided policies. 

    Instead, he offered some new misguided policies, a lot of them, under what he calls "The Unfinished Agenda for Economic Stability." This is ironic, because it seems that Minsky himself was highly skeptical that "economic stability" could be achieved by policy. 

    It almost becomes amusing to consider the grab bag of measures Furman offers as holding out hope of averting or coping with future downturns. He claimed that Obamacare will have a counter-cyclical effect, a notion that is heatedly disputed, and he also pointed to increased progressivity in taxation. Reducing inequality is highly speculative as a counter-cyclical measure, but maybe they can start with salaries of reckless bank executives and their feckless regulators. 

    Finally, Furman pointed to implementation of Dodd-Frank and Housing and Finance Reform, which are laughable, because neither is likely to happen, and they might not produce the effects he expects even if they do. 

    As a political document, the speech represents how desperate the administration is to establish a positive legacy as President Obama's popularity declines.

    (Archived video can be found here.)
  • In the Media | April 2014

    Rep. Maloney Attacks Ryan Budget — Part I


    By Robert Feinberg
    MoneyNews, April 28, 2014. All Rights Reserved.

    Rep. Carolyn Maloney, D-N.Y., spoke at the 23rd Annual Hyman P. Minsky Conference, held in Washington at the National Press Club recently. The conference was sponsored by the Levy Economics Institute of Bard College, an independent group that "encourages diversity of opinion in the examination of economic policy issues while striving to transform ideological arguments into informed debate." The theme of the conference was "Stabilizing Financial Systems for Growth and Full Employment," and it was co-sponsored by the Ford Foundation. 

    The conferences celebrate the life and work of Minsky, who was an early theorist on the financial crisis and an advocate of government intervention to respond to financial crises that inevitably occur from time to time. This is the first of three articles on speeches delivered at the conference by Maloney and Jason Furman, chairman of the Council of Economic Advisers.

    Maloney struggled to deliver the speech due to a cough, and perhaps also due to some form of the flu, she seemed medicated and perhaps to be reading the speech for the first time, although the arguments were very familiar. 

    Later that day the House was scheduled to vote on what is known as the "Ryan budget," authored by Rep. Paul Ryan, R-Wis., which she rightly stated represents the embodiment of the Republican platform, and she devoted the speech to two provisions related to financial reform that would be affected by the Ryan budget, namely the so-called "Orderly Liquidation" provisions contained in title II of the Dodd-Frank Act, and so-called "Housing Finance Reform" now being tentatively considered in Congress.

    In 2008, I predicted privately that there would be a bank bailout, based on a cynical recollection of the deals that were put together in 1988 during the savings and loan crisis to stretch that mess out past the November election at what was then considerable cost to taxpayers. However, this prediction was not nearly cynical enough. The George W. Bush administration, with Henry Paulson as Treasury Secretary, was so incompetent, or the needs of Paulson's former firm, Goldman Sachs, were so pressing, that the bailout could not be put off. 

    The 2008 election offered a choice between a candidate who had virtually no experience and one who had a lifetime of experience but seemed not to have learned much from it. 

    Candidate John McCain made a big show of "suspending" a campaign that voters may not have noticed even existed. McCain flew back to Washington, ostensibly to intervene in the crisis, but without any actual plan. Meanwhile, candidate Barack Obama stayed coolly on the sidelines and benefited from the contrast with the manic McCain.

    After the failure of Lehman Brothers and the bailouts of Bear Stearns and AIG, the official story line was, not surprisingly, that the reason the crisis happened was that the regulators lacked the authority to resolve nonbanks whose failure threatened the health of the financial system. Title II of Dodd-Frank gives the FDIC the authority to borrow up to $150 billion to fund the resolution of failing institutions through "debtor in possession" financing. The Ryan budget wants to repeal this authority, and Maloney is extremely exercised about this prospect.

    Given that this move has engendered such a reaction from bailout apologists like Maloney, legislators seeking to prevent yet another round of bailouts might consider attaching the repeal of title II to any legislation coming out of the Senate that looks promising.

    (Archived video can be found here.) 
  • In the Media | April 2014

    FOMC Member Evans Calls For More Aggressive Monetary Policy


    By Robert Feinberg
    MoneyNews, April 22, 2014. All Rights Reserved.

    Charles Evans, president of the Federal Reserve Bank of Chicago and a leading dove of the Federal Open Market Committee (FOMC), delivered a speech April 9 titled "Monetary Goals and Strategy" to the 23rd annual Hyman Minsky Conference, which is sponsored by the Levy Institute of Bard College and held at the National Press Club in Washington. 

    With the exception of me, the modest-sized audience was composed of liberals who follow economic policy very closely and believe that governmental authorities should tinker constantly with the economy in order to improve its performance and the distribution of income. 

    The conference honors Minsky as one of the earliest exponents of this view, who propagated it articulately from the earliest years of the permanent and ongoing financial crisis.

    Chicago has traditionally been a hotbed of conservative and even hard money economics, especially at the University of Chicago. However, the Chicago Fed under Evans has placed itself firmly in the dovish camp on monetary policy, and in 2015 Evans will rotate into a voting seat on the FOMC, so that he can back his sentiments with a vote. Evans has taught at the University of Chicago, University of Michigan and University of South Carolina, and he received degrees in economics from the University of Virginia and Carnegie-Mellon University, which is a stronghold of conservative monetary scholarship.

    What makes Evans' speech especially significant is that he poses a scholarly challenge to conservative advocates of a monetary rule, particularly in circumstances where the economy has performed so poorly that the federal funds rate has already dropped to the bottom, and he contends that under these conditions, even Milton Friedman would agree that the FOMC should take an aggressive stance in order to keep the economy from slipping into a zone of negative inflation that could cripple economic growth for decades. 

    The speech was divided into four parts. First, Evans reviewed the "Three Big Events in Fed History," in his order of importance: 1) The Great Depression (1929 to 1938); 2) The Great Inflation (1965 to 1980); and The Treasury Accord (1951). He defended the independence of the Fed, but accepted in a serious way, not just rhetorically, that with the independence must go accountability.

    Second, Evans laid out a three-part strategy for achieving the goals the FOMC has set out during the long term. 

    Third, he used bulls-eye charts to demonstrate that the Fed has missed both its employment and inflation targets. 

    And finally, he lamented the inability to stimulate the economy by adjusting the federal funds rate once it has reached its lower bound. 

    He concluded by advocating that the Fed adopt more aggressive policies now to stimulate growth, even at the risk of exceeding the 2 percent inflation target for some time after the employment target has been reached. 

    He criticized as "timid" the stance of most of his colleagues who argue for a slow glide path to the target so as not to risk touching off another bout of inflation.

    (Archived video can be found here. A copy of the speech can be found here.) 
  • In the Media | April 2014

    China: The Bad Way and the Good Way to Burst Asset Bubbles


    By Panos Mourdoukoutas

    Forbes, April 14, 2014. All Rights Reserved.

    For years, China has been enjoying robust economic growth that has turned it into the world’s second largest economy.

    The problem is, however, that China’s growth is in part driven by over investment in construction and manufacturing sectors, fueling asset bubbles that parallel those of Japan in the late 1980s. With one major difference: China’s overinvestment is directed by the systematic efforts of local governments to preserve the old system of central planning, through massive construction and manufacturing projects for the purpose of employment creation rather than for addressing genuine consumer needs.

    Major Chinese cities are filled with growing numbers of new vacant buildings. They were built under government mandates to provide jobs for the hundreds of thousands of people leaving the countryside for a better life in the cities, rather than to house genuine business tenants.

    China’s real estate bubble is proliferating like an infectious disease from the eastern cities to the inner country. It has spread beyond real estate to other sectors of the economy, from the steel industry to electronics and toys industries.  Local governments rush and race to replicate each other’s policies, especially local governments of the inner regions, where corporate managers have no direct access to overseas markets, and end up copying the policies of their peers in the coastal areas.

    We all know how the Japanese bubble ended. What should Chinese policy makers do? How can they burst their bubble?

    There is  a bad way and a good way, according to L. Randall Wray and Xinhua Liu, writing in "Options for China in a Dollar Standard World: A Sovereign Currency Approach.” (Levy Economics Institute, Working Paper No 783, January 2014).

    The bad way is to pursue European-style austerity, which reins in central government deficits.

    We all know what that means–the Chinese economy is almost certain to be placed in a downward spiral that will jeopardize employment growth. Besides, as the authors observe, China’s fiscal imbalances aren’t with central government, but with local governments. In fact, China’s main imbalance “appears to be a result of loose local government budgets and overly tight central government budgets.”

    That’s why the authors propose fiscal restructuring rather than austerity. Rein in local government spending, and expand central government spending.

    That’s the good way to burst the bubble. But is it politically feasible? Can Beijing reign over local governments?

    That remains to be seen. 

  • In the Media | April 2014

    Antídoto


    Por Alfredo Zaiat
    Fracasos Múltiples Internacionales está regresando al escenario político y económico argentino. La moción de censura y la amenaza de iniciar el camino de la expulsión del país de esa institución por la calidad de las estadísticas públicas colocó al Gobierno en una situación incómoda. La opción era romper con ese organismo internacional, convirtiéndose en el único país del mundo en quedar fuera de esa entidad multilateral, lo que hubiera derivado en la marginación del G-20, en la clausura al acceso de créditos del Banco Mundial, el BID y del mercado, y en deteriorar la reputación internacional frente a otros países, o negociar el espacio de intervención de sus técnicos. Esta última fue la elección del gobierno de CFK. Implicó una primera evaluación silenciosa del FMI sobre el sistema financiero local el año pasado y luego la cooperación técnica para la elaboración del nuevo índice de precios al consumidor y la actualización del indicador PBI. La evaluación general de la economía (el conocido artículo IV del convenio constitutivo del Fondo, en cuya sección 3 establece “la supervisión de las políticas de tipo de cambio de los países miembros”) es la única cuestión de tensión en la relación Argentina-FMI.

    Aceptar la revisión anual es una decisión política, de carácter simbólico, más que económico. En Washington, en el marco de la Asamblea Anual conjunta del FMI-BM Axel Kicillof le reiteró a David Lipton, subdirector gerente del Fondo Monetario Internacional, que el país no analiza volver a aceptar las auditorías anuales. Argentina no registra deuda con el FMI después de que el 5 de enero de 2006 cancelara el total por 9530 millones de dólares, y no está negociando ni requiere de un crédito del organismo atado a condicionalidades en la política económica. Instrumenta una estrategia heterodoxa que no es simpática al staff del Fondo, como quedó expresado en el último Perspectivas Económicas Mundiales. Estos técnicos consideran a la Argentina como un mal ejemplo por su política económica de crecimiento, inclusión social y autonomía del mercado de capitales. También es resistida por la persistente crítica a las recetas ortodoxas realizada por CFK en foros internacionales.

    Después de ocho años de esa tensa relación, para las autoridades del Fondo les resulta satisfactorio retomar el vínculo con el país, como lo dijo su director gerente, Christine Lagarde, para mostrar que todas las ovejas están en el rebaño. Mientras, para el Gobierno le resulta necesario para despejar el frente externo en un contexto de escasez de divisas, y para facilitar la negociación del default de doce años con el Club de París. Incluso sin revisión anual de la economía es una reconciliación por conveniencia mutua.

    El entusiasmo que manifiestan analistas y economistas del establishment por cada comentario de funcionarios del Fondo o del Banco Mundial, excitación exacerbada si incluye algún componente crítico, es una particularidad argentina. En general las observaciones del Fondo no son tomadas con seriedad, puesto que ya ha habido suficiente experiencia global para comprobar el fracaso de sus recomendaciones. En los hechos, el FMI es esencialmente un actor político para condicionar políticas económicas en función de garantizar el pago de la deuda a los acreedores, además de preservar los intereses económicos de las potencias (Estados Unidos y Europa).

    Sobre ese rol del Fondo, la ex presidenta del Banco Central, Mercedes Marcó del Pont, señaló que “frente a los datos que muestran una desaceleración en las economías de la región el FMI, una vez más con serios problemas de diagnóstico, recomienda medidas que profundizarían los problemas. El desafío para América latina es utilizar el espacio de política ganado en estos años para sostener los niveles de actividad y empleo, con políticas anticíclicas, fundamentalmente en el terreno fiscal, para sostener la demanda interna”. Lo afirmó el miércoles pasado en la Minsky Conference, en Washington, siendo la primera vez que habló en público desde que dejó el cargo, ratificando que es diferente a otros ex funcionarios que cuando dejaron el gobierno se dedicaron a castigar a la Argentina en foros internacionales. Marcó Del Pont destacó la solvencia de la economía argentina en el 23rd Annual Hyman P. Minsky Conference on the State of the US and World Economics, organizado por el Levy Economics Institute. Participó del panel Financial re-regulation to support growth and employment (re-regulación financiera para impulsar el crecimiento y el empleo). Los principales conceptos de Marcó del Pont sobre la situación económica de América latina y, en particular, de Argentina, fueron los siguientes:

    - No puede ignorarse que los dos factores clave que han promovido a nivel agregado el crecimiento de la región, el denominado viento de cola (precios de los commodities y flujos de capital) han acentuado, salvo casos excepcionales como el de Argentina, la primarización de sus estructuras productivas.

    - América latina deberá lidiar con estos fenómenos en un contexto internacional que se presenta menos benévolo para nuestras naciones ya que ni las condiciones de liquidez internacional ni los términos del intercambio se proyectan tan favorables como hasta ahora.

    - El desafío pasa entonces por delinear estrategias anticíclicas que al mismo tiempo que busquen sostener los niveles de actividad y empleo, actúen también en la transformación de sus estructuras productivas, alentando la diversificación e industrialización. Para ello deben maximizar el uso del espacio de política ganado durante la década.

    - La región tiene márgenes de maniobra para encarar ese desafío. En gran medida ello quedó de manifiesto durante lo peor de la crisis de 2008-2009. Disponen, por un lado, de mercados internos dinámicos que han constituido la base de sustentación del crecimiento durante los últimos años. Y a diferencia de lo ocurrido en las décadas del ’80 y ’90 América latina no atraviesa en general por situaciones de fragilidad financiera o elevada exposición en materia de endeudamiento externo. Ambos rasgos son particularmente ciertos en el caso de Argentina.

    - Ahora bien, esta descripción no supone ignorar que en la gran mayoría de los países de la región (ciertamente no en Argentina) persiste un elevado grado de integración con los mercados financieros internacionales, lo cual potencia su exposición a los ciclos de liquidez internacional. Recordemos que la cuenta capital y financiera de América latina registra el más elevado grado de apertura de todas las economías del mundo en desarrollo.

    - El diagnóstico predominante y las recomendaciones subsecuentes que surgen del main stream no toman en cuenta estos fenómenos estructurales, complejos, que caracterizan a nuestras economías. Persiste, en cambio, una unilateral preocupación por la ausencia de “reformas estructurales” (léase mayor flexibilización del mercado de trabajo) o por la presencia de la “dominancia fiscal” (léase ajuste fiscal) como uno de los principales fenómenos explicativos de inestabilidad macroeconómica y de crisis. Se soslaya en el debate la importancia de la “dominancia de la balanza de pagos” como factor que históricamente ha truncado los procesos de desarrollo de América latina.

    - Abordar las condiciones de la re-regulación financiera para el crecimiento y el empleo requiere incorporar a la regulación de los flujos de capital dentro del instrumental permanente de política económica de los países en desarrollo. Y los bancos centrales deberían jugar un rol activo en ese terreno.

    - Esa regulación de la cuenta capital incluyó, a partir de 2011, restricciones a la compra de moneda extranjera para fines de ahorro por parte de los argentinos, la cual se había constituido en una fuente desestabilizadora del mercado de cambios y en canal de fuga del excedente económico por fuera del circuito de inversión y consumo. En efecto, el elevado bimonetarismo que todavía caracteriza a nuestra economía es un condicionante no menor para la administración del mercado de cambios.

    - Ahora bien, ¿cómo se ubica Argentina frente al ya mencionado escenario internacional menos favorable? Sin duda alguna el haber regulado el ingreso de capitales de portafolio nos torna menos vulnerables a los cambios que se presentan en el ciclo de liquidez, no sólo en términos de volúmenes sino, en un futuro no tan lejano, de tasas de interés. Frente a la aparición en los últimos años de un ligero desequilibrio externo el desafío de la política económica es garantizar las fuentes de recursos externos que nos permitan sostener los niveles de actividad y empleo, y en paralelo abordar los déficit sectoriales que impactan en las cuentas externas. Y en ese sentido el desequilibrio industrial y energético deben ubicarse en el centro de las prioridades.

    - Argentina tiene, entonces, espacio para buscar recursos externos que se orienten hacia los destinos estratégicos que remuevan los obstáculos estructurales y garanticen capacidad de repago.

    - Vale la pena insistir, el carácter virtuoso o no que asuma el acceso de Argentina, ya sea de su soberano como de sus empresas, a corrientes de inversión directa o de financiamiento depende de manera decisiva en la asignación de esos recursos y su capacidad para remover las causas estructurales del estrangulamiento externo. Dicho en otros términos en la capacidad para promover el proceso de desarrollo, esto es, de transformación productiva y una más equitativa distribución del ingreso. Este conjunto de ideas puede actuar de buen antídoto ante tanta contaminación en el debate económico, al que ahora se ha vuelto a incorporar en forma activa el FMI. 
  • In the Media | April 2014

    Tarullo Says Fed Shouldn't Rush to Avert Any Wage Pressures


    The Bond Buyer, April 11, 2014. All Rights Reserved.

    Federal Reserve Governor Daniel Tarullo said the central bank shouldn't raise interest rates "preemptively" on a belief the recession cut the supply of ready labor in the economy. "We should remain attentive to evidence that labor markets have actually tightened to the point that there is demonstrable inflationary pressure," Tarullo said today in remarks prepared for a speech in Washington. "We should not rush to act preemptively in anticipation of such pressures based on arguments about the potential increase in structural unemployment in recent years." Tarullo, the central bank's longest-serving governor, backed a March 19 statement in which the Federal Open Market Committee said it will keep the main interest rate below normal long-run levels while attempting to meet its mandate for full employment and stable prices. In a wide-ranging speech, Tarullo cited slower productivity growth, the smaller share of national income accruing to workers, rising inequality and decreasing economic mobility as "serious challenges" for the U.S. economy. Monetary policy, by focusing on the full-employment component of the dual mandate, can "provide a modest countervailing factor to income inequality trends by leading to higher wages at the bottom rungs of the wage scale," Tarullo, 61, said at the 23rd Annual Hyman P. Minsky Conference in Washington. The Fed governor rebuffed concerns about near-term inflation from wages, noting that even as the unemployment rate has fallen to 6.7 percent in March from 7.5 percent in the same month a year earlier, "one sees only the earliest signs of a much-needed, broader wage recovery." "Compensation increases have been running at the historically low level of just over 2 percent annual rates since the onset of the Great Recession, with concomitantly lower real wage gains," Tarullo said. The reasons for that lag in wage gains are not clear, he said. "The issue of how much structural damage has been suffered by the labor market is of less immediate concern today in shaping monetary policy than it might have been had we experienced a period of rapid growth during the recovery," Tarullo said at the event, organized by the Levy Economics Institute of Bard College in Annandale-on-Hudson, N.Y. 
  • In the Media | April 2014

    BCE: Constancio, faremo qualcosa perche' inflazione troppo bassa


    Class Editori, April 11, 2014. All Rights Reserved.

    MILANO (MF-DJ)--La Banca centrale europea e' pronta a intervenire per affrontare il problema della bassa inflazione che continua a rimanere sotto il target ufficiale della Bce. Lo ha dichiarato il vice presidente della Bce Vitor Constancio, aggiungendo che i policy maker stanno ancora cercando di capire quali misure devono prendere e confermando che l'acquisto di titoli e' una possibilita'. "Faremo qualcosa perche' l'inflazione e' troppo bassa, e anche considerando solo il compito principale sulla stabilita' dei prezzi, noi chiaramente, nel medio termine, non stiamo raggiungendo il nostro target di inflazione del 2%. Quindi dobbiamo affrontare seriamente il nostro compito", ha detto Constancio in una conferenza a Washington sponsorizzata dal Levy Economics Institute. Il vice presidente ha sottolineato che neanche se il sistema bancario europeo ritornasse in piena salute si potrebbe garantire una ripresa della crescita economica. La Banca centrale ha posto grande enfasi sulla valutazione dei bilanci degli istituti europei prima di diventare supervisore unico alla fine dell'anno. Si spera che l'esercizio costringera' le banche a ripulire i bilanci e a raccogliere capitali, con l'obiettivo di renderli piu' forti in modo da concedere maggiori prestiti all'economia reale. Ma secondo Constancio questo modo di agire e' troppo semplicistico. "I bilanci delle banche sono gia' stati largamente riparati". Inoltre, ha aggiunto il membro della Bce, non e' assolutamente chiaro che "la finanza sia una condizione sufficiente per far ripartire la crescita europea". L'Eurozona deve affrontare numerosi problemi che "potenzialmente sono molto piu' seri dei danni inflitti dalla crisi finanziaria e la conseguente crisi del settore bancario". Questi problemi sono anche molto piu' difficili da affrontare", ha concluso il vice presidente. 
  • In the Media | April 2014

    Evans’s Prescription: Wage Hikes and Small Dose of Inflation


    By Denis MacShane
    The OMFIF Commentary, April 11, 2014. All Rights Reserved.

    The normal duty of central bankers (especially in Europe) is to denounce inflation as the work of the devil and call for labour market flexibility as a barely disguised code for reducing wages.

    But a gathering of academic economists at the annual Minsky Conference this week in Washington heard an impassioned plea from one of America’s top central bankers that it was time to increase wages and let inflation rise again.

    Charles Evans is president of the Federal Reserve Bank in Chicago, where he has worked much of his professional life, in addition to stints as an economics professor and author of heavyweight academic articles on monetary policy.

    Evans, currently a non-voter, is among the more dovish members of the Federal Open Market Committee. In his paper at the Bard College Levy Institute’s Minsky Conference, commemorating the work of depression-fighting economist Hyman Minsky, Evans said the US economy now needed a serious boost in wages to help business demand.

    Evans used moderate, cautious language. However, the message was clear: Deflation and low wages are the new dragons to be slain.

    ‘Low wage increases are symptomatic of weak income growth and low aggregate demand. Stronger wage growth would likely result in more customers walking through the doors of business establishments and leading to stronger sales, more hiring and capacity expansion,’ Evans said.

    He suggested a target wage growth figure of 3.5%, which he argued ‘is sustainable without building inflation pressures.’ This compares with the current range of 2-2.25 in compensation growth, coinciding with labour’s historically low share of national income.

    Evans is right to underscore the dramatic change in the amount of US added value that goes to employees. Until 1975, wages normally accounted for more than 50% of American GDP, but this fell to 43.5% by 2012.

    Evans said fears about inflation which have hovered over monetary policy-making since the 1970s have been exaggerated. Evans argued: ‘No one can doubt that we [the Fed] are undershooting our 2% [inflation] target. Total personal consumption expenditure (PCE) prices rose just 0.9% over the past 12 months; that is a substantial and serious miss.’

    ‘Below-target inflation’, said Evans, ‘is a worldwide phenomenon and it is difficult to be confident that all policy-makers around the world have fully taken its challenge on board. Persistent below-target inflation is very costly, especially when it is accompanied by debt overhang, substantial resource slack and weak growth.’

    'Despite current low rates, I still often hear people say that higher inflation is just around the corner. I confess that I am somewhat exasperated by these repeated warnings given our current environment of very low inflation. Many times, the strongest concerns are expressed by folks who said the same thing back in 2009 and then in 2010.’

    Denis MacShane is former UK Minister for Europe and a member of the OMFIF Advisory Board. He was a speaker on European politics at the Minksy Conference.
  • In the Media | April 2014

    Real Time Economics


    The Wall Street Journal, April 11, 2014. All Rights Reserved.

    ECB’s Constancio: “We Will Do Something” About Low Inflation.  The ECB is poised to take action to tackle the problem of low inflation that continues to consistently undershoot its official target, ECB Vice President Vitor Constancio said Thursday. He said policy makers are still trying to figure out which measures to take, adding that bond buying is a possibility.   “We will do something because the situation is that inflation is indeed very low, and even considering only our primary mandate of price stability we are clearly not achieving our target of having, on a medium-term basis, inflation below but close to 2%,” Mr. Constancio told a conference in Washington sponsored by the Levy Economics Institute. http://on.wsj.com/1n92J4q 

    ECB Constancio Says Healthy Bank Sector Won’t Guarantee Quick Economic Rebound. 
    http://on.wsj.com/1sHfLdz

    ECB’s Praet: Euro-Zone Economies ‘Will See Economic Slack Until 2017.’ The euro zone economy will see economic slack persist until 2017 at least, European Central Bank executive board member Peter Praet said Thursday, suggesting that the ECB will maintain its easy-money policies well into the future. Still, Mr. Praet signaled that the ECB is in no rush to provide additional stimulus through rate cuts or other measures, saying that the bank’s inflation outlook remains in place despite a string of weak reports. http://on.wsj.com/1ixBFaW  
  • In the Media | April 2014

    Obama Economic Adviser: The Great Moderation Is Over, if It Ever Existed


    By Joseph Lawler
    Washington Examiner, April 11, 2014. All Rights Reserved.

    The so-called "Great Moderation" of low economic volatility between the mid-1980s and the financial crisis of 2008 was not as great as it seemed, and the future likely won't be as pleasant, according to President Obama's top economic adviser.

    Jason Furman, the chairman of the Council of Economic Advisers, said in a speech in Washington on Thursday that “the Great Recession certainly does reveal serious limitations of the concept of a great moderation,” and that the U.S. economy shouldn't be expected to return to a pattern of relatively smooth growth now that the banking crisis is in the past.

    The "Great Moderation" was a term coined by economists James Stock, another current member of the CEA, and Mark Watson in a 20003 paper. It was meant to describe the decline in volatility in macroeconomic indicators such as gross domestic product growth and inflation since Federal Reserve Chairman Paul Volcker brought the high inflation rates of the 1960s and '70s to an end.

    In 2004, Ben Bernanke, then a Fed governor under Chairman Alan Greenspan, popularized the term in a speech that attributed the smoothing out of the business cycle to better monetary policy by the Fed -- although Bernanke also acknowledged that luck may also have played a significant role, and that luck might run out in the future.
       

    Furman, however, suggested that improvements in the private sector and in the government's management of fiscal and monetary policy may not have reduced the risks of severe recessions, but rather pushed the risks out to the tails of the risk distribution. In other words, economic shocks might be rarer, but more dangerous. While the U.S. did not suffer a deep recession in the late '80s and '90s, it was due for one eventually.

    Furman illustrated the point with two charts. Looking at deviations in one-year GDP growth from the long-term average, he noted, it appears that there was a Great Moderation, briefly interrupted by the 2007-2009 recession:
     
    But looking at the deviations in 10-year GDP growth from the average, it's a different story. Volatility in economic growth spiked and hasn't returned to normal.
    Furman concluded that it "would be foolish to be complacent and fully assume that in the deeper, lower frequency sense there ever was a genuine 'Great Moderation,' let alone that it has returned and renders further policy steps unnecessary."

    He proposed four measures for further stabilizing the economy in the future, including automatic fiscal stabilizers to even out government spending and taxing in boom times and downturns, reducing income inequality, improving coordination among countries and promoting financial stability.

    Notably, Furman drew special attention to housing finance as a component of financial stability. Although the Obama administration for the most part has left the issue of what should be done with bailed-out government-sponsored mortgage businesses Fannie Mae and Freddie Mac to Congress, Furman did signal support for a bill that Democratic and Republican senators on the Senate Banking Committee have introduced.

    The committee "is making promising bipartisan progress and the administration looks forward to continuing to work with Congress to forge a new private housing finance system that better serves current and future generations of Americans," he said.

    The event at which Furman was speaking, hosted by the Levy Economics Institute, was named after Hyman Minsky, an American economist whose worked focused on financial crises and their relationship to economic downturns. 
  • In the Media | April 2014

    At Least Six Months between End of QE and Rate Rise: Fed's Evans (Update)


    NDTV, April 10, 2014. All Rights Reserved.

    Washington (Reuters | Update)
    :

    The Federal Reserve will likely wait at least six months after ending a bond-buying program before raising interest rates, and will only act that quickly "if things really go well," a top US central banker said on Wednesday.

    "It could be six, it could be 16 months," Chicago Fed President Charles Evans told reporters on the sidelines of a Levy Economics Institute forum.

    Last month, Fed Chair Janet Yellen put the wait at "around six months" depending on the economy. Her comment undercut stocks and bonds and prompted economists to revise forecasts. Traders and Wall Street economists now expect the first rate hike to come around the middle of next year.

    "If I had my druthers, I'd want more accommodation and I'd push it into 2016," Evans said of the first rate hike, but "the actual, most likely case I think is probably late 2015."

    The Fed has kept rates near zero since the depths of the recession in late 2008, and has bought some $3 trillion in bonds to help lower US borrowing costs. It has reduced its bond-buying and expects to wind it down by the fall.

    Evans said the current pace of reducing the bond purchases, $10 billion at each Fed policy meeting, is "reasonable" and takes the Fed "into the October timeframe" for shelving the program.

    "I am confident that, depending on how the economic circumstances come out, we'll keep interest rates low for quite some period of time," he said.

    WOULD WELCOME ECB EASING Evans, a vocal policy dove, has long worried that the Fed has been too timid in its efforts to lower employment and raise inflation toward the central bank's targets.

    "We're in a very low inflation global environment," he said. "The eurozone well below 1 per cent and Japan has been very low for a long period of time, and I'm worried that there's something more afoot" than just the US or eurozone experience.

    Asked about a possible further easing of policy by the European Central Bank, he said: "Yes I think that would be quite welcome," adding he would welcome "all actions that help generate stronger world growth."

    A fellow dove at the central bank, Minneapolis Fed President Narayana Kocherlakota, has proposed lowering the interest rate the Fed pays banks on excess reserves. The aim would be to provide more accommodation and boost inflation from just above 1 per cent currently.

    Asked about this idea, Evans said he was willing to look at the possibility, but noted that the Fed's policy-setting Federal Open Market Committee has long considered it and has not acted. 
  • In the Media | April 2014

    At Least Six Months between End of QE and Rate Rise - Fed’s Evans


    By Jonathan Spicer
    Manorama Online, April 10, 2014. All Rights Reserved.

    WASHINGTON (Reuters) – The Federal Reserve will likely wait at least six months after ending a bond-buying program before raising interest rates, and will only act that quickly "if things really go well," a top U.S. central banker said on Wednesday.

    "It could be six, it could be 16 months," Chicago Fed President Charles Evans told reporters on the sidelines of a Levy Economics Institute forum.

    Last month, Fed Chair Janet Yellen put the wait at "around six months" depending on the economy. Her comment undercut stocks and bonds and prompted economists to revise forecasts. Traders and Wall Street economists now expect the first rate hike to come around the middle of next year.

    "If I had my druthers, I'd want more accommodation and I'd push it into 2016," Evans said of the first rate hike, but "the actual, most likely case I think is probably late 2015."

    The Fed has kept rates near zero since the depths of the recession in late 2008, and has bought some $3 trillion in bonds to help lower U.S. borrowing costs. It has reduced its bond-buying and expects to wind it down by the fall.

    Evans said the current pace of reducing the bond purchases, $10 billion at each Fed policy meeting, is "reasonable" and takes the Fed "into the October timeframe" for shelving the program.

    "I am confident that, depending on how the economic circumstances come out, we'll keep interest rates low for quite some period of time," he said.

    WOULD WELCOME ECB EASING
    Evans, a vocal policy dove, has long worried that the Fed has been too timid in its efforts to lower employment and raise inflation toward the central bank's targets.

    "We're in a very low inflation global environment," he said. "The eurozone well below 1 percent and Japan has been very low for a long period of time, and I'm worried that there's something more afoot" than just the U.S. or eurozone experience.

    Asked about a possible further easing of policy by the European Central Bank, he said: "Yes I think that would be quite welcome," adding he would welcome "all actions that help generate stronger world growth."

    A fellow dove at the central bank, Minneapolis Fed President Narayana Kocherlakota, has proposed lowering the interest rate the Fed pays banks on excess reserves. The aim would be to provide more accommodation and boost inflation from just above 1 percent currently.

    Asked about this idea, Evans said he was willing to look at the possibility, but noted that the Fed's policy-setting Federal Open Market Committee has long considered it and has not acted.
  • In the Media | April 2014

    ECB Constancio: Fully Healthy Bank Sector Won't Guarantee Quick Economic Rebound


    ECB VP: Euro Zone Faces Problems That Are More Profound Than Just Weakness in the Banking Sector
    By Todd Buell and Christopher Lawton

    The Wall Street Journal, April 10, 2014. All Rights Reserved.


    The euro zone faces problems that are more profound than just weakness in the banking sector and that are harder to address, European Central Bank Vice President Vitor Constancio said Thursday.

    In remarks prepared for delivery in Washington, Mr. Constancio said that even if banks in the euro zone could completely erase the damage from the financial crisis, it wouldn't be a guarantee that strong growth and low unemployment would return quickly.

    The ECB has placed great emphasis on its assessment of banks' balance sheets, which it is carrying out before becoming the single currency's banking supervisor later this year. It is hoped that the exercise, culminating in a stress test, will force banks to clean up their balance sheets, raise capital, which should put them in a stronger position to lend to the real economy.

    But Mr. Constancio said this story line is too simplistic.

    Firstly, "bank balance sheets in the euro area have to a large degree already been repaired," he said. Furthermore, he said it was "far from clear that finance is a sufficient condition for jump-starting growth in Europe."

    "Even a complete rehabilitation of the euro area's banking system…will not guarantee a quick return to high growth and low unemployment," he added. The euro zone's economy faces numerous issues, he said, that are "are potentially more serious than the damage inflicted by the financial crisis and the subsequent euro area crisis on the euro area banking sector. These issues are also far more difficult to address."

    Mr. Constancio mentioned three issues that he called the "chief obstacles" to growth in Europe: the "remarkable" slowdown in emerging markets, the "large" drop in domestic private investment in Europe since the financial crisis, and weak domestic demand.

    The last point "is often left out of the public discourse, but micro evidence suggests that it is a problem that cannot be underestimated." He added that survey data suggest that euro-zone firms face problems on the demand side that are more serious than problems coming from bank lending.

    Mr. Constancio said that while bank deleveraging "certainly plays an important role in the inadequate current levels of credit supply to the real economy, factors related to the demand side are even more important," he said.

    Lending to the private sector has been declining in annual terms for nearly two years in the euro zone and many experts have said that this is a signal of the weakness of the recovery in the currency bloc and a factor that may force the ECB to pump more money into the 18-nation currency bloc.

    Mr. Constancio, however, said that a "creditless" recovery is "far from unusual," especially after a financial crisis.

    He said that based on current trends, the euro zone faces a future over the medium term of "stable but low growth, with unemployment evolving to lower levels in 15 years as a result of a declining active population."

    "Europe has to react swiftly if it wants to avoid a whole generation being wasted and sacrificed," he said.

    Turning to monetary policy, he said that while ECB policy will continue "to provide stimulus", the central bank can't be called upon to "do everything." Indeed, "people seem to expect too much from central banks." Rather, governments must accept responsibility to promote investment, increase demand, and implement active labor market policies, he said.

    In an apparent reference to Samuel Beckett, Mr. Constancio said that commentators have been "waiting for the Godot of a new wave of technical innovations that will save the day" out of a trap of low growth and low inflation.

    "Maybe it will come," he said. "But I am sure that we also need active policies and new economic thinking to deal with the income distribution problems that the coming technology will aggravate as well as the role of finance and demand in monetary economies where it is wrong to try to reduce macroeconomics to narrow real and long-term supply-side considerations, as our present predicament so impressively demonstrates."
  • In the Media | April 2014

    Fed's Tarullo Says Economy Looking Stronger


    Morningstar Advisor, April 10, 2014. All Rights Reserved.

    WASHINGTON (MarketWatch) -- The U.S. economy, aided by the Federal Reserve's easy monetary-policy stance, is beginning to look healthier, Federal Reserve Gov. Daniel Tarullo said Wednesday. "While we've not had certainly the pace and pervasiveness of the recovery that we wanted, the unconventional monetary policy have been critical in supporting the moderate recovery we have had, which I think now is looking reasonably well-rounded going forward, and I think that is reflected in the fairly wide expectation growth is going to be picking up over the course of this year," Tarullo said at a conference organized by the Levy Institute of Bard College. Tarullo sounded in no hurry to end the Fed's easy policy stance. He said the Fed "should not rush to act preemptively" in anticipation of inflationary pressures. Tarullo's comments were noteworthy because he rarely speaks about monetary policy -- rather, most of his speeches deal with financial-stability issues given his role as the central bank's point-man on strengthening regulation in the wake of the financial crisis.
  • In the Media | April 2014

    ECB's Peter Praet Says Euro-Zone Economies "Will See Economic Slack until 2017"


    By Brian Blackstone and Christopher Lawton
    The Wall Street Journal, April 10, 2014. All Rights Reserved.

    WASHINGTON—The euro zone economy will see economic slack persist until 2017 at least, European Central Bank executive board member  Peter Praet  said Thursday, suggesting that the ECB will maintain its easy-money policies well into the future.

    Still, Mr. Praet signaled that the ECB is in no rush to provide additional stimulus through rate cuts or other measures, saying that the bank's inflation outlook remains in place despite a string of weak reports.

    "The degree of slack in the economy is very high," Mr. Praet said in a speech at a conference in Washington, D.C., sponsored by the Levy Economics Institute. "Whatever the measure you take of output gap, this output gap is unlikely to be closed in the euro zone before 2017."

    The output gap refers to the difference between the present level of gross domestic product with where it should typically be based on the economy's growth potential. When economies experience recession, as the euro zone did from late 2011 until early last year, this gap rises, limiting inflationary pressures and giving central banks added leeway to ease monetary policy.

    Mr. Praet, who heads the ECB's economics department, also noted that bank lending to the private sector remains weak in the euro zone, although there seems to be some substitution toward greater debt issuance in the capital markets.

    Mr. Praet is in Washington, D.C. for the spring meetings of the International Monetary Fund, which brings together top central bankers and finance ministers from around the world. The IMF has in recent weeks pressed the ECB to consider more dramatic stimulus measures to keep inflation from staying too low. But outside of a small rate reduction last November, the ECB has largely resisted such steps, saying inflation should gradually accelerate toward its target of just under 2%.

    Annual euro-zone inflation was 0.5% in March, more than a four-year low.

    "We have a sequence of monthly inflation that have been weaker than what we have expected. But we are still in our base scenario," Mr. Praet. The ECB expects a gradual acceleration in annual consumer-price growth toward 1.7% by the end of 2016.

    "There is a lot of noise also in the monthly figures," he said.

    At its monthly meeting last week, the ECB held interest rates steady, but it beefed up its commitment to ease policy if needed. The ECB's rate board "is unanimous in its commitment to using also unconventional instruments within its mandate to cope effectively with risks of a too prolonged period of low inflation," the bank said in its policy statement last week.

    Mr. Praet called this signal "quite important." Still, he added that expectations of future inflation remain well anchored. The design of any future ECB stimulus program will depend on the problem the bank is trying to tackle, he said.

    In his speech, Mr. Praet said divergent economic growth and productivity continues to plague the euro zone, and urged the monetary bloc's various members to embark on reforms to narrow the gap between richer and poorer countries.

    "The first decade of Economic and Monetary Union failed to produce real convergence," Mr. Praet said.

    "What the euro area needs, in my view, is to 'rerun' the convergence process."
  • In the Media | April 2014

    ECB’s Constancio: “We Will Do Something” About Low Inflation


    By Pedro Nicolaci da Costa
    The Wall Street Journal, April 10, 2014. All Rights Reserved.

    The European Central Bank is poised to take action to tackle the problem of low inflation that continues to consistently undershoot its official target, ECB Vice President Vitor Constancio said Thursday.

    Mr. Constancio said policy makers are still trying to figure out which measures to take, adding that bond buying is a possibility.

    “We will do something because the situation is that inflation is indeed very low, and even considering only our primary mandate of price stability we are clearly not achieving our target of having, on a medium-term basis, inflation below but close to 2%. So we do take seriously our mandate,” Mr. Constancio told a conference in Washington sponsored by the Levy Economics Institute.

    During his prepared remarks, Mr. Constancio argued returning Europe’s banking system to full health would not be enough to ensure economic growth picks up.

    The ECB has placed great emphasis on its assessment of banks’ balance sheets, which it is carrying out before becoming the single currency’s banking supervisor later this year. It is hoped that the exercise, culminating in a stress test, will force banks to clean up their balance sheets, raise capital, which should put them in a stronger position to lend to the real economy. But Mr. Constancio suggested this story line is too simplistic.

    “Bank balance sheets in the euro area have to a large degree already been repaired,” he said. Furthermore, he said it was “far from clear that finance is a sufficient condition for jump-starting growth in Europe.”

    “Even a complete rehabilitation of the euro area’s banking system…will not guarantee a quick return to high growth and low unemployment,” he added. The euro zone’s economy faces numerous issues, he said, that are “are potentially more serious than the damage inflicted by the financial crisis and the subsequent euro area crisis on the euro area banking sector. These issues are also far more difficult to address.” 
  • In the Media | April 2014

    Dealers Shifted Rate View after Fed Meeting: NY Fed Poll


    By Ann Saphir
    Reuters, April 10, 2014. All Rights Reserved.

    (Reuters) – Wall Street bond dealers began anticipating an earlier first interest-rate hike from the Federal Reserve after last month's policy meeting, according to the results of a poll by the New York Fed released on Thursday.

    That was exactly what Fed policymakers had feared would happen after the central bank published fresh forecasts on interest rates that appeared to map out a more aggressive cycle of rate hikes than previously expected, minutes of the meeting released Wednesday showed.

    Dealers who changed their expectations said they did so because of forecasts, and "several pointed to comments made by (Fed) Chair (Janet Yellen) during her press conference," according to the poll, which asked dealers about their rate hike expectations both before and after the Fed's March 18-19 meeting.

    At the policy-setting meeting, central bank officials made a widely expected reduction in their bond-buying stimulus and decided to jettison a set of numerical guideposts they were using to help the public anticipate when they would finally raise rates.

    The Fed said the change in its rate hike guidance did not point to a shift in policy intentions, but new rate forecasts from the current 16 Fed policymakers suggested the federal funds rate would end 2016 at 2.25 percent, a half percentage point above Fed officials' projections in December.

    Adding to the perception of a slightly more hawkish Fed, the Fed said it would wait a "considerable time" following the end of its bond-buying program before finally raising interest rates, a period of time that Yellen in her press conference suggested could be "around six months."

    As of March 24, dealers saw a 29 percent chance of a first rate hike in the first half of 2015, up from 24 percent before the March meeting, the poll showed.

    Both before and after polls showed dealers attached a 30 percent probability to a rate rise in the second half.

    Fed officials have since gone to great pains to point out any rate hike decisions will depend on the state of the economy.

    "It could be six, it could be 16 months," Chicago Fed President Charles Evans told reporters on the sidelines of a Levy Economics Institute forum on Wednesday.
  • In the Media | April 2014

    Wednesday's Top Stories in the United States


    MNI | Deutsche Börse Group, April 9, 2014. All Rights Reserved.

    * Chicago Federal Reserve Bank President Charles Evans Wednesday accused the central bank of being "timid" in its attempts to spur faster economic growth, saying the Fed has been "less aggressive" than called for despite being nowhere its employment and inflation goals. In remarks prepared for delivery at the Levy Institute's Hyman Minsky conference, Evans warned that the tentative approach to bolstering the economic recovery could leave it susceptible to unforeseen shocks, and called instead for the Fed to keep most of its ultra-easy monetary policy in place "for some time." "Generally, the evidence points to a still weak labor market. We still have some ways to go to reach our employment mandate," said Evans, who will vote on the policymaking Federal Open Market Committee in 2015.

    * Speaking to reporters after his speech, Evans said it would be appropriate for the central bank to hold off raising interest rates until 2016, citing his concerns about the low inflation environment. However, "the actual, most likely case, I think it's probably late 2015." He said he thinks "it's important to remind everybody that we have strong accommodation in place and we need to leave in place in order to do the job that it's intended to do," he said.    
  • In the Media | April 2014

    UPDATE 1 – At Least 6 Months between End of QE and Rate Rise – Fed's Evans


    By Jonathan Spicer
    MSN Money, April 9, 2014. All Rights Reserved.

    WASHINGTON, April 9 (Reuters) – The Federal Reserve will likely wait at least six months after ending a bond-buying program before raising interest rates, and will only act that quickly "if things really go well," a top U.S. central banker said on Wednesday.

    "It could be six, it could be 16 months," Chicago Fed President Charles Evans told reporters on the sidelines of a Levy Economics Institute forum.

    Last month, Fed Chair Janet Yellen put the wait at "around six months" depending on the economy. Her comment undercut stocks and bonds and prompted economists to revise forecasts. Traders and Wall Street economists now expect the first rate hike to come around the middle of next year.

    "If I had my druthers, I'd want more accommodation and I'd push it into 2016," Evans said of the first rate hike, but "the actual, most likely case I think is probably late 2015."

    The Fed has kept rates near zero since the depths of the recession in late 2008, and has bought some $3 trillion in bonds to help lower U.S. borrowing costs. It has reduced its bond-buying and expects to wind it down by the fall.

    Evans said the current pace of reducing the bond purchases, $10 billion at each Fed policy meeting, is "reasonable" and takes the Fed "into the October timeframe" for shelving the program.

    "I am confident that, depending on how the economic circumstances come out, we'll keep interest rates low for quite some period of time," he said.

     

    Would Welcome ECB Easing
    Evans, a vocal policy dove, has long worried that the Fed has been too timid in its efforts to lower employment and raise inflation toward the central bank's targets.

    "We're in a very low inflation global environment," he said. "The eurozone well below 1 percent and Japan has been very low for a long period of time, and I'm worried that there's something more afoot" than just the U.S. or eurozone experience.

    Asked about a possible further easing of policy by the European Central Bank, he said: "Yes I think that would be quite welcome," adding he would welcome "all actions that help generate stronger world growth."

    A fellow dove at the central bank, Minneapolis Fed President Narayana Kocherlakota, has proposed lowering the interest rate the Fed pays banks on excess reserves. The aim would be to provide more accommodation and boost inflation from just above 1 percent currently.

    Asked about this idea, Evans said he was willing to look at the possibility, but noted that the Fed's policy-setting Federal Open Market Committee has long considered it and has not acted. 

  • In the Media | April 2014

    Chicago Fed's Evans: Monetary Pol Less Aggressive Than Needed


    By Brain Odion-Esene
    MNI | Deutsche Börse Group, April 9, 2014. All Rights Reserved.

    WASHINGTON (MNI) -–Chicago Federal Reserve Bank President Charles Evans Wednesday accused the central bank of being "timid" in its attempts to spur faster economic growth, saying the Fed has been "less aggressive" than called for despite being nowhere its employment and inflation goals.

    In remarks prepared for delivery at the Levy Institute's Hyman Minsky conference, Evans warned that the tentative approach to bolstering the economic recovery could leave it susceptible to unforeseen shocks, and called instead for the Fed to keep most of its ultra-easy monetary policy in place "for some time."

    "Generally, the evidence points to a still weak labor market. We still have some ways to go to reach our employment mandate," said Evans, who will vote on the policymaking Federal Open Market Committee in 2015.

    As for the Fed's price stability mandate, he said he sees an economy that points to below-target inflation for several years, which underscores the need for easy policy.

    "Given today's unacceptably low inflation environment and the wealth of inflation indicators that point to continued below-target inflation, I think we need continued strongly accommodative monetary policy to get inflation back up to 2% within a reasonable time frame," he said.

    Instead, "the FOMC has been less aggressive than the policy loss function calls for," Evans said, arguing that "in the current circumstances, accountability and optimal policy mean we should be maintaining a large degree of accommodation for some time."

    "It certainly seems that the fallout from the financial crisis and persistent headwinds holding back economic activity are consistent with the equilibrium real interest rate being lower than usual today," he added.

    Evans said actions that place the FOMC "on a slow glide path" toward its targets undermine the credibility of the Fed's vow to meet its mandates in a timely fashion.

    "Timid policies would also increase the risk of progress being stymied along the way by adverse shocks that might hit before policy gaps are closed," he said. "The surest and quickest way to reach our objectives is to be aggressive."

    This also means the FOMC should be open to the idea of overshooting its targets in a manageable fashion.

    "Such risks are optimal if the outcome of our policy actions implies smaller average deviations from our targets over the medium term. We should be willing to undertake such policies and clearly communicate our willingness to do so," Evans said.

    Making his case for why the economy still needs continued, aggressive monetary policy, Evans said March's 6.7% unemployment rate is still well above the 5.25% percent rate that he considers to be the longer-run normal. As the jobless rate continues to decline, he stressed the importance of assessing a wide range of labor market data "to better gauge the overall health of the labor market."

    These would include quit rates, layoffs and a variety of wage measures, as well as broader measures of unemployment that include discouraged workers and those who would like to work more hours.

    Evans also argued that the decline in the labor participation rate in recent months cannot be ascribed solely to changing population demographics and other factors outside the Fed's control. The end of extended unemployment insurance benefits, among other things, has also likely decreased the natural rate of unemployment, meaning that "the decline in the unemployment rate likely overstates to some degree the reduction of slack in the labor market over the past year."

    On the inflation front, Evans noted that the United States is not the only country struggling with below-target inflation, and that "it is difficult to be confident that all policymakers around the world have fully taken its challenge onboard."

    "Persistent below-target inflation is very costly, especially when it is accompanied by debt overhang, substantial resource slack, and weak growth," he added.

    Given the low inflation environment, Evans said he is "somewhat exasperated" by those who constantly warn that higher inflation "is just around the corner."

    For one thing, he argued that unless there is an unexpected, and positive, shock to the global economy, commodity prices are unlikely to fuel a strong increase in inflation.

    To those worried about the inflationary risks posed by the Fed's swollen balance sheet and the massive amounts of excess bank reserves, Evans countered that banks so far have not been lending these reserves nearly enough to generate big increases in broad monetary aggregates.

    Even if lending did pick up, he added, "Dramatically higher bank lending would surely be associated with higher loan demand and a generally stronger economy. Strong growth and diminishing resource slack would be part of this story, and a rising rate environment would be a natural force diminishing the rising inflation pressures."

    The slow rate of wage growth is another cause for concern, Evans said, as it is "symptomatic of weak income growth and low aggregate demand."

    "At today's 2% to 2.25% compensation growth rates and labor's historically low share of national income, there is substantial room for stronger wage growth without inflation pressures building," he said.
  • In the Media | April 2014

    Fed Gov Tarullo: Mon Pol Can Help Address Long-Term Unemplymnt


    By Brai Odion-Esene
    MNI | Deutsche Börse Group, April 9, 2014. All Rights Reserved.

    WASHINGTON (MNI) – Federal Reserve Board Gov. Daniel Tarullo Wednesday night argued that monetary policy can play an important role in helping the nation's long-term unemployment, saying the Fed right now should not be overly concerned with how much of the slow pace of job creation is due to structural factors outside its control.

    "The very accommodative monetary policy of the past five years has contributed significantly to the extended, moderate recoveries of gross domestic product (GDP) and employment," Tarullo said in remarks prepared for the Levy Economics Institute's Hyman Minsky Conference.

    And to underline that he does not favor tightening monetary policy anytime soon, Tarullo said because of the modest growth in place for several years, "it seems less likely that we will experience a growth spurt in the next couple of years that would engender concerns about rapid wage pressures and changes in inflation expectations."

    Voicing his concerns about slow U.S. productivity growth, widening income inequality, and long-term unemployment, Tarullo stressed that while monetary policy "cannot be the only, or even the principal," tool in counteracting these longer-term trends, "that is not to say it is irrelevant."

    "Monetary policies directed toward achieving the statutory dual mandate of maximum employment and price stability can help reduce underemployment associated with low aggregate demand," he added, a statement that echoes Fed Chair Janet Yellen's commitment to tackling the nation's jobs crisis.

    "To the degree that monetary policy can prevent cyclical phenomena such as high unemployment and low investment from becoming entrenched, it might be able to improve somewhat the potential growth rate of the economy over the medium term," he said.

    Appointed to the Fed board by President Barack Obama in 2009, Tarullo has a permanent vote on the Fed's policymaking Federal Open Market Committee.

    Yellen said she still sees "considerable slack" in the labor market in a March 31 speech, and Tarullo said reducing labor market slack can help lay the foundation "for a more sustained, self-reinforcing cycle of stronger aggregate demand, increased production, renewed investment, and productivity gains."

    "Similarly, a stronger labor market can provide a modest countervailing factor to income inequality trends by leading to higher wages at the bottom rungs of the wage scale," he said.

    There is uncertainty among both Fed officials and economists regarding how much the high unemployment is due to cyclical factors like low demand, or more structural issues such as a skills mismatch between jobseekers and would-be employers.

    Tarullo argued that there is not "as sharp a demarcation between cyclical and structural problems as is sometimes suggested," as "by promoting maximum employment in a stable inflation environment around the FOMC target rate, monetary policy can help set the stage for a vibrant and dynamic economy."

    Still, Tarullo advised the FOMC to proceed pragmatically in crafting policy.

    "We should remain attentive to evidence that labor markets have actually tightened to the point that there is demonstrable inflationary pressure that would place at risk maintenance of the FOMC's stated inflation target (which, of course, we are currently not meeting on the downside)," he said. "But we should not rush to act preemptively in anticipation of such pressures based on arguments about the potential increase in structural unemployment in recent years."

    "In this regard, the issue of how much structural damage has been suffered by the labor market is of less immediate concern today in shaping monetary policy than it might have been had we experienced a period of rapid growth during the recovery," he said.

    Outside of actions being taken by the Fed, Tarullo also called on fiscal policymakers to also take a more forceful approach in helping the economy.
    "A pro-investment policy agenda by the government could help address some of our nation's long-term challenges by promoting investment in human capital, particularly for those who have seen their share of the economic pie shrink, and by encouraging research and development and other capital investments that increase the productive capacity of the nation," he said.
  • In the Media | April 2014

    Tarullo Says Fed Shouldn’t Rush to Avert Any Wage Pressures


    By Craig Torres
    Bloomberg Businessweek, April 9, 2014. All Rights Reserved.

    Federal Reserve Governor Daniel Tarullo said the central bank shouldn’t raise interest rates “preemptively” on a belief the recession cut the supply of ready labor in the economy.

    “We should remain attentive to evidence that labor markets have actually tightened to the point that there is demonstrable inflationary pressure,” Tarullo said today in remarks prepared for a speech in Washington. “We should not rush to act preemptively in anticipation of such pressures based on arguments about the potential increase in structural unemployment in recent years.”

    Tarullo, the central bank’s longest-serving governor, backed a March 19 statement in which the Federal Open Market Committee said it will keep the main interest rate below normal long-run levels while attempting to meet its mandate for full employment and stable prices.

    In a wide-ranging speech, Tarullo cited slower productivity growth, the smaller share of national income accruing to workers, rising inequality and decreasing economic mobility as “serious challenges” for the U.S. economy.

    Monetary policy, by focusing on the full-employment component of the dual mandate, can “provide a modest countervailing factor to income inequality trends by leading to higher wages at the bottom rungs of the wage scale,” Tarullo, 61, said at the 23rd Annual Hyman P. Minsky Conference in Washington.

    The Fed governor rebuffed concerns about near-term inflation from wages, noting that even as the unemployment rate has fallen to 6.7 percent in March from 7.5 percent in the same month a year earlier, “one sees only the earliest signs of a much-needed, broader wage recovery.”

    Low Gains
    “Compensation increases have been running at the historically low level of just over 2 percent annual rates since the onset of the Great Recession, with concomitantly lower real wage gains,” Tarullo said. The reasons for that lag in wage gains are not clear, he said.

    “The issue of how much structural damage has been suffered by the labor market is of less immediate concern today in shaping monetary policy than it might have been had we experienced a period of rapid growth during the recovery,” Tarullo said at the event, organized by the Levy Economics Institute of Bard College in Annandale-on-Hudson, New York.
  • In the Media | April 2014

    At Least Six Months between End of QE and Rate Rise: Fed's Evans


    By Jonathan Spicer
    Reuters, April 9, 2014. All Rights Reserved.

    (Reuters) -–The Federal Reserve will likely wait at least six months after ending a bond-buying program before raising interest rates, and will only act that quickly "if things really go well," a top U.S. central banker said on Wednesday.

    "It could be six, it could be 16 months," Chicago Fed President Charles Evans told reporters on the sidelines of a Levy Economics Institute forum.

    Last month, Fed Chair Janet Yellen put the wait at "around six months" depending on theeconomy. Her comment undercut stocks and bonds and prompted economists to revise forecasts. Traders and Wall Street economists now expect the first rate hike to come around the middle of next year.

    "If I had my druthers, I'd want more accommodation and I'd push it into 2016," Evans said of the first rate hike, but "the actual, most likely case I think is probably late 2015."

    The Fed has kept rates near zero since the depths of the recession in late 2008, and has bought some $3 trillion in bonds to help lower U.S. borrowing costs. It has reduced its bond-buying and expects to wind it down by the fall.

    Evans said the current pace of reducing the bond purchases, $10 billion at each Fed policy meeting, is "reasonable" and takes the Fed "into the October timeframe" for shelving the program.

    "I am confident that, depending on how the economic circumstances come out, we'll keep interest rates low for quite some period of time," he said.

    Would Welcome ECB Easing
    Evans, a vocal policy dove, has long worried that the Fed has been too timid in its efforts to lower employment and raise inflation toward the central bank's targets.

    "We're in a very low inflation global environment," he said. "The euro zone well below 1 percent and Japan has been very low for a long period of time, and I'm worried that there's something more afoot" than just the U.S. or euro zone experience.

    Asked about a possible further easing of policy by the European Central Bank, he said: "Yes I think that would be quite welcome," adding he would welcome "all actions that help generate stronger world growth."

    A fellow dove at the central bank, Minneapolis Fed President Narayana Kocherlakota, has proposed lowering the interest rate the Fed pays banks on excess reserves. The aim would be to provide more accommodation and boost inflation from just above 1 percent currently.

    Asked about this idea, Evans said he was willing to look at the possibility, but noted that the Fed's policy-setting Federal Open Market Committee has long considered it and has not acted.
  • In the Media | April 2014

    Fed’s Tarullo: Uncertainty Over Labor Market Slack Means Fed Must Proceed “Pragmatically”


    By Victoria MacGrane
    The Wall Street Journal, April 9, 2014. All Rights Reserved.

    Federal Reserve Governor Daniel Tarullo on Wednesday said policy makers should proceed cautiously in judging when inflationary pressures are building in the economy, given uncertainty that surrounds just how much slack remains in the labor market.

    Mr. Tarullo placed himself in the camp of Fed Chairwoman Janet Yellen, saying he believes the labor market is still operating well short of its potential and associating himself with her March 31 speech explaining the reasons why.

    Given there is some debate over how to measure labor market slack, “we are well advised to proceed pragmatically,” he said in a dinnertime speech prepared for delivery at a conference organized by the Levy Institute of Bard College.

    He stressed Fed officials should await actual evidence that labor markets had tightened enough to trigger inflationary pressures that could push inflation above the Fed’s 2% inflation target. The Commerce Department’s personal consumption expenditures price index, the Fed’s favored measure of inflation, was up 0.9% in February from a year earlier. The Labor Department’s consumer price index, an alternative measure, was up 1.1%.

    “But we should not rush to act preemptively in anticipation of such pressures based on arguments about the potential increase in structural unemployment in recent years,” he said.

    There is a vigorous debate at the central bank and among economists generally over the extent of remaining slack in the labor market. Minutes from the Fed’s March 18-19 policy meeting released Wednesday showed that while officials generally agreed slack persisted, they disagreed about how much and how well the unemployment rate reflects the degree of slack.

    In her March 31 speech, Ms. Yellen pointed to several factors beyond the jobless rate that suggest the labor market is still quite weak, including the large number of long-term jobless and the seven million Americans who are working part-time but would prefer full-time jobs.

    Mr. Tarullo suggested he’s not worried economic growth will suddenly take off and leave the Fed flat-footed and fighting rising inflation. “The issue of how much structural damage has been suffered by the labor market is of less immediate concern today in shaping monetary policy than it might have been had we experienced a period of rapid growth during the recovery,” he said.

    In light of the economy’s modest performance since the end of the recession, “it seems less likely that we will experience a growth spurt in the next couple of years that would engender concerns about rapid wage pressures and changes in inflation expectations,” Mr. Tarullo said.

    Mr. Tarullo’s comments came within the context of a speech raising concerns about “troubling” long-term trends in the U.S. economy, including falling productivity growth and rising inequality.

    The Fed’s efforts to battle recession help lay the groundwork for a stronger, more dynamic economy, Mr. Tarullo said. “But there are limits to what monetary policy can do in counteracting” the longer-term trends he is worried about.

    Mr. Tarullo said the federal government could address some of the challenges through investment, especially in ways that help “those who have seen their share of the economic pie shrink.” Early childhood education, job training programs, infrastructure and research are areas that could boost the long-term prospects for the U.S. economy, said Mr. Tarullo. 
  • In the Media | April 2014

    At Least Six Months between End of QE and Rate Rise: Fed's Evans


    By Jonathan Spicer
    The Chicago Tribune, April 9, 2014. All Rights Reserved.

    WASHINGTON (Reuters) - The Federal Reserve will likely wait at least six months after ending a bond-buying program before raising interest rates, and will only act that quickly "if things really go well," a top U.S. central banker said on Wednesday.

    "It could be six, it could be 16 months," Chicago Fed President Charles Evans told reporters on the sidelines of a Levy Economics Institute forum.

    Last month, Fed Chair Janet Yellen put the wait at "around six months" depending on the economy. Her comment undercut stocks and bonds and prompted economists to revise forecasts. Traders and Wall Street economists now expect the first rate hike to come around the middle of next year.

    "If I had my druthers, I'd want more accommodation and I'd push it into 2016," Evans said of the first rate hike, but "the actual, most likely case I think is probably late 2015."

    The Fed has kept rates near zero since the depths of the recession in late 2008, and has bought some $3 trillion in bonds to help lower U.S. borrowing costs. It has reduced its bond-buying and expects to wind it down by the fall.

    Evans said the current pace of reducing the bond purchases, $10 billion at each Fed policy meeting, is "reasonable" and takes the Fed "into the October timeframe" for shelving the program.   "I am confident that, depending on how the economic circumstances come out, we'll keep interest rates low for quite some period of time," he said.
      WOULD WELCOME ECB EASING Evans, a vocal policy dove, has long worried that the Fed has been too timid in its efforts to lower employment and raise inflation toward the central bank's targets.

    "We're in a very low inflation global environment," he said. "The euro zone well below 1 percent and Japan has been very low for a long period of time, and I'm worried that there's something more afoot" than just the U.S. or euro zone experience.

    Asked about a possible further easing of policy by the European Central Bank, he said: "Yes I think that would be quite welcome," adding he would welcome "all actions that help generate stronger world growth."

    A fellow dove at the central bank, Minneapolis Fed President Narayana Kocherlakota, has proposed lowering the interest rate the Fed pays banks on excess reserves. The aim would be to provide more accommodation and boost inflation from just above 1 percent currently.

    Asked about this idea, Evans said he was willing to look at the possibility, but noted that the Fed's policy-setting Federal Open Market Committee has long considered it and has not acted.
  • In the Media | April 2014

    Fed's Tarullo Says Economy Looking Stronger


    By Greg Robb
    Fox Business, April 9, 2014. All Rights Reserved.

    WASHINGTON –  The U.S. economy, aided by the Federal Reserve's easy monetary-policy stance, is beginning to look healthier, Federal Reserve Gov. Daniel Tarullo said Wednesday. "While we've not had certainly the pace and pervasiveness of the recovery that we wanted, the unconventional monetary policy have been critical in supporting the moderate recovery we have had, which I think now is looking reasonably well-rounded going forward, and I think that is reflected in the fairly wide expectation growth is going to be picking up over the course of this year," Tarullo said at a conference organized by the Levy Institute of Bard College. Tarullo sounded in no hurry to end the Fed's easy policy stance. He said the Fed "should not rush to act preemptively" in anticipation of inflationary pressures. Tarullo's comments were noteworthy because he rarely speaks about monetary policy -- rather, most of his speeches deal with financial-stability issues given his role as the central bank's point-man on strengthening regulation in the wake of the financial crisis.  
  • In the Media | April 2014

    Tarullo: Fed Shouldn't Rush to Avert Any Wage Pressures


    Money News, April 9, 2014. All Rights Reserved.

    Federal Reserve Governor Daniel Tarullo said the central bank shouldn’t raise interest rates “preemptively” on a belief the recession cut the supply of ready labor in the economy.

    “We should remain attentive to evidence that labor markets have actually tightened to the point that there is demonstrable inflationary pressure,” Tarullo said Wednesday in remarks prepared for a speech in Washington. “We should not rush to act preemptively in anticipation of such pressures based on arguments about the potential increase in structural unemployment in recent years.”

    Tarullo, the central bank’s longest-serving governor, backed a March 19 statement in which the Federal Open Market Committee said it will keep the main interest rate below normal long-run levels while attempting to meet its mandate for full employment and stable prices.

    In a wide-ranging speech, Tarullo cited slower productivity growth, the smaller share of national income accruing to workers, rising inequality and decreasing economic mobility as “serious challenges” for the U.S. economy.

    Monetary policy, by focusing on the full-employment component of the dual mandate, can “provide a modest countervailing factor to income inequality trends by leading to higher wages at the bottom rungs of the wage scale,” Tarullo, 61, said at the 23rd Annual Hyman P. Minsky Conference in Washington.

    The Fed governor rebuffed concerns about near-term inflation from wages, noting that even as the unemployment rate has fallen to 6.7 percent in March from 7.5 percent in the same month a year earlier, “one sees only the earliest signs of a much-needed, broader wage recovery.”

    Low Gains
    “Compensation increases have been running at the historically low level of just over 2 percent annual rates since the onset of the Great Recession, with concomitantly lower real wage gains,” Tarullo said. The reasons for that lag in wage gains are not clear, he said.

    “The issue of how much structural damage has been suffered by the labor market is of less immediate concern today in shaping monetary policy than it might have been had we experienced a period of rapid growth during the recovery,” Tarullo said at the event, organized by the Levy Economics Institute of Bard College in Annandale-on-Hudson, New York.
  • In the Media | April 2014

    Fed's Tarullo: Recovery Looking "Well-Grounded" Going Forward


    By Brai Odion-Esene
    MNI | Deutsche Börse Group, April 9, 2014. All Rights Reserved.

    WASHINGTON (MNI) - Federal Reserve Board Gov. Daniel Tarullo Wednesday night sounded bullish in his outlook for the U.S. economy the rest of this year, saying the Fed's aggressive actions have continued to play a major role.

    "Unconventional monetary policies have been critical in supporting the moderate recovery that we have had, which I think now is looking reasonably well-grounded going forward," he said during a question and answer question following a speech at the Levy Economic Institute's Hyman Minsky Conference.

    This is reflected in the "fairly large" expectations that growth is going to be picking up over the course of this year," he said.

    The U.S. economy is recovering at a modest pace, Tarullo said, and he argued that the policy pursued by the Fed "has been essential to ensure that moderate pace of recovery."

    At the same time, he acknowledged that the Fed's aggressive actions have not created "the kind of recovery that everybody would have preferred."

    Tarullo said the Fed's asset purchase program and its zero interest rate policies have had "a pretty demonstrable effect" on interest rate-sensitive sectors such as auto sales and the housing market.

    "In doing what we have done to try to affect longer term rates and not just short-term rates, I think we've actually facilitated a bunch of economic activity that would not have otherwise taken place," he added.

    The level of aggregate demand continues to be inadequate, he said, a fact that is highlighted by the "relatively low rates" of capital investments by businesses.

    This is because firms have decided that "the demand they expect does not justify the additional investment in capacity," Tarullo said.
  • In the Media | March 2014

    Did Hyman Minsky Find the Secret Behind Financial Crashes?


    By Duncan Weldon
    BBC News Magazine, March 23, 2014. All Rights Reserved.

    American economist Hyman Minsky, who died in 1996, grew up during the Great Depression, an event which shaped his views and set him on a crusade to explain how it happened and how a repeat could be prevented, writes Duncan Weldon.

    Minsky spent his life on the margins of economics but his ideas suddenly gained currency with the 2007-08 financial crisis. To many, it seemed to offer one of the most plausible accounts of why it had happened.

    His long out-of-print books were suddenly in high demand with copies changing hands for hundreds of dollars - not bad for densely written tomes with titles like Stabilizing an Unstable Economy.

    Senior central bankers including current US Federal Reserve chair Janet Yellen and the Bank of England's Mervyn King began quoting his insights. Nobel Prize-winning economist Paul Krugman named a high profile talk about the financial crisis The Night They Re-read Minsky.

    Here are five of his ideas.

    Stability is destabilising


    Minsky's main idea is so simple that it could fit on a T-shirt, with just three words: "Stability is destabilising."

    Most macroeconomists work with what they call "equilibrium models" - the idea is that a modern market economy is fundamentally stable. That is not to say nothing ever changes but it grows in a steady way.

    To generate an economic crisis or a sudden boom some sort of external shock has to occur - whether that be a rise in oil prices, a war or the invention of the internet.

    Minsky disagreed. He thought that the system itself could generate shocks through its own internal dynamics. He believed that during periods of economic stability, banks, firms and other economic agents become complacent.

    They assume that the good times will keep on going and begin to take ever greater risks in pursuit of profit. So the seeds of the next crisis are sown in the good time.

    Three stages of debt

    Minsky had a theory, the "financial instability hypothesis", arguing that lending goes through three distinct stages. He dubbed these the Hedge, the Speculative and the Ponzi stages, after financial fraudster Charles Ponzi.

    In the first stage, soon after a crisis, banks and borrowers are cautious. Loans are made in modest amounts and the borrower can afford to repay both the initial principal and the interest.

    As confidence rises banks begin to make loans in which the borrower can only afford to pay the interest. Usually this loan is against an asset which is rising in value. Finally, when the previous crisis is a distant memory, we reach the final stage - Ponzi finance. At this point banks make loans to firms and households that can afford to pay neither the interest nor the principal. Again this is underpinned by a belief that asset prices will rise.

    The easiest way to understand is to think of a typical mortgage. Hedge finance means a normal capital repayment loan, speculative finance is more akin to an interest-only loan and then Ponzi finance is something beyond even this. It is like getting a mortgage, making no payments at all for a few years and then hoping the value of the house has gone up enough that its sale can cover the initial loan and all the missed payments. You can see that the model is a pretty good description of the kind of lending that led to the financial crisis.

    Minsky moments

    The "Minsky moment", a term coined by later economists, is the moment when the whole house of cards falls down. Ponzi finance is underpinned by rising asset prices and when asset prices eventually start to fall then borrowers and banks realise there is debt in the system that can never be paid off. People rush to sell assets causing an even larger fall in prices.

    It is like the moment that a cartoon character runs off a cliff. They keep on running for a while, still believing they're on solid ground. But then there's a moment of sudden realisation - the Minsky moment - when they look down and see nothing but thin air. Then they plummet to the ground, and that's the crisis and crash of 2008.

    Finance matters

    Until fairly recently, most macroeconomists were not very interested in the finer details of the banking and financial system. They saw it as just an intermediary which moved money from savers to borrowers.
    This is rather like the way most people are not very interested in the finer details of plumbing when they're having a shower. As long as the pipes are working and the water is flowing there is no need to understand the detailed workings.

    To Minsky, banks were not just pipes but more like a pump - not just simple intermediaries moving money through the system but profit-making institutions, with an incentive to increase lending. This is part of the mechanism that makes economies unstable.

    Preferring words to maths and models

    Since World War Two, mainstream economics has become increasingly mathematical, based on formal models of how the economy works.

    To model things you need to make assumptions, and critics of mainstream economics argue that as the models and maths became more and more complex, the assumptions underpinning them became more and more divorced from reality. The models became an end in themselves.

    Although he trained in mathematics, Minsky preferred what economists call a narrative approach - he was about ideas expressed in words. Many of the greats from Adam Smith to John Maynard Keynes to Friedrich Hayek worked like this.

    While maths is more precise, words might allow you to express and engage with complex ideas that are tricky to model - things like uncertainty, irrationality, and exuberance. Minsky's fans say this contributed to a view of the economy that was far more "realistic" than that of mainstream economics.

    Analysis: Why Minsky Matters
     is broadcast on BBC Radio 4 at 20:30 GMT, 24 March 2014 or catch up on BBC iPlayer.
  • In the Media | March 2014

    The Jobs-Currency Connection in Greece


    Dimitri B. Papadimitriou
    Huffington Post, March 25, 2014. All Rights Reserved.

    Negotiations between the Greek government and its international lenders were finally resolved last week, after seven long months. In January, Prime Minister Antonis Samaras made a celebratory announcement projecting a small, 2013 primary budget surplus of 1.5 billion euros. Also recently announced: European Union co-funding for a long-delayed 7.5 billion euro road construction project in 2014.

    Sounds good. No reason to suggest that Greece needs an extreme monetary makeover right now, is there? Yes, there is. Talk of a recovery isn't just premature, it reflects a complete fantasy. For starters, at today's rate of net job creation Greece won't reach a reasonable employment level for more than a decade. That's too long.

    An alternative domestic currency could be the basis for a solution. A parallel currency that was used to finance a government employment program would provide a relatively quick restoration of a lost standard of living to a large fraction Greece's population. We reached that conclusion at the Levy Institute after modeling multiple scenarios based on the narrow range of available options.

    Here's the context that makes such a radical move rational: The failures of the current strategy have been so great that even a total abandonment of austerity programs now would provide relief only at a very slow pace. A modest increase in government spending like the infrastructure project, while the right approach, isn't nearly powerful enough to fuel a turnaround; once it's finished the economy will contract again. And the primary surplus stems from conditions unlikely to be sustained: dramatic spending cuts, higher taxes, and a one-off return of earnings by European central banks on their holdings of Greek government bonds.

    Bank lending is down (by 3.9 percent), real interest is up to its highest rate since Greece joined the European Monetary Union (8.3 percent), and price deflation has set in. Unemployment just reached a new high of 24.9 percent for men, 32.2 percent for women, and a breathtaking 61.4 percent for youths. Even the shots at reducing the debt to GDP ratio, the foremost priority of Greece's creditors, have been spectacular misfires. It has risen from 125 percent at the crisis onset to 175 percent now.

    To repair Greece's position, numerous ideas have been floated for a currency that would function alongside the euro. Proposals have been termed everything from 'government IOUs' to 'tax anticipation notes' to 'new,' 'local,' or 'fiscal' currencies; most visibly, Thomas Mayer of Deutsche Bank coined (so to speak) 'geuros.' Some plans envisioned an orderly exit out of the euro. Most shared the perspective of the troika -- the European Central Bank, the European Commission, and the International Monetary Fund -- that export-led growth through increased price competitiveness and lower wages is central to solving the problem.

    Our policy synthesis fundamentally differs from those views. We see Greece remaining in the Eurozone and initiating a parallel financial system that, most importantly, restores liquidity in the domestic market.

    Why not stress exports? Price elasticity in Greece's trade sector is low, our analysis shows, which explains why there hasn't been much evidence of success in export growth. Of course exports are important, but even China, with its gigantic export-guided economy, has recognized the need to increase and stabilize domestic demand.

    That should be the focus in Greece, too. We modeled a parallel financial system that would stimulate demand by financing an employment guarantee program known as an ELR; the government serves as the Employer of Last Resort. It would hire anyone able and willing to work to produce public goods. Wage levels would be low enough to make private employment more attractive, but high enough to ensure a decent living standard. The program would be financed by a government issue of a parallel currency... call it the geuro.

    Geuros would essentially be small denomination zero-coupon bonds: transferable instruments with no interest payment, no repayment of principal, and no redemption, that would be acceptable at par for tax payments. This kind of arrangement is well-known in public finance.

    The government would use the alternative currency to pay domestic debts, unemployment benefits, and a portion of wages for public employees. And it would demand that a share of taxes and social benefits be paid in geuros.

    Foreign trade would still require euros, which would remain in circulation, and Greece's private sector would still do business in euros. The currency would be convertible only in one direction, from euro to geuro.

    In our simulation, 550,000 jobs (and many more indirect ones, via a sensible fiscal multiplier) would be created at a net cost of 3.5b geuros per year. The infusion would contribute a 7 percent GDP increase, and there would still be a sizable euro surplus. As with any fiscal stimulus, the overall deficit would increase and there would be a deterioration in the balance of payments, although a manageable one.

    Restoring domestic demand needs to be Greece's economic policy emphasis. Despite any downsides, a parallel currency that supports an employment guarantee program would be a U-turn towards rebuilding the population's purchasing power -- and rebuilding Greece's ravished economy.

    This article originally appeared on EconoMonitor on March 24, 2014, under the title "The Currency/Jobs Connection in Greece."
  • In the Media | March 2014

    How Money Matters


    The Old Lady Fails to Get an "A"
    Credit Writedowns, March 21, 2014. All Rights Reserved.

    One thing’s for sure: The financial crisis has dealt a deadly blow to what was until recently considered the state-of-the-art of monetary policy. Just compare the 1992 edition of Modern Money Mechanics, published by the Federal Bank of Chicago, with the articles and videos published this month by the Bank of England (BoE).

    The former publication explains that a bank’s excess reserves can be used to make loans, that prudent bankers “will not lend more than their excess reserves,” and that there is a “deposit expansion and contraction associated with a given change in bank reserves,” a.k.a. the money multiplier. Ultimately, “the total amount of reserves is controlled by the Federal Reserve.”

    In stark contrast to what was considered common knowledge twenty years ago, the BoE now considers the multiplier a mistaken belief. For the Bank of England, a “common misconception is that the central bank determines the quantity of loans and deposits in the economy by controlling the quantity of central bank money — the so-called ‘money multiplier’ approach.” Contrary to a widespread view, “neither are reserves a binding constraint on lending, nor does the central bank fix the amount of reserves that are available.” The BoE further explains: “Loans create deposits, not the other way around”; and bank reserves do not provide incentives for banks to lend “as the money multiplier mechanism would suggest.”

    The many professionals in the banking and finance industry who often have trouble with the way academics teach and discuss money and monetary policy will find the new view much closer to their operational experience. The few economists who have long rejected the “state-of-the-art” in their models, and refused to teach it in their classrooms, will feel vindicated. Those lagging behind had better adapt quickly to a changing paradigm, re-write their lecture notes, and avoid describing the stance of monetary policy with the position of a money supply function. For example, the Khan Academy’s course in banking includes several lectures based on the notion of the money multiplier. To serve its users well, the Khan Academy should largely revise those lectures or at least explain that they apply to a monetary system based on gold or some other fixed-rate system.

    The views expressed in the BoE publication do not come out of the blue. Several studies have recently challenged the notion of the money multiplier. The fact that this is now stated by a central bank marks good progress in the understanding of monetary operations, especially in light of conventional wisdom having inspired a number of erroneous interpretations during the banking and financial crisis.

    It is also a blow to the “Monetarist Keynesian” approach that continues to inspire mainstream macroeconomic models. In a video that is part of a 1980 series called “Free to Choose,” Milton Friedman explains the money multiplier in a fixed-rate monetary system (the gold standard) and argues that the same principle holds in the contemporary U.S. banking system. Friedman concludes that the Great Depression was caused by the U.S. Fed doing a very poor job, forcing the money multiplier to work its way downwards and effectively destroying the money supply. A former graduate student at MIT who had studied Friedman’s view of the Great Depression—named Ben Bernanke—has seemingly dealt with the 2007-08 crisis with one idea in mind: prevent the money supply contraction that caused the Great Depression. This was the theoretical foundation of Helicopter Ben’s QEs.

    For the Bank of England, now, there are two common misconceptions about Quantitative Easing: “that QE involves giving banks ‘free money’; and that the key aim of QE is to increase bank lending by providing more reserves to the banking system, as might be described by the money multiplier theory.” The BoE also explains how the amount of central bank money (banknotes and bank reserves) is fixed by the demand of its users and not by the central bank “as it is sometimes described in some economics textbooks.”

    And yet, more progress is desirable, and I would not mark the BoE paper with an A.

    For all those economists who feel they have been ahead of the curve on this matter, the Bank of England should make an additional effort, especially on two remaining issues.

    1. Why money is valuable to its holders

    In its account of money and monetary policy, the BoE asks the question: What makes an inconvertible piece of paper valuable? The BoE explains that money is an IOU issued by a single (monopolist) supplier rather than by a variety of individuals. Although a twenty-pound note is no longer convertible into gold, it is “worth twenty pounds precisely because everybody believes it will be accepted as a means of payment both today and in the future… And for everyone to believe that, it is important that money maintains its value over time and is difficult to counterfeit. It’s the central bank’s job to ensure that that is the case.”

    Economists have always had a hard time proving how confidence alone could suffice. Money historians dealing with “token money” (not redeemable in gold or silver) and those economists who are aware of the political foundation of money or who have read or heard Warren Mosler have a different answer. It is inaccurate to describe paper currency as an “unredeemable” asset whose value depends on users’ confidence. Paper money gives its holder a credit that is redeemable in a very concrete way, and it is so redeemed every time holders of money use currency to pay their liabilities to the government: taxes, sanctions, and fines. In fact, the national currency is the only means available for making such payments.

    The BoE remains silent on this point. Acknowledgement of this fact would entail accepting that the payment of taxes is made possible by government spending and not the other way around. It is tax payers, not governments, that can go broke!

    2. How powerful is monetary policy

    On this point, the BoE publication does not break much with the past, at the risk of making statements that clash with the rest of the paper.

    The BoE makes two accurate statements regarding central bank money (banknotes and bank reserves):

    1) it is not chosen or fixed by the central bank;

    2) it does not multiply up into loans and bank deposits.

    This would seem to imply that a central bank does not control the money supply. More accurately, as the ECB states on its website, “by virtue of its monopoly, a central bank is able to manage the liquidity situation in the money market and influence money market interest rates.”

    To the reader’s surprise, however, the BoE concludes that the central bank can:

    “influence the amount of money in the economy. It does so in normal times by setting monetary policy — through the interest rate that it pays on reserves held by commercial banks with the Bank of England. More recently, though, with Bank Rate constrained by the effective lower bound, the Bank of England’s asset purchase programme has sought to raise the quantity of broad money in circulation. This in turn affects the prices and quantities of a range of assets in the economy, including money.”

    For the BoE, changing interest rates is a powerful means to influence bank lending and thus the money supply and the overall economy. This view that interest rates trigger an effective “transmission mechanism” is one of the Great Faults in monetary management committed during the Great Recession.

    There are various channels through which interest rates influence demand, output, and the price level, yet none is empirically strong, and some work in different directions. Bank lending is primarily pro-cyclical, as a famous quote attributed to Mark Twain explains effectively (“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain”), and the Global Crisis proved central banks to be powerless in trying to reverse this course. The reality is that the level of interest rates affects the economy mildly and in an ambiguous way. To state that monetary policy is powerful is an unsubstantiated claim.
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  • In the Media | January 2014

    The "Problem" of Unemployment


    Rania Antonopoulos
    Kathimerini, January 31, 2014. All Rights Reserved.

    The responses to unemployment by the last three governments [in Greece] have been characterized by sloppy proposals and an insignificant amount of funds in relation to the size of the problem. Regardless of whether there were political considerations behind it (or not), the recent announcement of the Prime Minister highlights, unfortunately, a relentless continuation of lack of understanding of reality.

    The Prime Minister recently, on January 29, told us that unemployment is a "sneaky enemy" and proceeded to announce measures to tackle the problem. He also indicated that "we do not promise things we cannot do, and we say no to populism and fine words." The goal of the proposed measures, we heard, is to create 440,000 "work opportunities" of which 240,000 will target the unemployed 15–24 years of age, with no prior work experience. The announced measures totaling 1.4 billion Euro, will be financed by funds from the National Strategic Reference Framework (NSRF), social funds from the EU, and are classified into three pillars.

    Specifically, the first pillar sets a target to recruit 114,000 unemployed for the private sector, an initiative that essentially subsidizes wages and social security contributions for businesses that hire unemployed who are up to 29 years old and some who are unemployed between the ages of 30 to 60 years of age. The second pillar concerns 240,000 young persons. This program will provide work experience and training for all unemployed up to 24 years old, who have no prior work experience. These unemployed, will also go to private companies for some time, or participate in vocational training centers (VTC) to improve their skills in order to find their first job, or both. The third pillar concentrates in hiring  90,000 unemployed from households who have no employed person, who will work in community service projects in the public sector and local government.

    Assuming that strict rules are in place, with dedicated control mechanisms that will guarantee nonreplacement of existing positions in the private and public sector (really, is there  a sufficient number of public sector inspectors for this task?), prima facie, it all sounds positive and leads to the conclusion that at last the Prime Minister himself has publicly accepted his responsibility towards the citizens that have been left without a job. But, appearances can be deceiving.

    Let's start with the obvious. If we divide the 1.4 billion euros with 440,000 job opportunities to be created in the next two years, we arrive at an average of 220,000, now unemployed, future employed per year, who will receive a total of 3,182 euros during one year. Namely, 265 euros per month. So these jobs offer underemployment, or starvation wages or both. Job opportunities? These interventions in reality provide employment for four to five months. Then what?

    But, also, there was nothing new proposed. The present government, on January 10, 2013 had presented us with a National Action Plan for Youth Employment.  The "Action Plan" consisted essentially of a compilation of already existing interventions, which, it should be noted, had already received miserably failing grades by ELIAMEP, through a study that they produced at the request of the National Bank of Greece. Mr. Samaras suggested the same and identical measures. If these “actions” have not worked in the past, why should we expect them to help now? This is important, because at this difficult hour it would be wise not to throw out the window EU funds. At the end, if the aim is to provide income support, let’s expand unemployment coverage, and not pretend we are creating jobs.

    But the essential problem is that the proposed action plan is based on the wrong diagnosis. First, its focus is on the young unemployed, and secondly, it mistakenly identifies the causes of youth unemployment in "employability"–namely, inthe absence of knowledge, experience, and seniority.

    Let's start with the second question first. The proposal carries a message that youth unemployment will fought through the acquisition and improvement of knowledge on the one hand (through VTC), and  practical experience in temporary jobs in private sector companies. Success should be evaluated by the ability of participants to find a permanent job after termination of participation in these programs. Do we then expect the young graduates to find a job? how many new jobs were announced in 2013? What has changed since 2008 is demand for labor due to the tremendous reduction of GDP and not the quality of the labor supply of young people. Unemployment has sky rocketed [from 7.7 to over 27%] due to austerity, lack of liquidity SMEs face, and the rapid, albeit legal, reduction of salaries and pensions. These are more or less commonly accepted facts. 2008 employees aged 15–24 included approximately 270,300 young aged workers, when in 2013 there were only 125,300 (a 145,000 reduction). Similarly, today the total number of unemployed people aged 15–24 is approximately 178,500—in 2008 there were 72,300 (an increase of 106,200). The numbers speak for themselves.

    Measures of "improving knowledge" will not do, not when our well-educated graduates migrate abroad massively.  These "solutions" are of European origin and are ineffective because the main problem we face is that the private sector has shrunk and this has produced a plummeting of demand of the existing workforce due to the depth and duration of the recession—the problem is not lack of quality and skills of the labor force.

    Let us now consider the first issue, the problem of youth unemployment. Indeed, the unemployment rate is very high among the youth and especially for 15–24 years, from 22.1% in 2008 to 57.2% today. But among the 1.3 billion unemployed (average of the first three quarter of 2013) the 1,186,000 are over 25 years old. According to the Hellenic Statistical Authority, all unemployed aged 15–24 amounted to 178,500. Recall that the second pillar consists of 240,000 unemployed young people aged up to 24 years! All the newcomers put together, among the 15–24 years of age, are less than 130.00. Even if we include new entrants ages 25–29, we reach 225,000 persons. The numbers are not consistent, at least not for the youth category of 15–24. Unless the same young person who participates one month in a training program and is then engaged in the private sector represents two “jobs.”

    The age targeted measures are ill conceived, as is the focus on employability. Most tragic of all is that long-term unemployed by now hits approximately 900,000 unemployed, of which 844,000 are not in the category of “youth.” Among them, 224,100 have been out of paid work for more than 48 months (4 years) and an additional 317.00 unemployed, for 24–47 months. For all these long-term unemployed, including those who have exhausted their resources and cannot pay even their electricity bill, for the 777, 000 unemployed who have a high school education level or lower, the announcement of Mr. Samaras highlights that there will be some lucky 200,000 young and more mature workers (440,000 minus 240, 000 people) that will be offered an “employment opportunity” for a few months out of a year in the private or public sector, receiving the meager earnings mentioned earlier.

    What must be urgently understood is that although the economy is now approaching the area of balancing the internal and external balance of payments and the pressure on further depressing the economy gradually slows down, this does not automatically lead to recovery. The economy can remain at frighteningly low production levels, high unemployment and income inequality of catastrophic dimensions. Recovery needs high and sustained private and public investment rates, and certainly gradual relief from the austerity measures. But let us remember that the decade before the crisis, with on average GDP growth about 4%, the economy created each year, on average, 55–60 thousand new jobs. Even if the growth rate returns to precrisis levels, at 4%, generating even 50–60 thousand new jobs per year, to reach the employment levels of 1998 to 2008 will be impossible in the near future; the figures for unemployment are so high, that the next decade will be 'lost', including for people sent to educational training centers.

    It is reasonable to ask, What can the poor government do when it has to deal with the Troika "requirements" of the one hand and the NSRF European Unon funds on the other, which are focused on these specific "actions"? Negotiate hard and convince their "partners" that the yardstick for introducing or maintaining conditionality measures, structural and otherwise, at this time is whether they increase unemployed or not; and  point out to other partners that these "actions" against unemployment are incompatible with the Greek reality—that the "Youth Guarantee" and the rest should be channeled to other types of interventions.

    The time has come to stop recycling the same distorted views. This crisis requires urgently a custom tailored Greek New Deal, which should last for at least the next three years. That is, the extension of a radically reorganized job guarantee program*, a community-based program of "koinofelis ergasia" not for five months but for 11 months per year, not for the 50,000–90,000 jobs for the unemployed but 440,000 real year-round jobs. As for what it will cost and where will we find the money, I reserve the right to provide relevant information next month through a study of the Levy Institute in cooperation with INE / GSEE [General Confederation of Trade Unions]. There is a solution, but it requires getting rid of current obsessions and to not follow the beaten track. Whether the political will of the current government to do so exists, is another matter.

    *The Levy Institute was instrumental in proposing a Job Guarantee policy for Greece, which was adopted by the Ministry of Labor in 2011, as a pilot program for 55,000 unemployed. It was rolled out in 2012 and was run through the NGO sector in collaboration with local and community governing bodies. For a background document that includes guidance notes on how best to design and implement such an initiative see http://www.levyinstitute.org/publications/?docid=1458
  • In the Media | November 2013

    The U.S. Economy Needs an Exports-led Boost


    By Dimitri B. Papadimitriou
    Reuters, November 26, 2013. All Rights Reserved.

    A recent visit by President Obama to an Ohio steel mill underscored his promise to create 1 million manufacturing jobs. On the same day, Commerce Secretary Penny Pritzker announced her department’s commitment to exports, saying “Trade must become a bigger part of the DNA of our economy.”

    These two impulses — to reinvigorate manufacturing and to emphasize exports — are, or should be, joined at the hip. The U.S. needs an export strategy led by research and development, and it needs it now. A serious federal commitment to R&D would help arrest the long-term decline in manufacturing, and return America to its preeminent and competitive positions in high tech. At the same time, increasing sales of these once-key exports abroad would improve our also-declining balance of trade.

    It’s the best shot the U.S. has to energize its weak economic recovery. R&D investment in products sold in foreign markets would yield a greater contribution to economic growth than any other feasible approach today. It would raise GDP, lower unemployment, and rehabilitate production operations in ways that would reverberate worldwide.

    The Obama administration is proud of the 2012 increase of 4.4 percent in overall exports over 2011. But that rise hasn’t provided a major jolt to employment and growth rates, because our net exports — that is, exports minus imports — are languishing. Significantly, the U.S. is losing ground in the job-rich arena of exported manufactured goods with high-technology content. Once the world leader, we’ve now been surpassed by Germany.

    America’s economic health won’t be strong while its trade deficit stands close to a problematically high 3 percent of GDP (and widening). Up until the Reagan administration, we ran trade surpluses. Then, manufacturing and net exports began to shrink almost in tandem.

    Our past performance proves that we have plenty of room to grow crucial manufacturing exports, and even eliminate the trade gap. The rehabilitation should begin with a national commitment to basic research, which in turn boosts private sector technology investment. The resulting rise in GDP would be an important counterbalance to a slightly higher federal deficit.

    Just-completed Levy Economics Institute simulations measured how a change in the target of government spending could influence its effectiveness. The best outcomes came about when funds were used to stoke innovation specifically in those export-oriented industries that might yield new products or cost-saving production techniques. When a relatively small stimulus was directed towards, for example, R&D at high tech manufacturing exporters, its effects multiplied. The gains were even better than the projections for a lift to badly needed infrastructure, which was also considered.

    Economists haven’t yet pinpointed a percentage figure that reflects the added value of R&D, but there’s a strong consensus that it is significant. Despite the riskiness of each research-inspired experiment, R&D overall has proven to be a safe bet. Government-supported research tends to be pure rather than applied, but, even so, when aimed to complement manufacturing advances, small doses have a good track record.

    Recognition that R&D outlays bring quantifiable returns partly explains why the federal National Income and Product Accounts have recently been altered to conform with international standards. NIPA will now treat R&D spending as a form of fixed investment. This will be a powerful tool to help reliably gauge its aftermath.

    Private sector-based innovation has also proved to be far more likely to occur when it is catalyzed by a high level of public finance. (For amazing examples, check out this just-released Science Coalition report.) Contractors spend more once government has kicked in; productivity rises and prices drop.

    The prospect of a worldwide positive-sum game is far more realistic than the “currency wars” dynamic so often raised by the media. Overseas buyers experience lower prices and the advantages of novel products. Domestic consumers, meanwhile, enjoy higher incomes and more employment, with some of the earnings spent on imports.

    An export-oriented approach faces multiple barriers. Anemic economies across the globe could spell insufficient demand. Another challenge lies in the small absolute size of the U.S. export sector.

    But the range of strategic policy options for the U.S. is limited. A rapid increase in research-based exports is the only way we see to simultaneously comply with today’s politically imposed budget restrictions and still promote strong job and GDP growth.

    Instead of stimulating tech-dependent producers, though, we’ve been allowing manufacturing to stagnate and competitiveness to erode. Public R&D spending as a percentage of GDP has dropped, and is scheduled for drastic cuts under the sequester.

    Sticking with the current plan means being caught up in weak growth and low employment for years. Jobs are being created at a snail’s pace, with falling unemployment rates largely a reflection of a shrinking workforce.

    For our R&D/export model, we posited a modest infusion of $160 billion per year — about 1 percent of GDP — until 2016. We saw unemployment fall to less than 5 percent by 2016, compared with CBO forecasts that unemployment will remain over 7 percent. Real GDP growth — instead of hovering around 3.5 percent, by CBO estimates, on the current path — gradually rose to near 5.5 percent by the end of the period.

    We need this boost. It’s urgent that we bring down joblessness and grow the economy. A change in fiscal policy biased towards R&D shows real promise as a viable way to help rescue the recovery.
  • In the Media | November 2013

    Yves Mersch: Intergenerational justice in times of sovereign debt crises


    Bank for International Settlements, November 11, 2013
    Speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Minsky Conference in Greece, organised by the Levy Economics Institute, Athens, 8 November 2013.

    Ladies and gentlemen,

    The last time I gave a speech here in Athens was in early January 2008. How much the world has changed since then.
     
    Yet it has not always changed in the ways that observers predicted. I still remember clearly, in the early weeks of May 2010, the prophetic claims that Greece would leave the euro area within weeks, that other countries would follow within months, and that the collapse of the euro would be complete before the year was out.

    Those claims were wrong - and the Greek people have played an important part in proving them so.

    Since the loss of market access in early 2010, the Greek people have made extraordinary efforts to refute the naysayers and turn the economy around. They have executed a fiscal adjustment of historic proportions and embarked on the difficult road of structural reforms. The results of these actions have accrued first and foremost to Greece - but they have also accrued to the wider euro area.

    However, this turnaround is still only half complete. There is still much work to do. And what I would like to emphasise in my remarks today is that staying on the path of reform is essential not only for the citizens of today. It is also essential for those of tomorrow.

    Like all Western societies, and some rapidly ageing Eastern ones, Greece faces long-term fiscal challenges linked to high public debt levels and demographic developments. These challenges raise profound questions about intergenerational justice. And it is only through reforms that they can be answered in a fair way.

    For all ageing societies, this implies, first, ensuring sustainable public finances and, second, achieving stronger economic growth. Both are necessary because they are mutually reinforcing: fiscal sustainability creates the stability and confidence necessary for future growth; and higher growth creates the revenues and debt-to-GDP ratios necessary for fiscal sustainability.

    Let me therefore deal with each in turn, starting with what is being done to ensure fiscal sustainability in the context of intergenerational justice.

    Strengthening sustainability

    The fiscal challenges that Greece is facing today, while more severe than others, are not unique to this country. All Western societies are being confronted with difficult questions about the distribution of consolidation and spending between current and future generations.

    A first question is how the burden of high public debt levels in Western societies will be shared between generations. This question is particularly pertinent in the euro area because all countries are bound by law to start reducing their debts to below 60% of GDP - and average public debt levels in the euro area are currently in excess of 95% of GDP.

    If fiscal consolidation starts today, then the generation which has benefited most from this debt will play the largest role in reducing it. But if consolidation is delayed, then future generations will have to bear the burden of debt reduction - this would constitute a direct transfer from our children and grandchildren to ourselves.

    And it is only us who are taking the decision. Our children and grandchildren have no power to raise their objections.

    A second question with intergenerational consequences is how to spread the costs of demographic change. In the EU, it is projected that by 2060 there will be just two working-age people for every person over 65, compared with a ratio of 4:1 today. This means the weight of supporting an ageing population will rest on ever fewer shoulders.

    If current generations are proactive in reforming pension systems, they can reduce the load that the shrinking working age population will have to carry. But if they choose instead to preserve their entitlements, then they make the lives of future generations commensurately harder. They would be effectively sacrificing their descendants' quality of life for their own.

    In other words, all Western societies are facing choices about the distribution of responsibility. Do we, the current generation, take responsibility for the long-term fiscal challenges that we have played a large part in creating? Or do we delay and pass the consequences of our choices onto our children and grandchildren? I think it is fairly clear what a perspective of intergenerational justice would imply.

    This perspective is of course not new. The so-called "demographic time bomb" has been predictable for many years. Indeed, I pointed to this issue when I spoke here in Greece in early 2008. But what has changed today is the urgency for action. The crisis has meant that these difficult choices can no longer be delayed. One might say it has pressed the fast-forward button and brought the challenges of the future into the present.

    This is the broader context for the ongoing consolidation process in Greece. Certainly, it is about increasing spending control and tax collection. But it is also about putting Greece on a sustainable path for the future; limiting the load that is bequeathed to our descendants; and ensuring that those that created fiscal problems take responsibility for them.

    What Greece has achieved

    And indeed, this is what is happening in Greece today. The commitment the Greek people have shown to fiscal consolidation has been remarkable, even in international comparison.

    The primary deficit has declined by almost 10 percentage points of GDP between 2009 and 2012. Taking into account the deep and prolonged recession, the underlying fiscal adjustment has been even larger. The OECD estimates that structural adjustment was nearly 14 percentage points of GDP in this period.

    As Greece is one of the smaller euro area Member States, the scale of its efforts is not always appreciated appropriately. If the level of expenditure consolidation we have seen in Greece were applied in Germany, it would be equivalent to a permanent reduction in public spending of 174 billion euro. That is more than the total sum of social spending.

    Greece has also made important progress in addressing the long-term fiscal challenges linked to its ageing population. There is little doubt that before the crisis the Greek pension system was unsustainable. In the Commission's 2009 Ageing Report, age-related spending in Greece was projected to increase from 22% of GDP in 2007 to a staggering 38% of GDP in 2060. By contrast, the average for the euro area would be under 30% of GDP in 2060.

    But thanks to the pension reforms the authorities have introduced, the Greek system is now comparable to others. In the 2012 Ageing Report, age-related spending in Greece was projected to increase to just under 30% of GDP in 2060 - so around than 8 percentage points lower than the previous estimate. This is almost identical to the euro area average. If we take into account as well the recently legislated increase in the pension age, Greece may even be ahead of others.

    In short, the Greek people have taken vital measures to ensure long-term fiscal sustainability. This will reduce the burden that will be passed to future generations. And I recognise that in doing so, current generations have made considerable sacrifices. Real earnings have fallen by over 20% between 2009 and 2012, undoing the gains made since adopting the euro. Far too many people are currently without work, with unemployment at over 27% and youth unemployment reaching 57%. For so much potential to be lying idle is a tragedy.

    What remains to be done

    Nevertheless, this is the painful cost of reversing the misguided economic policies and lack of reforms in the past. And fiscal sustainability - and hence intergenerational justice - is not yet assured. While the government appears to be on track to meet its 2013 primary balance target, Greece still has some way to go to reach the primary surplus targets of 1.5% of GDP in 2014, 3% of GDP in 2015 and 4.5% of GDP in 2016. This means that fiscal consolidation has to continue.

    Based on current projections, a fiscal gap has emerged for 2014. It comes mainly from delayed gains from the tax administration reform, shortfalls in the collection of social security contributions and the continuing underperformance of the instalment schemes for outstanding tax obligations. Measures will have to be identified to close it.

    Looking forward, failure by the authorities to proceed with tax administration reform and to accelerate the fight against tax evasion will unavoidably widen the fiscal gap - and imply the need for higher savings on the expenditure side. This simple truth should provide sufficient incentives for stepping up the pace of tax administration reform.

    To put tax collection in Greece in context, according to the most recent OECD data, the tax debt in Greece as a share of annual net tax revenue was almost 90% in 2010, compared with an OECD average of under 14%. Fighting tax evasion now is therefore key to enhancing social fairness - both on an intra-generational and an inter-generational basis.

    To this effect, the recently legislated semi-autonomous tax agency will need to become fully operational and be shielded from political interference.

    Beyond that, accelerating the implementation of public administration reform is key to the success of the wider reform agenda. Significant delays have occurred in finalising staffing plans and transferring employees to the new mobility scheme, and this is slowing down the identification of redundant positions and the necessary modernisation of the public sector.

    Of course, consolidation would be made easier by higher rates of growth. But we should not treat growth as an exogenous variable. On the contrary, it depends critically on the decisions of the Greek authorities - namely on their willingness to implement the growth-enhancing measures in the programme. The relatively closed and rigid nature of the Greek economy is both a challenge and an opportunity: it makes the process of reform harder, but it also means that the potential for reforms to raise growth is commensurately greater.

    Let me therefore turn to the subject of growth, which forms the second part of my remarks today.

    Strengthening growth

    The economic situation in Greece has started to pick up this year, with the economy stabilising and seasonally-adjusted real GDP increasing by 0.2% quarter-on-quarter in Q2 2013. Overall, GDP growth is expected to turn positive next year at 0.6%.

    But while these are welcome developments, they still represent a relatively weak recovery, especially given the depth of the recession that preceded it. In my view, to add momentum to this recovery and lay the foundations for medium-term growth, the authorities need to address three challenges. First, increasing the economy's external competitiveness; second, ensuring the banking sector can fund the recovery; and third, attracting productive foreign investment.

    Increasing external competitiveness

    As Greece is undergoing a simultaneous deleveraging in its public and private sectors, sectoral accounting tells us that its external sector must go into surplus. The key for growth is to ensure that this happens as much as possible through higher exports rather than import compression. The best way Greece can achieve this is by improving its price competitiveness.

    Price competitiveness is particularly important for Greek firms as their exports are largely concentrated in low-tech products. At the end of the last decade, high-tech or intermediate-tech products represented only 28% of total exports, compared to nearly 50% for the EU average. Yet since euro entry price competitiveness in Greece has actually been on a worsening trend. According to the Commission, the real effective exchange rate (on an HICP basis) in Greece was still rising until 2011.

    To facilitate an export-led recovery, this trend has to be corrected and there is no way this can be achieved in the short run other than by adjusting prices and costs. I know the difficulties that such adjustment creates and the criticisms that are levelled against it. But we are in a monetary union and this is how adjustment works. Sharing a currency brings considerable microeconomic benefits but it requires that relative prices can adjust to offset shocks.

    This process has already begun in Greece today. Thorough labour market reforms have reduced labour costs significantly. costs have now fallen by around by 18% since 2009, with wage adjustment being the main driver of that fall. Indeed, compensation per employee has fallen by about 20% in this period.

    But the translation of cost competitiveness gains into prices has been too slow - notwithstanding the encouraging recent trend of disinflation. This is largely because reforms in product markets have not kept pace with those in labour markets. And this not only limits the potential for the external sector to generate growth, but also lowers citizens' real incomes.

    Speeding up the pace of product market reforms is therefore a priority. The authorities have introduced several recent reforms, for example removing barriers to entry in transportation services, repealing restrictions in the retail sector and removing mandatory recourse to services for a number of regulated professions. However, as of today product market regulations are still among the most restrictive in Europe. Further reform will help remove unjustified privileges and the related excess profits, and by helping prices adjust, this will in turn strengthen social fairness.

    Funding the recovery

    While product market reforms are an essential part of building a more competitive economy, their ability to generate growth depends also on other developments - in particular, the condition of the banking sector.

    If banks do not make new loans, this impedes the entry of new players into liberalised sectors, which then reduces competitive pressures and price adjustments. And if banks do not write off loans to insolvent debtors, in particular "zombie" companies, this slows down the necessary reallocation of resources toward exports and higher-productivity sectors.

    In other words, cleaning up bank balance sheets and ensuring a well-functioning bank lending channel is an equally important part of the adjustment process. This is the second challenge for growth.

    The authorities in Greece have taken important steps to preserve the stability of the banking sector. The recapitalisation of the four core banks was completed in June 2013, while the consolidation of the banking sector has continued through the resolution of non-viable banks and the absorption of Greek subsidiaries of foreign banks. Deposit inflows have continued, in part offsetting the deposits lost between the end of 2009 and the middle of 2012.

    But despite these improvements, credit growth to the private sector remains very weak, in particular for the small and medium-sized enterprises (SMEs) that make up about 60% of business turnover in Greece. The last ECB survey on SME financing showed that 31% of SMEs had applications for bank loans rejected, well above the euro area average of 11%. Moreover, the sectoral allocation of credits has not substantially shifted towards export-oriented sectors since 2010, suggesting that banks are not facilitating internal rebalancing.

    To some extent, these developments are cyclical: the weak economic environment means banks are attaching higher credit risk to SMEs. But there is also a more structural explanation. Non-performing loans (NPLs) increased from 16% at the end of 2011 to 29% of total loans in the first quarter of 2013. This is acting as a barrier to new lending to higher- growth sectors.

    Unfortunately, this problem is in part being created by government policy. The ongoing moratorium on auctioning the properties of debtors in default has slowed down resolution of NPLs and balance sheet restructuring. Moreover, suggestions by policy-makers about horizontal debt relief for bank debtors are leading to a steep rise in strategic defaults, with banks estimating that 25% of NPLs in the mortgage and SME sectors are now strategic.

    This deterioration in the payment culture, even if it helps individuals on a micro level, is deeply damaging to the economy as a whole. If it continues, it will ultimately lead to higher costs for banks, new recapitalisation needs and further constrictions in bank lending. In my view, to restart lending to the real economy, this self-fulfilling cycle must be broken.

    I welcome the fact that the Greek authorities have established an inter-agency working group to identify ways to improve the effectiveness of debt resolution processes. Its priority should be to establish a time-bound framework to facilitate the settlement of borrower arrears using standardised protocols. This would help to remove expectations about future debt relief, and as such, remove the debilitating moral hazard this is creating.

    Otherwise, the ultimate result would be that excessively high risk premia become structural and choke off investment and job creation - thus punishing the whole of society for the actions of those in strategic default.

    Attracting productive foreign investment

    The third challenge for growth is to attract higher foreign investment. This is important to add momentum to the recovery in the short term, while also increasing the capital and knowledge base of the Greek economy over the medium term. Indeed, before the crisis, investment in knowledge-based capital in Greece was among the lowest in the euro area.

    From the available signals, there seems to be significant investor interest in Greece. While total investment in Greece has fallen by around 43% from 2008-2012, foreign direct investment (FDI) flows have recently been positive, driven largely by investment in the banking sector. But anecdotal evidence suggests that foreign interest in the real economy is also growing, with several multinational companies announcing plans to increase their output at Greek units in the coming years. To maximise such investments, I see three actions as key.

    First, the authorities need to redouble their efforts to improve the business environment. Product and labour market flexibility is certainly a part of this, but there is also a wider challenge related to reducing bureaucracy, red tape and corruption. Progress has been made in these areas but Greece still ranks second to last among euro area countries on the World Bank's Ease of Doing Business Index.

    Second, foreign investment would naturally rise if privatisation were increased. In 2012 only 0.1 billion euro was derived from privatisation receipts, instead of the 3.6 billion euro originally forecast. Yet the example of the Port of Piraeus shows what well-targeted privatisation can achieve. Since the transfer of management of part of the port to the company COSCO in 2009, container traffic has tripled and its market share in the Mediterranean has risen from 2% to 6%.

    Third, it is crucial for foreign investors that uncertainty about Greece's medium-term outlook is dispelled. The greatest source of such uncertainty in the past was persistent questions about Greece's place in the euro area, but thanks to the joint efforts at the European and national levels, this seems to have significantly declined over the last year. The main source of uncertainty today is the continued commitment of the authorities to the programme. I therefore trust that the authorities will do everything possible to remove such doubts.

    Conclusion

    Let me conclude.

    Greece has made tremendous progress in recent years to close its fiscal deficit. By any standards, what has been achieved is remarkable.

    But the process of restoring sustainability and growth in Greece is not yet complete - and neither is the progress so far secured. If the authorities fail to address the remaining challenges, they will put at risk what has already been achieved.

    In other words, Greece today stands at a crossroads.

    In the one direction lies the path of difficult choices. This is the steep and thorny way, and it requires great commitment to negotiate, but it is the one that will lead to a reformed state, a sustainable economy and justice between generations.

    In the other direction lies the path of easy answers. This path is littered with false alternatives, such as recurrent proposals for debt restructuring.

    To some, debt restructuring or larger haircuts on government bonds may seem politically attractive. But such practices can only be a last resort. They are by no means a sustainable option to ease a government's financial obligations. They would not help to promote fiscal discipline and could create higher costs in the long run. And they would do nothing to address the fundamental weaknesses in the Greek economy.

    In short, the path of easy answers leads to stagnation, decline and an over-burdening of the young and future generations.

    From what I see today, I trust that the Greek people know which path they need to take. A recent poll shows that 69% of the public supports the euro - and being part of the euro means taking tough but necessary decisions.

    Responsible choices and reliability are the preconditions for solidarity. Greece has already received support from other euro area countries equivalent to 17,000 euro per Greek citizen. And, provided that it complies with the programme, those countries are committed to supporting Greece until it regains market access.

    In short, all the conditions are present for Greece to return to prosperity - and for the sake of both current and future generations, I trust that Greece will make the most of them.

  • In the Media | November 2013

    ECB Mersch: Greece Has Taken Vital Measures, Still More to Do


    By Martin Baccardax
    MNI News, November 8, 2013. All Rights Reserved.

    FRANKFURT (MNI) - European Central Bank Executive Board member Yves Mersch praised the efforts of Greece's government to tackle its structural and fiscal reforms but said there was much left to be done in order to ensure a lasting recovery for the struggling economy.

    In prepared remarks for a speech at the Minsky Conference in Athens organised by the Levy Economics Institute, Mersch urged the continued efforts of the Greek government to tackle tax evasion, attract foreign investment and increase internal competitiveness.

    "The Greek people have taken vital measures to ensure long-term fiscal sustainability. This will reduce the burden that will be passed to future generations," Mersch said "And I recognise that in doing so, current generations have made considerable sacrifices."

    "Nevertheless, this is the painful cost of reversing the misguided economic policies and lack of reforms in the past. And fiscal sustainability - and hence intergenerational justice - is not yet assured," he added. "While the government appears to be on track to meet its 2013 primary balance target, Greece still has some way to go to reach the primary surplus targets of 1.5% of GDP in 2014, 3% of GDP in 2015 and 4.5% of GDP in 2016. This means that fiscal consolidation has to continue."

  • In the Media | November 2013

    Mersch: Greece Debt Restructuring, Haircuts on Govt Bonds "Only Last Resort"


    Matina Stevis
    The Wall Street Journal, November 8, 2013. All Rights Reserved.

    ATHENS—Further haircuts on Greek government debt should only be "the last resort" in the country's efforts at an economic turn-around, European Central Bank Executive Board member Yves Mersch said Friday.

    Speaking at a conference here in Athens, organized by the Levy Institute of Bard College, Mr. Mersch cautioned that "Greece today stands at a crossroads."

    Hard-earned reforms towards a sustainable economy is one way, "easy answers" the other, he said.

    Greece's privately-held debt was restructured in May 2012 in the biggest debt restructuring in history. Most of its debt is now held by euro-zone governments and the International Monetary Fund, which have been keeping the country afloat since 2010 through bailouts worth a total of some EUR240 billion.

    The IMF has called on euro-zone governments to accept losses on their loans to Greece in a form of debt forgiveness, in order to ease the debt burden on the country and give it breathing room to grow. Greece's economy has lost about one-quarter of its output since 2008.

    But euro-zone leaders have rejected the idea, noting that the terms of the bailout loans to Greece are very favorable, with an interest rate near the refinancing cost of the loans and maturities that stretch out over the next three decades.

    Mr. Mersch said debt forgiveness wouldn't "help promote fiscal discipline and could create higher costs in the long run."

    A haircut on Greece's debt would "do nothing to address the fundamental weakness in the Greek economy," Mr. Mersch added.

    A delegation from the troika of institutions overseeing Greece's bailout--the IMF, the ECB and the European Commission--is currently in Athens conducting a review of its progress. The mission had been suspended in September and has been fraught with disagreements over fresh austerity measures in the 2014 budget, as well as the speed at which the Greek government is implementing structural reforms.

    Greece can only hope to get a fresh slice from its aid package if the review is successfully completed and euro-zone finance ministers approve a new disbursement. The earliest this might happen, given the delays in the review, is December.
  • In the Media | November 2013

    Europe's Deflation Paradox


    By Jörg Bibow
    Investors Chronicle, November 4, 2013. All Rights Reserved.

    The news that euro area inflation fell to a four-year low of 0.7 per cent last month raises a paradox.

    On the one hand, it’s widely agreed that such a rate is, as Societe Generale’s Michala Marcussen says, “uncomfortably low”. This is because it poses the risk of deflation - falling prices. And this could be a big problem. It would tighten monetary policy because falling prices mean a higher real interest rate. And if consumers expect deflation to last, they might postpone spending in the hope of picking up bargains later, and in doing so kill off the fragile recovery. Many economists therefore expect the ECB to react by cutting interest rates, possibly as soon as this week.

    However, for the most stricken countries in the euro area, deflation is supposed to be a solution, not a problem. The reason for this is simple. The euro area’s crisis was due in large part to current account imbalances within the region, with the south borrowing heavily from the north. These occurred because southern economies lost price competitiveness against the north and so sucked in imports whilst exports faltered. For example, between 2000 and 2010 Germany’s relative unit labour costs fell by 11.7 per cent, whilst Portugal’s rose by 9.2 per cent and Greece’s by 22.5 per cent. As Jorg Bibow of New York’s Levy Economics Institute put it: “At the heart of today’s euro debt crisis is an intra-area balance of payments crisis caused by seriously unbalanced intra-area competitiveness positions.”

    The official solution to these imbalances is for the south to cut wages relative to the north to restore competitiveness. The IMF is calling on Portugal to “reduce production costs” and Greece to use “wage adjustment” (a euphemism for cuts) to close the “competitiveness gap” with Germany. And – thanks to mass unemployment - they are doing just this. David Owen at Jefferies Fixed Income points out that hourly labour costs are falling in Greece and Portugal. And falling wages mean falling prices. In September, Greek consumer price inflation was minus one per cent, Portugal’s was 0.3 per cent and Spain’s 0.5 per cent.

    This poses the question. How can deflation be a danger for the euro area as a whole, when it is supposed to be a solution for the south?

    One could argue that the export and import sectors are a bigger fraction of GDP in individual countries than they are for the eurozone as a whole, and so improved competitiveness would do more to boost growth in Greece or Portugal than it would for the euro area as a whole. And one might add that investment is more sensitive to costs within the eurozone than it is between the eurozone and rest of the world, and so improved competitiveness would do more to attract inward investment into Greece or Portugal than it would into the euro area.

    These, though, aren’t the whole story. As I argue elsewhere, it’s not at all certain that falling wages will be sufficient to turn around Greece and Portugal.

    Instead, this paradox highlights a flaw within the euro area - that it contains a bias towards unemployment and deflation. In theory, Greek and Portuguese competitiveness could be improved not just by wage cuts there but by inflation (and higher demand) in the north. But this isn’t happening. Yes, German wages are rising. But only slowly. And it is still running a big external surplus which is, as the US Treasury recently said, creating “a deflationary bias for the euro area.” In this sense, low inflation in the euro area isn’t merely a problem in itself, but is a symptom of a deeper structural malaise.
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  • In the Media | October 2013

    Focus on Greece: Optimists Reap Dividends in Return for Their Faith


    Reforms Are Beginning to Bite and to Stimulate a Broad Economic Recovery
    By Catherine Bolger

    The Wall Street Journal, October 11, 2013. All Rights Reserved.


    Investing in Greece has been highly profitable for a number of foreign investors, and they're going back for more. Levy Institute President Dimitri B. Papadimitriou comments on the outlook for long-term investment.

  • In the Media | October 2013

    Fitch Ratings Warns U.S. on Credit Rating


    Tim Mullaney
    USA Today, October 16, 2013. All Rights Reserved.

    Fitch Ratings took a step toward cutting the U.S. government's AAA debt rating Tuesday, as the clock ticked toward the Thursday deadline to raise the nation's debt ceiling or risk default.

    Chicago-based Fitch, the third-largest of the major debt-rating companies behind Standard & Poor's and Moody's Investors Service, put U.S. Treasury bonds on Rating Watch Negative, which is sometimes but not always a first step before a downgrade. Fitch said in a statement that it still thinks the debt ceiling will be raised in time to prevent a default.
      Fitch said the government would have only limited capacity to make payments on the $16.7 trillion national debt after Treasury Department's emergency measures run out Thursday.

    Some Republicans have advocated Treasury make debt service payments before paying day-to-day bills, but Fitch said that may not be legal or technologically possible. Even Treasury could do that, a failure to act would still leave the U.S. missing payments for Social Security and payments to government contractors, Fitch said.

    "All of (these) would damage the perception of U.S. sovereign creditworthiness and the economy,'' Fitch said in a statement. "The prolonged negotiations over raising the debt ceiling ... risks undermining confidence in the role of the U.S. dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the U.S. This `faith' is a key reason why the U.S. 'AAA' rating can tolerate a substantially higher level of public debt than other AAA" bonds.

    Fitch said it could make a decision on whether to lower its AAA rating on U.S. debt by the end of the first quarter.

    "The announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy," the Treasury Department said in response.

    One money manager quickly backed Fitch's action, which affects all U.S. bonds.

    "This action by Fitch is not about ability to pay,'' said Cumberland Advisors chief investment officer David Kotok. "It is about governance and our willingness to pay. In that category the United States has reached the brink of political failure.'' Economists have warned that there are two main ways failing to raise the debt ceiling could hurt the economy.

    One is by causing chaos in financial markets, forcing stock prices lower and freezing credit to many borrowers. The other is by forcing the government to cut spending by as much as $130 billion over as little as six weeks to avoid borrowing more, Moody's Analytics estimated last week.

    A study Tuesday by Bard College estimated that a rapid-fire balanced budget scenario would cause the U.S. economy to shrink by almost 3% in 2014 and the unemployment rate to surge to more than 9.5%.

    That is before accounting for the chance that a failure to raise the debt ceiling will push U.S. trading partners into recession, the Bard study says.

    "A recession in the United States would certainly exert a negative influence on growth in the rest of the world, which would in turn feed back to the States," Bard economist Michalis Nikiforos said.

    Moody's says it has no plans to change its Aaa rating on U.S. debt.

    Political brinksmanship was a key reason for S&P's downgrade of the U.S. to AA+ from AAA in 2011, the last time Washington flirted with refusing to raise the debt ceiling. The lack of an agreement on the debt limit this week would not necessarily trigger another S&P downgrade, spokesman John Piecuch said.

    "Passing (Oct.) 17th is not a specific trigger," Piecuch said.

    If the U.S. missed a debt payment, however, its rating would be lowered to selective default, he added.

    Contributing: John Waggoner, Adam Shell and David M. Jackson 
  • In the Media | October 2013

    Fundamentos da economia estão razoáveis, diz diretor do FMI


    Agência Brasil
    DCI, 26 Setembro 2013. © 2013 DCI - Diário Comércio Indústria & Serviços. Todos os direitos reservados.

    RIO DE JANEIRO - Batista citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial...

    RIO DE JANEIRO - O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse nesta quinta-feira (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (Será que o Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou.
  • In the Media | September 2013

    Der Prophet der Instabilität


    Mark Dittli
    Finanz und Wirtschaft, September 30, 2013. All Rights Reserved.

    Hyman Minsky erkannte die Gefahr exzessiver Kreditschöpfung durch die Banken. Er hielt es für eine Torheit der Ökonomie, den Finanzsektor zu ignorieren.


    Man stelle sich vor: eine Mischung aus John Maynard Keynes und Joseph Schumpeter, mit einem Schuss Hayek. Das Resultat ist einer der wichtigsten Ökonomen des vergangenen Jahrhunderts, der bis heute in der breiten Öffentlichkeit kaum bekannt ist: Hyman Minsky (1919–1996).

    In den Jahren seit dem Ausbruch der Finanzkrise ist der Name des Amerikaners wieder in der ökonomischen Debatte ­aufgetaucht; als «Minsky Moment» wurde die verhängnisvolle Periode im August 2007 bezeichnet, als das Finanzsystem ­begann, aus den Fugen zu geraten. Angesichts der heutigen Renaissance Minskys geht leicht vergessen, dass er während ­seiner akademischen Karriere ein Randdasein fristete, kaum ernst genommen in der Mainstream-Ökonomie.

    Das war ein folgenschwerer Fehler. ­Hyman Minsky befasste sich als Ökonomieprofessor mit dem Finanzsektor und der Rolle, die dieser in der Realwirtschaft spielt. Er zeigte, dass das Finanzsystem ­inhärent instabil ist, zu Übertreibungen und Krisen neigt. Wer seine hauptsächlich in den Siebziger- und Achtzigerjahren verfassten Schriften liest, findet erschreckend präzise Parallelen zu den Ereignissen von 2007 und danach. Lebte Minsky heute noch, könnte er zu Recht ein «Ich habe es ja gesagt» in die Runde werfen.

    Der wahre Keynes

    Hyman Philip Minsky, 1919 als Sohn jüdischer weissrussischer Immigranten in Chicago geboren, studierte Mathematik und Ökonomie an der University of Chicago. Master- und Doktortitel in Ökonomie erlangte er an der Harvard University, sein Doktorvater war Joseph Schumpeter. Nach dem Studium folgten Lehraufträge an der Brown University sowie in Berkeley. 1965 übernahm Minsky einen Lehrstuhl an der Washington University in St. Louis, den er bis 1990 behielt. Danach forschte er weitere sechs Jahre bis zu seinem Tod am Levy Economics Institute.

    Auf einen simplen Satz reduziert war der Kern von Minskys Lehre die Suche nach dem wahren Keynesianismus. Hierzu ein kurzer Exkurs: John M. Keynes löste 1936 mit der «General Theory of Employment, Interest, and Money» in der Volkswirtschaftslehre eine Revolution aus. Das Werk war jedoch in vielen Belangen bruchstückhaft, und Keynes hatte die Absicht, auf etliche Aspekte näher einzugehen. 1937 erlitt er jedoch einen Herzinfarkt und konnte mehrere Jahre kaum arbeiten. Später absorbierten ihn der Weltkrieg und seine Arbeit an der Konzeption des Bretton-Woods-Systems. 1946 starb Keynes; er kam nicht mehr dazu, die General Theory zu verfeinern. Das Werk blieb eine Art Bibel, deren Interpretation anderen überlassen war.

    Diesen Part übernahmen John Hicks und später Alvin Hansen sowie Paul Samuelson. Sie erschufen auf Basis der General Theory die sogenannte neoklassische Synthese, die Lehrbuchökonomie, die ab den Fünfzigerjahren zum Mainstream wurde.

    Grundannahme der neoklassischen Synthese ist das Equilibriumsmodell, das besagt, dass die Wirtschaft stets ein Gleichgewicht sucht.

    «Die populäre, mathematisch hergeleitete Modellierung der General Theory, besonders in der Gestalt des IS/LM-Modells von Hicks (...), tut sowohl dem Geist als auch dem Gehalt von Keynes’ Werk Gewalt an.»

    Herzstück der Hicks’schen Interpretation der General Theory war das IS/LM-Modell, das den Markt für Güter und den Markt für Geld im Gleichgewicht darstellt. In diesem Modell ist Geld eine neutrale Grösse, es entsteht exogen, durch die Entscheide der Zentralbank. Der Finanzsektor wird daher weitgehend ausgeblendet respektive als irrelevant betrachtet. Das Finanzsystem ist nichts anderes als ein Mechanismus, um Geld von Sparern zu Investoren zu transferieren.

    Vom Wesen der Ungewissheit

    Minsky sah in der neoklassischen Synthese eine Perversion von Keynes’ Lehre. «Die mathematisch hergeleitete Modellierung der General Theory transformierte Keynes’ Theorie in ein das Gleichgewicht suchendes System», schrieb er: «Sie tut ­sowohl dem Geist wie auch dem Gehalt von Keynes’ Werk Gewalt an.» Die Ausblendung des Finanzsektors hielt er für eine absurde Abstraktion der Realität.

    Minsky verstand sich sehr wohl als Keynesianer, aber für ihn lag der Schlüssel in der Interpretation der General Theory in deren Kapitel 12. Dieses befasst sich mit der Rolle der Spekulation an den Märkten, mit Massenpsychologie und Herdentrieb. In ihrer Versessenheit auf mathematische Modelle hätten Hicks und seine Nachfolger vergessen, wie wichtig für Keynes der ­Begriff der Ungewissheit war und was diese für die Entscheidungsfindung von Investoren bedeute, warnte er.

    Schon in den späten Fünfzigerjahren prophezeite Minsky, die populäre Auslegung des «Keynesianismus» werde zu Inflation und finanzieller Instabilität führen. Zwanzig Jahre später sollte sich die Warnung bewahrheiten.

    1975, mittlerweile war der populäre Keynesianismus angesichts steigender ­Inflationsraten diskreditiert, publizierte Minsky sein erstes grosses Werk mit dem Titel «John Maynard Keynes». Er sah es als Versuch, die wahre Substanz der General Theory, die Rolle der Finanzbeziehungen in einem fortgeschrittenen kapitalistischen System, ans Licht zu bringen. Die Mainstream-Ökonomie hatte den Finanzsektor wegrationalisiert: Minsky setzte ihn ins Zentrum seiner Arbeit.

    1986 legte er mit seinem zweiten Werk, «Stabilizing an Unstable Economy», nach. Darin formulierte er seine Hypothese der finanziellen Instabilität, die zu seinem Hauptvermächtnis werden sollte.

    «Ein komplexes Finanzsystem wie das unsere generiert destabilisierende Kräfte. Depressionen sind natürliche Konsequenz des ungehinderten Kapitalismus (...). Das Finanzsystem kann nicht dem freien Markt überlassen werden.»

    Nach Minsky – in diesem Punkt folgt er Schumpeter – ist das kapitalistische ­System nicht stabil. Es findet kein Equilibrium; das Gleichgewicht ist bloss eine Station auf dem Weg von einem Ungleichgewicht ins nächste. Der Grund dafür liegt im Verhalten der Marktakteure: Gefühlte Stabilität in der Gegenwart verleitet sie dazu, immer risikofreudiger zu werden – was den Grundstein für die nächste Krise legt. «Stabilität führt zu Instabilität», beschrieb Minsky sein Paradoxon.
    Die zentrale Rolle in diesem Prozess spielt der Finanzsektor. Nach Minsky – und Schumpeter – entsteht Geld nicht exogen, sondern endogen, innerhalb des Wirtschaftssystems, «aus dem Nichts», durch die Kreditschöpfung der Banken. Diese befeuert den Gang der Wirtschaft und treibt die Spekulation an.

    Minsky unterschied zwischen drei Zuständen in der Finanzierungsstruktur von Unternehmen oder Personen: Abgesichert («Hedge»), Spekulativ und Ponzi. Im ersten Stadium erwirtschaften die Schuldner aus ihrer Arbeit genügend Cashflow, um die Zinslast zu bedienen und die Schulden allmählich abzuzahlen. Im zweiten Stadium reicht der Cashflow nur zur Bedienung der Zinsen, aber nicht zur Amortisation der Schuld. Ein spekulativer Schuldner ist darauf angewiesen, dass er seine Kredite am Fälligkeitstermin durch neue ablösen kann. Das letzte Stadium im ­Zyklus nannte Minsky Ponzi, nach dem Hochstapler Charles Ponzi, der in den Zwanzigerjahren mit einem Pyramidensystem 15 Mio. $ ergaunert hatte. In diesem Stadium reicht der erarbeitete Cashflow des Schuldners nicht einmal mehr, um die Zinsen zu bedienen. Um über Wasser zu bleiben, muss er darauf zählen, dass sich der Wert der Anlagen in seiner Bilanz laufend erhöht.

    Mit diesem Modell erklärt sich das Minsky-Paradoxon, wonach Stabilität zu Instabilität führt: In einer gesunden Wirtschaft sind die meisten Kredite an abgesicherte Schuldner verliehen. In der gefühlten Stabilität werden diese jedoch risikofreudiger und nehmen immer mehr Schulden auf, um verheissungsvolle Investitionsprojekte zu realisieren. Die Banken agieren in dieser Phase nicht als Korrektiv, sondern ­legen ihre Risikoscheu ebenfalls ab und vergeben immer freimütiger Kredit. Der Kreislauf treibt sich in die Höhe, bis die Wirtschaft aus zahlreichen spekulativen oder Ponzi-Schuldnern besteht – und höchst fragil geworden ist.

    Die Bändigung des Biestes

    Irgendwann kippt dann die Stimmung. Schlagartig können sich Schuldner nicht mehr refinanzieren, die Banken frieren die Kreditvergabe ein, die Preise von Vermögenswerten geraten ins Rutschen, Notverkäufe beschleunigen den Prozess. Die deflationäre Schuldenliquidation beginnt.

    Für den Ausbruch der Krise ist kein exogener Schock nötig. «Instabilität entsteht durch die Mechanismen innerhalb des Systems, nicht ausserhalb», schrieb Minsky, «unsere Wirtschaft ist nicht instabil, weil sie durch den Ölpreis oder Kriege geschockt wird. Sie ist instabil, weil das in ihrer Natur liegt.» In beiden Extremen des Ungleichgewichts, im Spekulationsboom wie in der deflationären Schuldenliquidation, entsteht kein Korrektiv: Der Boom nährt sich selbst, genauso wie sich die Wirtschaft in der Depression immer weiter in die Tiefe schraubt.

    Minsky sah nur eine Möglichkeit, das Biest zu bändigen. In den extremen Phasen des Ungleichgewichts muss der Staat einspringen. In der Depression bedeutet das fiskal- und geldpolitische Stützung, um die selbstzerstörerische deflationäre Schuldenliquidation zu stoppen. Als Korrektiv im Boom sah Minsky vor allem institutionelle Bremsen im Bankensektor: Er empfahl harte Eigenmittelanforderungen für die Banken sowie Beschränkungen in ihrer Gewinnausschüttung. Grossbanken, deren Bilanz eine winzige Eigenkapital­decke aufweist, waren Minsky ein Gräuel. «Ein komplexes Finanzsystem wie das Unsere generiert auf endogenem Weg gefährliche destabilisierende Kräfte», schrieb er, «Depressionen sind eine natürliche Konsequenz des ungehinderten Kapita­lismus.» Und in letzter Konsequenz: «Das Finanzsystem kann nicht dem freien Markt überlassen werden.»

    Das Ende der Geschichte

    Es erstaunt kaum, dass Minsky mit diesen Ansichten in den Achtzigern keine Chance hatte. Eine Theorie des Ungleichgewichts war damals weltfremd. Neukeynesianer, Neoklassiker, Monetaristen sowie die Anhänger der österreichischen Schule waren sich in der Annahme einig, dass das Wirtschaftssystem – zumindest in der langen Frist – in ein Gleichgewicht strebt. Es war die Zeit der Theorie der rationalen Erwartungen, der effizienten Finanzmärkte, untermauert mit der Präzision mathematischer Modelle. Es war die Zeit der Deregulierungswellen im Bankensektor, gestartet unter Reagan und Thatcher, fortgesetzt in den USA unter Bill Clinton. Es war die Zeit der «grossen Moderation», mit robustem Wachstum und flachen, harmlosen Rezessionen. Sogar die Inflation war besiegt. Es war das «Ende der Geschichte» in der Ökonomie.

    Für Hyman Minsky war in dieser Welt kein Platz mehr. Nur ein verlorenes Grüppchen Post-Keynesianer scharte sich noch um ihn. 1996 starb er an Krebs.

    Vier Jahre später war Minsky in den «Essays on the Great Depression» des Princeton-Professors Ben Bernanke nur eine Fussnote wert. Ein exzessiver Schuldenaufbau – wie von Minsky gewarnt – sei in einer freien Marktwirtschaft gar nicht möglich, weil das irrationales Verhalten der Marktteilnehmer voraussetzen würde. «Und das», schrieb der spätere Chef der US-Notenbank, «ist kaum vorstellbar.»

    Zur selben Zeit begann am US-Häusermarkt ein beispielloser, von Krediten befeuerter Anstieg der Preise. Dasselbe Muster war in Spanien, England, Irland zu beobachten. Überall explodierte die Kreditschöpfung, überall regierte der spekulative Exzess, bereitwillig angetrieben von den Banken. Überall konnten lehrbuchmässig die drei Stufen von Minskys Instabilitätshypothese beobachtet werden. Und dann kam es zum Knall, der beinahe das globale Finanzsystem in die Tiefe riss. «Hyman Minsky ist der analytischste und überzeugendste aller zeitgenössischen Ökonomen, die in exzessivem Schuldenaufbau die Achillesferse des ­Kapitalismus sehen», schrieb der Ökonom James Tobin 1987 in einer Besprechung von «Stabilizing an Unstable Economy».

    Hätte man bloss auf ihn gehört.
  • In the Media | September 2013

    A more radical “serious adjustment” would only harm Italy


    Financial Times, September 27, 2013. © The Financial Times Ltd.

    Sir, Professor Christopher Gilbert in his letter of September 25 suggests that "some of the most important southern countries [including Italy] ... do so little to help themselves" that they therefore should not seek greater co-operation from euro institutions, as advocated by Professors Emiliano Brancaccio and other economists including myself (Letters, September 23). Prof Gilbert himself does not offer suggestions on which further reforms should be implemented in Italy to restore prosperity through "serious adjustment".

    Italy has already undergone a major reform in its pension system, which implied a large structural reduction in perspective payments from the public sector. It should also be noted that the number of parttime workers has risen from about 13 per cent of total employment in 2004 to about 18 per cent this year, with full-time employment steadily declining since the beginning of the recession period in 2007, surely a sign of increased flexibility ("serious adjustment?") in the labour market. Public employees' wages have been frozen and public employment has been in free fall since 2007.

    It seems that "more radical domestic efforts" in these directions, as advocated by Prof Gilbert, would surely imply a further increase in poverty and social exclusion, further weakening of the industrial structure due to depressed domestic demand and stronger political support to nationalistic parties, exactly the fears that motivated the letter of warning from economists.

    Gennaro Zezza, Associate Professor, Università di Cassino, Italy 
  • In the Media | September 2013

    Fundamentos da economia estão razoáveis e país está em recuperação, diz diretor do FMI


    Marcos Barbosa
    RBV News, 27 Setembro 2013. © 2012 www.rbvnews.com.br. Todos os Direitos Reservados.

    O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse hoje (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (Será que o Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou. 
  • In the Media | September 2013

    Fundamentos da economia estão razoáveis e país está em recuperação, diz diretor do FMI


    Fator Brasil, 27 Setembro 2013. © Copyright 2006 - 2013 Fator Brasil.

    Rio de Janeiro – O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse no dia 26 de setembro (quinta-feira), que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas. 

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo. 

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute. 

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (Será que o Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.  “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse. 

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou.
  • In the Media | September 2013

    Pesquisador argentino diz que América do Sul não vai escapar de desvalorização cambial: Roberto Frenkel afirma que vulnerabilidade externa da região foi reduzida


    Lucianne Carneiro
    O Globo Econômico, 26 Setembro 2013.  © 1996–2013. Todos direitos reservados a Infoglobo Comunicação e Participações S.A. 

    RIO – Professor da Universidade de Buenos Aires e pesquisador do Centro de Estudos de Estado e de Sociedade (Cedes), Roberto Frenkel afirma que os países emergentes, especialmente na América do Sul, não escaparão de um processo de desvalorização cambial para se ajustar ao novo cenário mundial, com elevação das taxas de juros nos Estados Unidos e menor ritmo de expansão da economia chinesa. A atual situação do câmbio muito apreciado tende a dificultar esse ajuste, com consequências como inflação.

    — Peru, Colômbia, Chile, Brasil e Argentina são alguns dos países que apreciaram demais suas moedas e agora terão que subir o câmbio — diz Frenkel, que está no Rio para participar do seminário “Governança Financeira depois da Crise”, promovido pelo Minds, Instituto Multidisciplinar de Desenvolvimento e Estratégia, em parceria com o Levy Economics Institute.

    Na avaliação de Frenkel, a vulnerabilidade externa dos países sul-americanos recuou e não se deve ver uma crise como no passado. A região não aproveitou integralmente, no entanto, o bom momento da economia mundial nos últimos anos. Crítico às políticas do governo de Cristina Kirchner, Frenkel diz que a Argentina tem um grave desequilíbrio em seu balanço de pagamentos, além de uma inflação “insustentável”.

    Alguns economistas afirmam que a recuperação da economia mundial está forte, outros dizem que o movimento não é sustentável. Qual é a sua avaliação?

    Os Estados Unidos estão se recuperando lentamente. Aliás, é isso que tem provocado o ajuste na política monetária. A Europa, por sua vez, continua na crise, a situação não está resolvida para nenhum país. Houve um incremento do Produto Interno Bruto (PIB, soma dos bens e riquezas de um país), mas a União Europeia vai continuar com sua grande crise. O que se vê de diferente é o ritmo de crescimento econômico dos países emergentes. Os países emergentes continuam crescendo mais rápido que os desenvolvidos, mas a taxa de expansão desacelerou. Aquele ganho mais rápido dos emergentes acabou.

    Países emergentes tiveram um certo alívio quando o Federal Reserve (Fed, o banco central americano) manteve os estímulos à economia na última semana. O que veremos agora?

    A decisão do Federal Reserve (Fed, banco central americano) de manter os estímulos é temporária. É certo que em algum momento as taxas de juros dos Estados Unidos vão subir. Essa perspectiva é bem concreta, mesmo que o Fed diga que vai manter o estímulo. É certo que a política monetária vai mudar. E a China também está mudando seu ritmo de crescimento para permitir a transição de seu modelo de crescimento de uma base de exportações para ser puxado pelo consumo interno. O que vemos é um novo ritmo de crescimento da economia mundial, e é preciso se ajustar a isso.

    Como os emergentes devem ficar nesse cenário?

    O crescimento menor da China afeta principalmente os exportadores de minerais e metais, já que o investimento será menor. E muitos emergentes estão com o câmbio apreciado e terão que se ajustar. A Índia, com um déficit grande em conta corrente e saída de capitais, tem uma situação mais complicada.

    A vulnerabilidade externa dos países da América do Sul está menor?

    A situação hoje na maioria dos países é robusta, existe um endividamento menor e esse ajustamento (ao novo ritmo da economia) não vai gerar crise como no passado. A vulnerabilidade externa foi muito reduzida. Mas o que na verdade se viu é que quase uma década excepcionalmente boa para a economia (entre 2002 e 2012) não foi aproveitada pelos países da América do Sul. A Argentina vive hoje tomada pelo forte populismo. O Brasil, por sua vez, alcançou um crescimento baixo. A região precisa de um crescimento econômico maior, que seja suficiente para alcançar um novo nível de desenvolvimento.

    Como os países da América do Sul terão que lidar com o câmbio?

    O tema central da economia da América do Sul hoje é como lidar com a desvalorização do câmbio neste momento de ajustamento ao novo cenário mundial, que complica a política econômica. Os países da região estão com o câmbio muito apreciado. Os exportadores foram beneficiados pela melhora do preço de exportações. Houve uma desvalorização transitória, mas seguiu-se uma apreciação cambial. Nessa situação de câmbio apreciado, fica mais difícil se ajustar a um novo cenário mundial. Esse ajuste se faz pelo câmbio mais alto. Quanto mais apreciado o câmbio, mais custoso é o ajustamento. E a desvalorização cambial traz consequências como o impacto na inflação e a queda salarial a curto prazo. Peru, Colômbia, Chile, Brasil, Argentina são alguns dos países que apreciaram demais suas moedas e agora terão que subir o câmbio.

    Quais as principais dificuldades hoje da economia argentina?

    Há um problema grave no balanço de pagamentos. Nós estamos perdendo reservas e, por causa do risco político, não temos acesso ao financiamento do mercado externo. E nesse contexto temos um controle forte do câmbio. Há o câmbio paralelo e o fixo, com uma diferença de cerca de 60%. Esse câmbio paralelo é o sintoma do grande desequilíbrio atual. Vamos ter que sair dessa situação.

    É possível esperar um ajuste pelo governo?

    Está claro que o governo de Cristina Kirchner não deve ser reeleito. A dúvida é se esse governo vai fazer esse ajuste antes de sair ou deixar os problemas para o próximo presidente.

    A desvalorização do câmbio deve ter impacto maior na Argentina por causa de uma inflação já elevada?

    A inflação na Argentina está muito distante dos números oficiais, o governo falsifica os dados. É uma situação insustentável. Nós temos uma inflação de 25% ao ano. No Brasil, os economistas estão preocupados com o efeito do câmbio na inflação. Agora imagine o impacto na Argentina. O país vai enfrentar uma aceleração inflacionária grande por causa do câmbio, que terá que passar por uma desvalorização significativa.
  • In the Media | September 2013

    Dimitri B. Papadimitriou: Regulação atual é incapaz de evitar nova crise


    Ana Paula Grabois
    Brasil Econômico, 26 Setembro 2013. © Copyright 2009–2012 Brasil Econômico. Todos os Direitos Reservados.

    Dimitri Papadimitriou defende uma regulação do sistema financeiro mais forte: “A vigente não foi capaz de evitar o colapso de 2008.”

    Pesidente do Instituto Levy Economics, de Nova York, Dimitri Papadimitriou, é um crítico feroz da autorregulação do mercado financeiro. O economista grego, radicado há 45 anos nos Estados Unidos, dirige o instituto que elabora pesquisas sobre os mercados financeiros e sobre o que se pode fazer para evitar crises, como a de 2008. Papadimitriou defende uma regulação financeira mais forte que se antecipe aos choques. "Precisamos re-regular o sistema financeiro. Porque a regulação vigente não foi capaz de evitar o colapso de 2008".

    Em sua primeira visita ao Brasil, para participar da conferência "Governança financeira depois da crise", organizada pelo instituto que preside em parceria com o Instituto Multidisciplinar de Desenvolvimento e Estratégia (Minds), o economista diz que a instabilidade é inexorável ao sistema capitalista. "O aspecto mais importante é como regular esse sistema para prevenir que esse tipo de coisa aconteça de novo. Ou se entende as crises como acasos que ocorrem por choques e que não podem ser regulados", afirma o economista, ao Brasil Econômico, na véspera da conferência, que ocorre hoje e amanhã, no Rio.

    Para o economista, é possível prever eventos que determinam instabilidades futuras, e assim, evitar crises mais complexas. Apesar de governos espalhados pelo mundo defenderem a ampliação dos mecanismos de regulação financeira, Papadimitriou diz que muito pouco foi feito.

    "Desde o colapso de Lehman Brothers, nós ainda não tivemos nenhum progresso para prevenir que isso aconteça de novo", afirma. Parte do progresso quase nulo diz respeito à concentração das transações financeiras mas mãos de um grupo pequeno de grandes bancos. "É mais fácil regular os bancos pequenos porque você sabe o que realmente ele faz. Algumas vezes, é difícil entender o que os grandes bancos fazem e precificar o risco. A tendência desde 2008 é subprecificar os riscos dos bancos".

    Com tantos tipos de transações, entre depósitos, empréstimos, títulos, investimento, derivativos em poucos bancos, a atual estrutura regulatória - seja nos Estados Unidos, na Europa ou na América Latina - é ineficaz. "É preciso saber quem regula e supervisiona quem e o quê", completa.

    Na sua avaliação, os grandes bancos atingidos pela crise e depois ajudados pelo governo americano, como Citibank, JPMorgan e Chase Manhattan, continuam no controle das transações financeiras no mundo, sem avanços na regulação de suas atividades. "As restrições foram incapazes, por exemplo, de controlar questões como o caso da Baleia de Londres. O JP Morgan perdeu US$ 6 bilhões para seus clientes e teve US 1 bilhão de multa. Isso mostra que ainda falta regulação", diz. O escândalo do JP Morgan envolveu operações de alto risco com papeis derivativos.

    O presidente do Levy Economics afirma que num mundo onde as transações financeiras equivalem a 35 vezes o valor do comércio de bens e serviços entre os países, a complexidade das transações aumenta, o que dificulta ainda mais a supervisão do mercado. Papadimitriou defende a modificação das estruturas de regulação no mundo, a começar pelos Estados Unidos. "O grande problema é o lobby dos bancos no Congresso, que querem evitar a regulação. O governo Obama não é muito agressivo em implementar novas regulamentações", complementa.

    Totalmente favorável ao controle de capitais, o economista do instituto de pesquisa ressalta a conexão entre as crises financeiras e a economia real de vários países no ambiente globalizado atual.

    "Wall Street não é isolado da economia real", diz. Uma crise financeira pode aumentar desemprego, retrair o crescimento da atividade econômica de vários países, além de forçar o corte de gastos do governo para evitar déficits de orçamento. "Isso significa menos infraestrutura, menos educação, menos seguridade social", afirma.
  • In the Media | September 2013

    Fundamentos da economia estão razoáveis e país está em recuperação, diz FMI O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, o que pode sinalizar um início de recuperação


    Agência Brasil
    Correio Braziliense, 20 Setembro 2013.

    O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse nesta quinta-feira (26/9) que os fundamentos da economia brasileira estão razoáveis e que o único ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (O Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou. 
  • In the Media | September 2013

    Fundamentos da economia brasileira estão razoáveis, diz diretor do FMI


    Jornal do Brasil, 26 Setembro 2013. Copyright © 1995-2013 | Todos os direitos reservados

    Paulo Nogueira Batista ressalta que o único ponto que merece atenção são as contas externas

    O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse hoje (26) que os fundamentos da economia brasileira estão razoáveis e que o único ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (O Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou. 
  • In the Media | September 2013

    Sobre reportagem da revista britânica The Economist intitulada Has Brazil blown up?, Batista acredita que país está apresentando recuperação progressiva


    Vladimir Platonow / Agência Brasil
    Exame, 26 Setembro 2013. Copyright © Editora Abril - Todos os direitos reservados

    Rio de Janeiro – O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse hoje (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta.

    Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (Será que o Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou.
  • In the Media | September 2013

    Diretor do FMI diz que economia brasileira está em recuperação


    Vladimir Platonow, Agência Brasil
    Brasil 247, 26 de Setembro de 2013.  © Brasil 247. Todos os direitos reservados.

    Segundo Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, os fundamentos fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa; "no setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta", afirma

    Rio de Janeiro
    – O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse hoje (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (O Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou. 
  • In the Media | September 2013

    Brasil está em recuperação, diz diretor do FMI


    Vladimir Platonow / Agência Brasil
    RedeTV, 26 Setembro 2013. Copyright © 2013 - RedeTV! Todos os direitos reservados.

    O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse nesta quinta-feira (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada "Has Brazil blown up" ("Será que o Brasil estragou tudo", em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou. 
  • In the Media | September 2013

    Nogueira Batista: Economia em recuperação, apesar da crise mundial


    Vladimir Platonow
    Vio Mundo, 26 Setembro 2013. Copyright 2005-2013 - Todos os direitos reservados

    Fundamentos da economia estão razoáveis e país está em recuperação, diz diretor do FMI

    Rio de Janeiro – O diretor executivo do Fundo Monetário Internacional (FMI), Paulo Nogueira Batista, que representa o Brasil e mais dez países no órgão, disse hoje (26) que os fundamentos da economia brasileira estão razoáveis e que o ponto que merece mais atenção são as contas externas.

    “Os [fundamentos] fiscais estão bastante razoáveis, a política monetária também, a regulação do sistema financeiro boa. No setor externo, a deterioração da conta corrente preocupa um pouco, mas as reservas são altas e a entrada de investimentos diretos é alta. Então, eu diria que está razoável. Acho que tem de ficar de olho [nas contas externas], porque não convém ter déficit em conta corrente muito alto. É um ponto preocupante, mas não é alarmante”, avaliou Batista, que frisou estar declarando opinião própria, e não do fundo.

    Batista participou do seminário Governança Financeira Depois da Crise, promovido pelo Multidisciplinary Institute on Development and Strategie (Minds) e o Levy Economics Institute.

    Sobre a reportagem da revista britânica The Economist intitulada Has Brazil blown up? (Será que o Brasil estragou tudo?, em tradução livre), que foi às bancas hoje, questionando se o país fracassou na política econômica atual, depois de ter ido bem nos anos anteriores, Batista acredita que o país está apresentando recuperação progressiva.

    “O Brasil passou por uma fase de grande sucesso, era moda e referência. Havia um certo exagero naquela época, até 2011. Agora houve uma reavaliação mais negativa e está indo para o extremo oposto. Acho que o Brasil está crescendo menos do que o esperado, menos do que pode crescer. Na verdade, a desaceleração de 2011 foi desejada e planejada pelo governo brasileiro, porque havia a percepção, correta, de que em 2010 o país estava superaquecendo. Houve medidas deliberadas para desaquecer a economia, isso provocou uma queda na taxa de crescimento, o que não foi surpresa. O que foi uma surpresa negativa foi a dificuldade de se recuperar em 2012 e em 2013. Mas eu creio que agora estamos vivendo uma recuperação mais clara, ainda incipiente, mas os dados estão mostrando que a economia está se reativando”, disse.

    O diretor do FMI citou como dado favorável a força do mercado de trabalho brasileiro, que vem apresentando números positivos, apesar da crise econômica mundial, o que pode sinalizar um início de recuperação. “O mercado de trabalho é uma surpresa positiva nesse período todo. Apesar da desaceleração forte da economia, o mercado de trabalho continua forte. A taxa de desemprego aberta está bastante baixa, os salários continuam crescendo. O desempenho não é tão favorável quanto se esperava, mas eu acho que vem uma recuperação”, acrescentou.
  • In the Media | September 2013

    Representante do Brasil no FMI diz que há exagero na percepção sobre a economia do país: Para Paulo Nogueira Batista, cenário no país já é de recuperação


    Lucianne Carneiro
    O Globo Economia, 26 Setembro 2013. © 1996 - 2013. Todos direitos reservados a Infoglobo Comunicação e Participações S.A.

    RIO - O diretor executivo para o Brasil e outros países do Fundo Monetário Internacional, Paulo Nogueira Batista Jr., afirmou nesta quinta-feira que a economia brasileira já está se recuperando e há um exagero da imprensa internacional sobre a situação do Brasil, ao comentar a capa da revista britânica “The Economist”.

    - O Brasil passou por uma fase de grande sucesso, era moda, referência, havia um certo exagero. Agora (a percepção) está indo para o extremo oposto. O Brasil está crescendo menos do que poderia (...), mas agora estamos vendo uma recuperação clara. O desempenho não é tão favorável, mas a recuperação já começou - disse Nogueira Batista, ao participar do seminário “Governança Financeira depois da Crise”, promovido pelo Minds, Instituto Multidisciplinar de Desenvolvimento e Estratégia, em parceria com o Levy Economics Institute e a Fundação Ford.

    Na avaliação do economista, os fundamentos fiscais e a política monetária do Brasil vão bem. Embora a deterioração do déficit em contas correntes preocupe, apontou, as reservas internacionais são elevadas. Na contramão da opinião de Nogueira Batista, o professor da Universidade de Georgetown Albert Keidel afirmou mais cedo, no mesmo evento, que o Brasil tem um nível baixo de reservas internacionais, considerando a ausência de mecanismos de controle de capitais.

    Pressão por melhora nas moedas emergentes
    Nogueira Batista negou que o fim dos estímulos do Federal Reserve (Fed, o banco central americano) à economia vá provocar uma crise nos países emergentes.

    Acho que há muito exagero (sobre a reação dos emergentes ao fim da política do Fed).

    A situação hoje é muito diferente da época da crise asiática. As reservas estão muito mais altas, a situação fiscal teve muita melhora, com a dívida líquida caindo. É claro que a situação não é perfeita, mas acho exagerado dizer que podemos ter uma crise - afirmou o economista, destacando que falava em seu próprio nome e não como diretor do Fundo.

    Nogueira Batista disse que o alívio nos mercados com a decisão do banco central americano não suspender por enquanto seus estímulos já se refletiu em uma pressão de valorização das moedas emergentes, como o real. E que é preciso minimizar esses efeitos.

    - O programa de intervenção do Banco Central lançado no momento de tensão deu impacto para segurar o câmbio, o Brasil está apertando a política monetária. Apesar das capas das revistas, as pessoas veem isso lá fora.

    Em sua apresentação, Nogueira Batista afirmou que os emergentes ganharam espaço na governança global, mas que as mudanças nessa estrutura estão estagnadas desde 2011 e algumas metas no âmbito do Fundo Monetário Internacional (FMI) já passaram dos prazos estabelecidos, como a redistribuição dos votos e das cotas.

    - Após o Lehman Brothers, o G-20 emergiu com um importante fórum de líderes. No âmbito do FMI, fizemos algumas mudanças no sistema de votos. (...) Desde 2011, no entanto, o processo de mudanças na governança global vive uma certa estagnação. A implementação de acordos já assinados, por exemplo, têm sido adiada - disse o economista.

    Ele alertou sobre o risco de “uma tentação” de se voltar ao formato antigo, em que apenas Estados Unidos e europeus tinham peso forte nas decisões internacionais.

    Para combater este retrocesso, defende Paulo Nogueira, é preciso aprofundar ainda mais a cooperação entre os países dos Brics (Brasil, Rússia, Índia, China e África do Sul). Ele ressaltou os avanços tanto na criação de um fundo de reservas internacionais dos países dos Brics - para proteger contra oscilações cambiais e também de um banco de desenvolvimento. O primeiro rascunho do projeto de um fundo de reservas dos Brics será apresentado em uma reunião dos Brics em Washington, em duas semanas.

    O economista lembrou as dificuldades ainda existentes para uma participação maior dos emergentes no Fundo. Em 2011, quando Dominique Strauss-Khan deixou a entidade, os europeus defenderam a candidatura de Christine Lagarde antes mesmo do fim do período de inscrição de candidatos, disse Nogueira Batista.

    Segundo ele, até que se mude a estrutura dos votos no Fundo será difícil conseguir uma candidatura vitoriosa de um país emergentes. Hoje, Estados Unidos, europeus e Japão têm peso de mais de 50% nos votos.

    - Se o cargo de diretor-geral ficar vago em breve, pode ser que tenhamos o mesmo tipo de dificuldades que tivemos em 2011.

    Cálculo da dívida bruta será discutido em outubro
    Sobre o atraso na divulgação de algumas partes do Relatório Artigo IV do FMI sobre o Brasil, Nogueira Batista explicou que o país pediu a revisão de alguns aspectos do documento, como faz todos os anos, mas que a equipe do Fundo está demorando a responder. Sua expectativa é que isso pode ser concluído em breve.

    O relatório é divulgado para os diferentes países e analisa o desempenho macroeconômico das nações. Revisões podem ser pedidas no caso de erros factuais e passagens que podem ser consideradas ambíguas, entre outros aspectos.

    A questão sobre o cálculo da dívida bruta - que foi alterado pelo Brasil, mas vem sendo questionado pelo Fundo - será tratado em outubro, com uma equipe do Ministério da Fazenda que vai ao FMI. 
  • In the Media | September 2013

    Brasil não deve mais recorrer à ajuda do câmbio para controlar inflação, diz Nelson Barbosa


    Lucianne Carneiro
    Ex-secretário executivo da Fazenda acredita que governo pode trazer a taxa para o centro da meta, de 4,5%, até 2015

    O Globo Economia, 26 Setembro 2013. © 1996 - 2013. Todos direitos reservados a Infoglobo Comunicação e Participações S.A.

    RIO – Na primeira aparição pública no Brasil desde que deixou o governo, o ex-secretário-executivo do Ministério da Fazenda e hoje professor da UFRJ, Nelson Barbosa Filho, afirmou que não existe mais espaço para apreciar o câmbio de maneira a ajudar no controle da inflação. O câmbio se apreciou demais nos últimos anos, segundo ele, e é preciso atingir a meta de inflação mesmo num cenário de taxa de câmbio estável ou até mesmo de depreciação. 

    - Todos os anos em que o Brasil cumpriu a meta da inflação, a taxa de câmbio se apreciou, com exceção do ano passado. O ajuste já começou. Estamos numa fase da economia brasileira de cumprir a meta de inflação sem depender tanto da apreciação cambial. Só que aí fica mais difícil a inflação cair mais rápido - disse Barbosa, ao participar do seminário "Governança Financeira depois da Crise", promovido pelo Minds, Instituto Multidisciplinar de Desenvolvimento e Estratégia, em parceria com o Levy Economics Institute e a Fundação Ford. 

    Sua avaliação é que o cenário com que o governo trabalha de trazer a inflação para 4,5% ao ano, que é o centro da meta, até 2015, é possível. O que vai influenciar esse resultado é a desvalorização cambial e a magnitude de um eventual aumento nos preços de combustíveis. Para Barbosa, a discussão sobre a necessidade de reduzir a atual meta da inflação brasileira só deve ocorrer depois que a taxa for mantida em 4,5% por um ou dois anos. 

    O governo vai trazer a inflação para 4,5% mas talvez leve um pouco mais de tempo porque houve esses choques recentemente. O principal esforço para isso é o aumento da produtividade - apontou. 

    Barbosa defendeu a manutenção do câmbio flutuante no país, lembrando que tanto depreciação quanto apreciação cambial excessiva têm consequências para a economia. A depreciação pressiona a inflação, enquanto a apreciação ajuda no cumprimento mais rápido da meta de inflação, mas prejudica a longo prazo a competitividade da economia. 

    Para o ex-secretário-executivo do Ministério da Fazenda, o câmbio ideal no momento deve variar entre R$ 2,20 e R$ 2,50, embora destaque que essa taxa de câmbio ideal para a economia está em constante mudança:

    - Um câmbio muito apreciado ou muito depreciado é ruim para a economia. Ir para muito abaixo de R$ 2,20 neste momento não é muito recomendável, assim como ficar acima de R$ 2,50 seria muito excessivo comparado com o que aconteceu com outros países.

    O economista, que deixou o governo em junho, disse que embora o país não tenha uma meta de taxa de câmbio, a oscilação cambial tem sido controlada por causa da meta de inflação. Quando a taxa de câmbio é elevada, a inflação também tende a ser elevada. Se a taxa de câmbio é mais baixa, a tendência é de uma inflação menor. 

    Barbosa explicou que existem três alternativas teóricas para reduzir o custo unitário do trabalho e aumentar a competitvidade. A primeira é uma desvalorização interna, com desaceleração do crescimento econômico e redução de salário. A segunda é uma desvalorização externa, com elevação da taxa de câmbio. A terceira é por aumento de produtividade. 

    - Na prática, o ajuste acontece nas três coisas. Na Europa, tem sido um pouco no salário. No Brasil, o que o governo tem tentado fazer é que seja mais na produtividade, para que seja menos via câmbio e desemprego - disse.
  • In the Media | September 2013

    I Monito degli Economisti


    La Sinistra per Gualdo, 25 Settembre 2013. Tutti i diritti riservati.

    La crisi economica in Europa continua a distruggere posti di lavoro. Alla fine del 2013 i disoccupati saranno 19 milioni nella sola zona euro, oltre 7 milioni in più rispetto al 2008: un incremento che non ha precedenti dal secondo dopoguerra e che proseguirà anche nel 2014. La crisi occupazionale affligge soprattutto i paesi periferici dell’Unione monetaria europea, dove si verifica anche un aumento eccezionale delle sofferenze bancarie e dei fallimenti aziendali; la Germania e gli altri paesi centrali dell’eurozona hanno invece visto crescere i livelli di occupazione. Il carattere asimmetrico della crisi è una delle cause dell’attuale stallo politico europeo e dell’imbarazzante susseguirsi di vertici dai quali scaturiscono provvedimenti palesemente inadeguati a contrastare i processi di divergenza in corso. Una ignavia politica che può sembrare giustificata nelle fasi meno aspre del ciclo e di calma apparente sui mercati finanziari, ma che a lungo andare avrà le più gravi conseguenze.

    Come una parte della comunità accademica aveva previsto, la crisi sta rivelando una serie di contraddizioni nell’assetto istituzionale e politico dell’Unione monetaria europea. Le autorità europee hanno compiuto scelte che, contrariamente agli annunci, hanno contribuito all’inasprimento della recessione e all’ampliamento dei divari tra i paesi membri dell’Unione. Nel giugno 2010, ai primi segni di crisi dell’eurozona, una lettera sottoscritta da trecento economisti lanciò un allarme sui pericoli insiti nelle politiche di “austerità”: tali politiche avrebbero ulteriormente depresso l’occupazione e i redditi, rendendo ancora più difficili i rimborsi dei debiti, pubblici e privati. Quell’allarme rimase tuttavia inascoltato. Le autorità europee preferirono aderire alla fantasiosa dottrina dell’“austerità espansiva”, secondo cui le restrizioni dei bilanci pubblici avrebbero ripristinato la fiducia dei mercati sulla solvibilità dei paesi dell’Unione, favorendo così la diminuzione dei tassi d’interesse e la ripresa economica. Come ormai rileva anche il Fondo Monetario Internazionale, oggi sappiamo che in realtà le politiche di austerity hanno accentuato la crisi, provocando un tracollo dei redditi superiore alle attese prevalenti. Gli stessi fautori della “austerità espansiva” adesso riconoscono i loro sbagli, ma il disastro è in larga misura già compiuto.

    C’è tuttavia un nuovo errore che le autorità europee stanno commettendo. Esse appaiono persuase dall’idea che i paesi periferici dell’Unione potrebbero risolvere i loro problemi  attraverso le cosiddette “riforme strutturali”. Tali riforme dovrebbero ridurre i costi e i prezzi, aumentare la competitività e favorire quindi una ripresa trainata dalle esportazioni e una riduzione dei debiti verso l’estero. Questa tesi coglie alcuni problemi reali, ma è illusorio pensare che la soluzione prospettata possa salvaguardare l’unità europea. Le politiche deflattive praticate in Germania e altrove per accrescere l’avanzo commerciale hanno contribuito per anni, assieme ad altri fattori, all’accumulo di enormi squilibri nei rapporti di debito e credito tra i paesi della zona euro. Il riassorbimento di tali squilibri richiederebbe un’azione coordinata da parte di tutti i membri dell’Unione. Pensare che i soli paesi periferici debbano farsi carico del problema significa pretendere da questi una caduta dei salari e dei prezzi di tale portata da determinare un crollo ancora più accentuato dei redditi e una violenta deflazione da debiti, con il rischio concreto di nuove crisi bancarie e di una desertificazione produttiva di intere regioni europee.

    Nel 1919 John Maynard Keynes contestò il Trattato di Versailles con parole lungimiranti: «Se diamo per scontata la convinzione che la Germania debba esser tenuta in miseria, i suoi figli rimanere nella fame e nell’indigenza […], se miriamo deliberatamente alla umiliazione dell’Europa centrale, oso farmi profeta, la vendetta non tarderà». Sia pure a parti invertite, con i paesi periferici al tracollo e la Germania in posizione di relativo vantaggio, la crisi attuale presenta più di una analogia con quella tremenda fase storica, che creò i presupposti per l’ascesa del nazismo e la seconda guerra mondiale. Ma la memoria di quegli anni sembra persa: le autorità tedesche e gli altri governi europei stanno ripetendo errori speculari a quelli commessi allora. Questa miopia, in ultima istanza, è la causa principale delle ondate di irrazionalismo che stanno investendo l’Europa, dalle ingenue apologie del cambio flessibile quale panacea di ogni male fino ai più inquietanti sussulti di propagandismo ultranazionalista e xenofobo.

    Occorre esser consapevoli che proseguendo con le politiche di “austerità” e affidando il riequilibrio alle sole “riforme strutturali”, il destino dell’euro sarà segnato: l’esperienza della moneta unica si esaurirà, con ripercussioni sulla tenuta del mercato unico europeo. In assenza di condizioni per una riforma del sistema finanziario e della politica monetaria e fiscale che dia vita a un piano di rilancio degli investimenti pubblici e privati, contrasti le sperequazioni tra i redditi e tra i territori e risollevi l’occupazione nelle periferie dell’Unione, ai decisori politici non resterà altro che una scelta cruciale tra modalità alternative di uscita dall’euro.

    Promosso da Emiliano Brancaccio e Riccardo Realfonzo (Università del Sannio), il “monito degli economisti” è sottoscritto da Philip Arestis (University of Cambridge), Georgios Argeitis (Athens University), Wendy Carlin (University College of London), Jesus Ferreiro (University of the Basque Country), Giuseppe Fontana (Università del Sannio), James Galbraith (University of Texas), Mauro Gallegati (Università Politecnica delle Marche), Eckhard Hein (Berlin School of Economics and Law), Alan Kirman (University of Aix-Marseille III), Jan Kregel (University of Tallin), Heinz Kurz (Graz University), Alfonso Palacio-Vera (Universidad Complutense Madrid), Dimitri Papadimitriou (Levy Economics Institute), Pascal Petit (Université de Paris Nord), Dani Rodrik (Institute for Advanced Study, Princeton), Malcolm Sawyer (Leeds University), Willi Semmler (New School University, New York), Felipe Serrano (University of the Basque Country), Engelbert Stockhammer (Kingston University), Tony Thirlwall (University of Kent). 
  • In the Media | September 2013

    Diretor da Fundação Ford diz que bancos ameaçam democracia


    Léa De Luca
    Brasil Econômico, 24 Setembro 2013. © Copyright 2009-2012 Brasil Econômico. Todos os Direitos Reservados.


    Para Leonardo Burlamaqui lobby dessas instituições impede o avanço de uma governança financeira global

    São Paulo - Cinco anos depois da crise financeira internacional, as coisas mudaram muito pouco no mercado financeiro. Para Leonardo Burlamaqui, diretor da Fundação Ford, e Rogério Silveira, diretor executivo do Minds (Instituto multidisciplinar para desenvolvimento e estratégias, na sigla em inglês), a saída para evitar novas crises seria estabelecer uma governança financeira global. Entre as propostas, estão aumentar a regulação (inclusive de funcionamento dos fundos de "hedge"), adotar o controle de entrada de capitais como uma rotina e acabar com os paraísos fiscais, por exemplo.

    Mas a ideia de um novo conjunto de regras para o sistema financeiro global enfrenta dificuldades para avançar e uma das razões, segundo eles, é o forte poder político e econômico das instituições financeiras. "Elas não querem mais regulação. Vivemos uma governança movida pelo lobby dessas instituições. É uma ameaça à democracia", diz Burlamaqui.

    Silveira concorda, mas acredita que, ao menos, a crise de 2008 abriu espaço para discussão, apesar das resistências. "Pode não acontecer de forma orgânica e organizada, mas confio que caminharemos sim para mais regulação", diz. Para ele, a defesa da autorregulação das instituições financeiras, somada ao "mantra" de que a desregulamentação seria benéfica e aumentaria a eficiência do mercado, reduzindo custos de intermediação, foi uma combinação desastrosa. "A ideia de que a desregulamentação tornaria mais eficiente a intermediação na transferência de recursos, de quem poupa para os que investem, mostrou-se equivocada com a crise", diz Silveira. Para ele, a falta de leis não aumentou a eficiência, e pior : aumentou a especulação. "Os bancos não vivem só de intermediação. O que dá dinheiro mesmo é a especulação. E como instituições privadas, visam lucrar mais".

    Burlamaqui lembra que países como Brasil e China, com forte presença dos bancos públicos no sistema - e também leis mais rígidas - foram os que menos sofreram com a crise. "Não adianta querer eliminar os bancos públicos, como fizeram os Estados Unidos. Os bancos privados não tem apetite para fazer o que eles fazem", diz Silveira. Para ele, é urgente resgatar o que chama de "funcionalidade" dos bancos - financiar o sistema produtivo. "No Brasil, apenas um banco fornece recursos de longo prazo para investimentos, que é o BNDES", completa Burlamaqui.

    O diretor da Fundação Ford lembra ainda que até hoje não existe nenhuma entidade global para cuidar da governança financeira. Tanto ele quanto Silveira consideram as regras da terceira fase do acordo de capitais entre bancos, conhecido como Basileia III (cujo objetivo é reforçar o capital das instituições e protegê-las contra crises) são "o mínimo do mínimo necessário". Para ele, o acordo anterior (Basileia II) era "irresponsável, permitia muita margem de manobra". Burlamaqui diz que ao contrário do que defendiam alguns, a globalização financeira foi prejudicial: "Criou-se um cassino em escala global", diz. "Se não for possível estabelecer uma governança financeira global, melhor será promover uma ‘desglobalização' dos mercados", acredita.

    Na próxima quinta-feira, no Rio de Janeiro, Burlamaqui e Silveira farão os discursos de abertura de um evento promovido pelo Minds e o Levy Economics Institute, sobre a governança financeira pós-crise. O evento é parte de um programa patrocinado pela Fundação Ford desde 2006.
  • In the Media | September 2013

    The Economists' Warning


    Financial Times, September 23, 2013. 

    The European crisis continues to destroy jobs. By the end of 2013 there will be 19 million unemployed in the eurozone alone, over 7 million more than in 2008, an increase unprecedented since the end of World War II and one that will stretch on into 2014. The employment crisis strikes above all the peripheral member countries of the European Monetary Union, where an exceptional rise in bankruptcy is also under way, whereas Germany and the other central countries of the eurozone have instead witnessed growth on the job front. This asymmetry is one of the causes of Europe’s present-day political paralysis and the embarrassing succession of summit meetings that result in measures glaringly incapable of halting the processes of divergence under way. While this sluggishness of political response may appear justified in the less severe phases of the cycle and moments of respite on the financial market, it could have the most serious consequences in the long run.

    As foreseen by part of the academic community, the crisis is revealing a number of contradictions in the institutions and policies of the European Monetary Union. The European authorities have taken a series of decisions that have in actual fact, contrary to announcements, helped to worsen the recession and widen the gaps between the member countries. In June 2010, when the first signs of the eurozone crisis became apparent, a letter signed by three hundred economists pointed out the inherent dangers of austerity policies, which would further depress the demand for goods and services as well as employment and incomes, thus making the payment of debts, both public and private, still more difficult. This alarm was, however, unheeded. The European authorities preferred to adopt the fanciful doctrine of “expansive austerity”, according to which budget cuts would restore the markets’ confidence in the solvency of the EU countries and thus lead to a drop in interest rates and economic recovery. As the International Monetary Fund itself recognises, we know today that the policies of austerity have actually deepened the crisis, causing a collapse of incomes in excess of the most widely-held expectations. Even the champions of “expansive austerity” now acknowledge their errors, but the damage is now largely done. 

    The European authorities are, however, now making a new mistake. They appear to be convinced that the peripheral member countries can solve their problems by implementing “structural reforms”, which will supposedly reduce costs and prices, boost competitiveness, and hence foster export-driven recovery and a reduction of foreign debt. While this view does highlight some real problems, the belief that the solution put forward can safeguard European unity is an illusion. The deflationary policies applied in Germany and elsewhere to build up trade surpluses have worked for years, togeteher with other factors, to create huge imbalances in debt and credit between the eurozone countries. The correction of these imbalances would require concerted action on the part of all the member countries. Expecting the peripheral countries of Union to solve the problem unaided means requiring them to undergo a drop in wages and prices on such a scale as to cause a still more accentuated collapse of incomes and violent debt deflation with the concrete risk of causing new banking crises and crippling production in entire regions of Europe.

    John Maynard Keynes opposed the Treaty of Versailles in 1919 with these far-sighted words: “If we take the view that Germany must be kept impoverished and her children starved and crippled […] If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp.” Even though the positions are now reversed, with the peripheral countries in dire straits and Germany in a comparatively advantageous position, the current crisis presents more than one similarity with that terrible historical phase, which created the conditions for the rise of Nazism and World War II. All memory of those dreadful years appears to have been lost, however, as the German authorities and the other European governments are repeating the same mistakes as were made then. This short-sightedness is ultimately the primary reason for the waves of irrationalism currently sweeping over Europe, from the naive championing of flexible exchange rates as a cure for all ills to the more disturbing instances of ultra-nationalistic and xenophobic propaganda.

    It is essential to realise that if the European authorities continue with policies of austerity and rely on structural reforms alone to restore balance, the fate of the euro will be sealed. The experience of the single currency will come to an end with repercussions on the continued existence of the European single market. In the absence of conditions for a reform of the financial system and a monetary and fiscal policy making it possible to develop a plan to revitalise public and private investment, counter the inequalities of income and between areas, and increase employment in the peripheral countries of the Union, the political decision makers will be left with nothing other than a crucial choice of alternative ways out of the euro.

    Emiliano Brancaccio and Riccardo Realfonzo (Sannio University, promoters of “the economists’ warning”), Philip Arestis (University of Cambridge), Wendy Carlin (University College of London), Giuseppe Fontana (Leeds and Sannio Universities), James Galbraith (University of Texas), Mauro Gallegati (Università Politecnica delle Marche), Eckhard Hein (Berlin School of Economics and Law), Alan Kirman (University of Aix-Marseille III), Jan Kregel (University of Tallin), Heinz Kurz (Graz University), Alfonso Palacio-Vera (Universidad Complutense Madrid), Dimitri Papadimitriou (Levy Economics Institute), Pascal Petit (Université de Paris Nord), Dani Rodrik (Institute for Advanced Study, Princeton), Willi Semmler (New School University, New York), Engelbert Stockhammer (Kingston University), Tony Thirlwall (University of Kent).

    ...and also: Georgios Argeitis (Athens University), Marcella Corsi (Sapienza University of Rome), Jesus Ferreiro (University of the Basque Country), Malcolm Sawyer (Leeds University), Sergio Rossi (University of Fribourg), Francesco Saraceno (OFCE, Paris), Felipe Serrano (University of the Basque Country), Lefteris Tsoulfidis (University of Macedonia).
     
  • In the Media | September 2013

    The Loneliest Man in Greece


    By Chanan Tigay
    The New Yorker, September 17, 2013. © 2013 Condé Nast. All Rights Reserved.


    A bullet hole mars the window in the office of Yannis Stournaras, the finance minister of Greece. It is tempting to see it as yet another unpleasant outcome of austerity: in the face of crippling government debt, maybe he can’t afford to fix it.

    But he insists that austerity has nothing to do with his decision to leave the window unrepaired; he’s kept the hole, a pot shot at a predecessor from a 2010 protest, as a “memoir” of the rough path he’s had to hew. The central figure in Greece’s economic maelstrom, Stournaras, a fifty-six-year-old economics professor, has become the face of painful deprivations—firings, tax hikes, slashed wages and pensions—as the country struggles to emerge from its fiscal troubles.

    The concern about whether he has money for renovations isn’t too far-fetched. Recently, the aging wallpaper in a number of Ministry of Finance offices began to crumble, and Stournaras had the rooms painted at a cost of fifteen hundred euros. When word of this extravagance leaked, the rightist newspaper Democracy condemned him as “wasteful.”

    Stournaras laughed as he told me this story; his office appeared to have been furnished sometime during the first Bush Administration. It featured laminate floors, scruffy wood bookshelves, and shiny red sofas arranged in an L. In the waiting room, a month-old copy of the Financial Times grew brittle on an unused coffee table.

    The underlying rot—in the walls and in the economy—long preceded Stournaras’s ascendance. And, by some measures, the belt-tightening is working: two weeks after we spoke, the government reported that the shrinking of Greece’s economy had slowed in the second quarter of this year. Yet Stournaras has, perhaps inevitably, become a target for criticism. In February, a prominent parliamentarian slammed him as “arrogant” after he questioned a prior government’s proclivity for spending. In July, another blasted the “knife he puts against our throats.” In August, a third member of Parliament threatened to seek Stournaras’s removal.

    It is worth noting that the politicians unleashing these attacks were members of Stournaras’s own governing coalition, which includes the conservative New Democracy and the socialist Pasok parties, historical adversaries.

    “There is no friendship at all,” said Theodore Pelagidis, an economist and friend of Stournaras’s. “Yannis is alone.”
     

    In 2010, an alliance
    of international creditors known as the troika—the European Commission, European Central Bank, and International Monetary Fund—agreed to bail out Greece to the tune of a hundred and ten billion euros, on the condition that the country starve itself into solvency. When economic problems persisted, the troika agreed to a second rescue package, to be doled out in stages, this one running a hundred and thirty billion euros. By the time Antonis Samaras became Prime Minister in the summer of 2012, Greece was still living up to its reputation as “the last Soviet economy.” The bloated public sector was addicted to outsize salaries and pensions, patronage was rampant, and tax evasion seemed to outpace soccer as the national sport.

    Samaras, representing the New Democracy party, was elected on a promise to slow austerity. Yet in appointing a finance minister, he chose Stournars, an Oxford-educated economist whose work had called for public-sector reductions. Stournaras is widely seen as a straight-talking “technocrat” and not a politician. If the troika demanded austerity, he could push reforms forward without being distracted by an angry political base.

    Within hours of taking office in July of 2012, Stournaras found himself across a table from representatives of the troika. They were back in Athens to decide whether to award a tranche of thirty-one and a half billion euros to a desperate Greece. This time, in return, they wanted even deeper spending cuts.

    Without the billions of euros, Greece risked going broke and being forced out of the eurozone, which Stournaras believed could lead to the collapse of Greek banks and, he told me, “looting of supermarkets.” Squeezed between intense domestic pressure to roll back reductions and what he believed was economic necessity, Stournaras sided with the troika and its austerity program. “We can’t ask for anything from our creditors before we get it back on course,” he had told journalists shortly after taking office. This was not the message many ordinary Greeks wanted to hear, and their representatives in Parliament castigated him. In his defense, Stournaras reëmphasized that Greece had to show skeptical creditors that it could be trusted, by owning up to past indulgences and trying to correct them.

    Negotiations with the troika dragged on for five months. Then, in November of 2012, European finance ministers gathered in Brussels for a series of dramatic meetings to determine Greece’s fate.

    In Belgium, Stournaras negotiated constantly. He went two days without sleep. He quarreled with Austria’s finance minister. He communicated constantly with Samaras. “Our two mobile phones were on fire,” the Prime Minister told me.

    Between meetings, Stournaras shuttled home to Athens to help cajole a reluctant Parliament into passing new austerity legislation to pacify the paymasters in Brussels. The omnibus bill would, among other things, raise the retirement age, cut pensions, and slash lump-sum payments for retirees. A vote was slated for midnight on November 8th—just in time to meet a troika deadline.

    At six o’clock on the evening before the vote, Stournaras introduced an amendment that would have ended the “special salaries” enjoyed by employees at the Hellenic Parliament. The staffers revolted: their union announced an immediate strike that threatened to paralyze Parliament and prevent a vote altogether. With the troika deadline looming, Stournaras was forced to relent. He withdrew his amendment, but did not do so quietly. In an address to Parliament later that evening, he denounced the bitterly anti-austerity parties who had painted him as a puppet of the troika: "We condemn them. Because of what’s at stake tonight, and because of the urgent nature of the bill, I am forced to withdraw the amendment in question. He who has eyes let him see."
    The measures passed, narrowly, setting up Greece’s moment of truth. Would it all be enough to convince the troika that Greece had changed its ways?

    “I’ve called it the ‘thriller,’” said Raphael Moissis, the deputy chairman of the Foundation for Economic and Industrial Research, the think tank from which Stournaras was plucked to lead the Ministry of Finance. “We literally stayed up the night to hear whether the Europeans were going to say yes to a restructuring program for Greece, or whether they were going to say ‘the hell with you.’”

    On November 27th, the troika announced that it would release the next round of loans. Greece would remain in the Eurozone. The decision was a victory for Stournaras, one step forward in what he described as a “multifaceted war.”


    But was the triumph
    really so clear-cut?

    One morning in 2009, Chris Spirou was laid off by an Athens bakery. A divorced father, he spent three months looking diligently for a job but found nothing, eventually making his way to Norway and the Netherlands to find work before returning home when his father died. After getting the boot from a friend’s trailer, he suddenly became homeless—an “indescribable” realization, he said.

    “I am below zero. Wrecked. Devastated,” said Spirou, who is fifty-four. He said he feels “hate” for the people who put him in this position: members of Parliament and technocrats like Stournaras. “He doesn’t look at the political cost even if human beings are committing suicide, losing their jobs, their children are hungry.” Austerity, Spirou said, has killed the economy.

    Some prominent economists echo Spirou’s analysis. Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College, said that although large-scale cutbacks may in fact be reducing Greece’s budget deficit, these gains have come with “catastrophic consequences”: homelessness, suicides, unemployment, once-comfortable families reduced to rummaging through trash bins.

    Other economists, meanwhile, are asking a larger question: Does austerity even work? Paul Krugman has argued that Europe’s reliance on austerity—not just in Greece—is precisely the opposite of what should be done: according to the logic popularized by John Maynard Keynes, economies falter when people stop spending, and when that happens, only governments can step in as spenders to get things going again.

    Of course, given Greece’s economic woes, the country could not have implemented this theory on its own. Other Europeans, with Germany in the lead, were willing to kick in enough for Athens to close its deficits over a period of years, but they would not offer up sufficient sums for the Greeks to spend their way out of the desert. To the contrary, they insisted on cuts.

    Describing the decisions he made, Stournaras, whose compact, athletic build and frequent smile made him look younger than his years, was resolute. Along with Prime Minister Samaras, he said, he fought to mitigate the pain—by cutting property taxes, for example. But even now, Stournaras—who calls himself a “reconstructed Keynesian”—believes that cuts, though upsetting, are working; unfortunately, there aren’t many other ways to reduce the public-sector deficit, and to forgo the cuts would only damage the economy further.

    “But this is not something easy that you can tell the public,” he said. “That the alternative is Argentina or even Syria.”

    It was muggy during my visit, and while Stournaras spoke, he wore shirtsleeves and a tightly cinched purple tie, having removed a dark suit jacket. He ticked off the government’s accomplishments: an operating budget surplus for the first seven months of this year, increased competitiveness in once-closed markets, and a slowing of the economy’s contraction. Most of which means little to the twenty-eight per cent of Greeks who are out of work, or to those who have suffered debilitating cuts to their pay and pensions.

    “It’s not easy for somebody who was earning two thousand euros suddenly to earn one thousand,” Stournaras said. The cuts he has championed have affected even his own mother. “A poor woman, because my father had died very young,” he said. “So she lives on the minimum pension.”

    How does that make you feel? I asked.

    “Very bad,” said the father of two, his eyes now fixed on his desk. “Very bad, really.”


    Stournaras was born
    in Athens, in 1956. His father was a Communist, he told me, whom “ultra-rightist” gangs persecuted and tried to have arrested; years later, when Stournaras was doing graduate work at Oxford, his father, who died at the age of sixty-two, asked him not to return home because he feared his own politics would haunt his son. Early on, Stournaras took up swimming and still regularly swims long distances. (He also jogs and plays ping-pong.) In his car on the way to a meeting with the Prime Minister, he told me that swimming was the best preparation he received for the rigors of his position. These days, he avoids swimming in pools, which could seem luxurious while other Greeks are forced into homeless shelters. “So I have to train myself and go to the sea,” he said. During a recent six-kilometre swim, the waters near his vacation home on the island of Syros turned rough. When I met him, he was unable to hear from his right ear.

    In many ways, Stournaras is the ideal messenger for Greece’s tough news: he is respected in European economic circles, seen as someone who operates above partisan politics. Before taking office, he was a professor at the University of Athens, chairman and C.E.O. of Emporiki Bank, and advised prior governments. Stournaras was appointed to the Ministry of Finance, not elected. This gives him the freedom to make controversial decisions, but on the flip side, of course, if his policies become too unpopular, Prime Minister Samaras can summarily fire him. The afternoon before I met Stournaras, Michael Massourakis, the chief economist at Alpha Bank, told me that in choosing Stournaras, “the political parties wanted to find somebody who is nonpolitical so they can scapegoat him if things go bad.”

    For the moment that seems unlikely. Although Samaras came to office on a pledge to slow austerity measures and Stournaras has supported them, the two are now friends who work together closely, meeting often, sharing jokes.

    In the midst of our discussion, Stournaras’s phone rang. It was the Prime Minister.

    “I have a reporter here from the The New Yorker,” Stournaras told him. “Shall I put you on?”

    Stournaras activated the speakerphone setting so I could hear. Samaras—laughing knowingly—informed me that despite “previous ideological differences” he and Stournaras share a common goal: keeping Greece in the eurozone.

    “That’s what I told him!” Stournaras said.

    “Do you hear me, Yannis?”

    “Yeah, yeah, I do.”

    “Am I correct in this assessment?”

    “Absolutely.”

    Then Samaras quoted Neil Diamond. “You know that song that says, ‘Used-to-bes don’t count anymore, they just lay on the floor till we sweep them away?’” he said. “The idea is that differences don’t matter as long as there is a common cause that links us together.”

    As Samaras spoke, Stournaras smiled appreciatively. Despite this display of seemingly genuine affection, it was hard for me to forget what I’d been told a day earlier: that for all this friendship, Stournaras could yet prove dispensable.



    Greece still has
    a long way to go. The government is again under pressure from its lenders, with the troika evaluating the country’s economic recovery and money-saving efforts as it weighs a third bailout package. “All the low-hanging fruit has been reaped at this point,” Alpha Bank’s Massourakis said. “It has to do major things that Greek governments were not very eager to do.”

    Future objectives include reforming Greece’s tax system, opening closed markets, and restructuring or even privatizing some public businesses. A new round of protest marches has already begun, with civil servants taking to the streets in late August to oppose planned suspensions and firings.

    “Stournaras is very unlucky in the sense that now people are very tired,” Alexis Papahelas, the executive editor of the respected newspaper Kathimerini, said. “Every time someone hears about a reform, they think they’re going to lose part of their income.”

    Compounding Stournaras’s problems, observers said, is the fact that the Samaras-led coalition, with an advantage of just five seats in Parliament, could be sunk by even a small disagreement. And if the coalition falls apart, many believe it will be succeeded by extremists—from either the far right or the far left, a scenario Samaras called “catastrophic.”

    Nonetheless, a March poll found that Stournaras’s approval rating was unusually high for a finance minister. This may reflect his penchant for directness, and his distance from the political elite that has ruled Greece for decades. When I asked Stournaras why he took his current job—and with it a large pay cut—after having rejected several prior ministerial appointments, he sounded a philosophical note. “Patriotic duty,” he responded. “It’s like being at war and you’re asked to participate and you say no. You cannot say no.”

    Chanan Tigay is the author of the forthcoming book “Unholy Scriptures: Fraud, Suicide, Scandal & the Bible that Rocked the Holy City” (Ecco/HarperCollins).
  • In the Media | September 2013

    Embracing Wynne Godley, an Economist Who Modeled the Crisis


    By Jonathan Schlefer

    The New York Times, September 10, 2013. All rights Reserved.

    Wynn Godley

    BOSTON — With the 2008 financial crisis and Great Recession still a raw and painful memory, many economists are asking themselves whether they need the kind of fundamental shift in thinking that occurred during and after the Depression of the 1930s. “We have entered a brave new world,” Olivier Blanchard, the International Monetary Fund’s chief economist, said at a conference in 2011. “The economic crisis has put into question many of our beliefs. We have to accept the intellectual challenge.”

    If the economics profession takes on the challenge of reworking the mainstream models that famously failed to predict the crisis, it might well turn to one of the few economists who saw it coming, Wynne Godley of the Levy Economics Institute. Mr. Godley, unfortunately, died at 83 in 2010, perhaps too soon to bask in the credit many feel he deserves.

    But his influence has begun to spread. Martin Wolf, the eminent columnist for The Financial Times, and Jan Hatzius, chief economist of global investment research at Goldman Sachs, borrow from his approach. Several groups of economists in North America and Europe — some supported by the Institute for New Economic Thinking established by the financier and philanthropist George Soros after the crisis — are building on his models.

    In a 2011 study, Dirk J. Bezemer, of Groningen University in the Netherlands, found a dozen experts who warned publicly about a broad economic threat, explained how debt would drive it, and specified a time frame.

    Most, like Nouriel Roubini of New York University, issued warnings in informal notes. But Mr. Godley “was the most scientific in the sense of having a formal model,” Dr. Bezemer said.

    It was far from a first for Mr. Godley. In January 2000, the Council of Economic Advisers for President Bill Clinton hailed a still “youthful-looking and vigorous” expansion. That March, Mr. Godley and L. Randall Wray of the University of Missouri-Kansas City derided it, declaring, “Goldilocks is doomed.” Within days, the Nasdaq stock market peaked, heralding the end of the dot-com bubble.

    Why does a model matter? It explicitly details an economist’s thinking, Dr. Bezemer says. Other economists can use it. They cannot so easily clone intuition.

    Mr. Godley was relatively obscure in the United States. He was better known in his native Britain — The Times of London called him “the most insightful macroeconomic forecaster of his generation” — though often as a renegade.

    Mainstream models assume that, as individuals maximize their self-interest, markets move the economy to equilibrium. Booms and busts come from outside forces, like erratic government spending or technological dynamism or stagnation. Banks are at best an afterthought.

    The Godley models, by contrast, see banks as central, promoting growth but also posing threats. Households and firms take out loans to build homes or invest in production. But their expectations can go awry, they wind up with excessive debt, and they cut back. Markets themselves drive booms and busts.

    Why did Mr. Godley, who had barely any formal economics training, insist on developing a model to inform his judgment? His extraordinary efforts to overcome a troubled childhood may be part of the explanation. Tiago Mata of Cambridge University called his life “a search for his true voice” in the face of “nagging fear that he might disappoint [his] responsibilities.”

    Mr. Godley once described his early years as shackled by an “artificial self” that kept him from recognizing his own spontaneous reactions to people and events. His parents separated bitterly. His mother was often away on artistic adventures, and when at home, she spent long hours coddling what she called “my pain” in bed.

    Raised by nannies and “a fierce maiden aunt who shook me violently when I cried,” Mr. Godley was sent at age 7 to a prep school he called a “chamber of horrors.”

    Despite all that, Mr. Godley, with his extraordinary talent, still managed to achieve worldly success. He graduated from Oxford with a first in philosophy, politics and economics in 1947, studied at the Paris Conservatory, and became principal oboist of the BBC Welsh Orchestra.

    But “nightmarish fears of letting everyone down,” he recalled, drove him to take a job as an economist at the Metal Box Company. Moving to the British Treasury in 1956, he rose to become head of short-term forecasting. He was appointed director of the Department of Applied Economics at Cambridge in 1970.

    In the early 1980s, the British Tory government, allied with increasingly conventional economists at Cambridge, began “sharpening its knives to stab Wynne,” according to Kumaraswamy Velupillai, a close friend who now teaches at the New School in New York. They killed the policy group he headed and, ultimately, the Department of Applied Economics.

    But after warning of a crash of the British pound in 1992 that took official forecasters by surprise, Mr. Godley was appointed to a panel of “six wise men” advising the Treasury.

    In 1995 he moved to the Levy Institute outside New York, joining Hyman Minsky, whose “financial instability hypothesis” won recognition during the 2008 crisis.

    Marc Lavoie of the University of Ottawa collaborated with Mr. Godley to write “Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth” in 2006, which turned out to be the most complete account he would publish of his modeling approach.

    In mainstream economic models, individuals are supposed to optimize the trade-off between consuming today versus saving for the future, among other things. To do so, they must live in a remarkably predictable world.

    Mr. Godley did not see how such optimization is conceivable. There are simply too many unknowns, he theorized.

    Instead, Mr. Godley built his economic model around the idea that sectors — households, production firms, banks, the government — largely follow rules of thumb.

    For example, firms add a standard profit markup to their costs for labor and other inputs. They try to maintain adequate inventories so they can satisfy demand without accumulating excessive overstock. If sales disappoint and inventories pile up, they correct by cutting back production and laying off workers.

    In mainstream models, the economy settles at an equilibrium where supply equals demand. To Mr. Godley, like some Keynesian economists, the economy is demand-driven and less stable than many traditional economists assume.

    Instead of supply and demand guiding the economy to equilibrium, adjustments can be abrupt. Borrowing “flows” build up as debt “stocks.”

    If rules of thumb suggest to households, firms, or the government that borrowing, debt or other things have gone out of whack, they may cut back. Or banks may cut lending. The high-flying economy falls down.

    Mr. Godley and his colleagues expressed just this concern in the mid-2000s. In April 2007, they plugged Congressional Budget Office projections of government spending and healthy growth into their model. For these to be borne out, the model said, household borrowing must reach 14 percent of G.D.P. by 2010.

    The authors declared this situation “wildly implausible.” More likely, borrowing would level off, bringing growth “almost to zero.” In repeated papers, they foresaw a looming recession but significantly underestimated its depth.

    For all Mr. Godley’s foresight, even economists who are doubtful about traditional economic thinking do not necessarily see the Godley-Lavoie models as providing all the answers. Charles Goodhart of the London School of Economics called them a “gallant failure” in a review. He applauded their realism, especially the way they allowed sectors to make mistakes and correct, rather than assuming that individuals foresee the future. But they are still, he wrote, “insufficient” in crises.

    Gennaro Zezza of the University of Cassino in Italy, who collaborated with Mr. Godley on a model of the American economy, concedes that he and his colleagues still need to develop better ways of describing how a financial crisis will spread. But he said the Godley-Lavoie approach already is useful to identify unsustainable processes that precede a crisis.

    “If everyone had remained optimistic in 2007, the process could have continued for another one or two or three years,” he said. “But eventually it would have broken down. And in a much more violent way, because debt would have piled up even more.”

    Dr. Lavoie says that one of the models he helped develop does make a start at tracing the course of a crisis. It allows for companies to default on loans, eroding banks’ profits and causing them to raise interest rates: “At the very least, we were looking in the right direction.”

    This is just the direction that economists building on Mr. Godley’s models are now exploring, incorporating “agents” — distinct types of households, firms and banks, not unlike creatures in a video game — that respond flexibly to economic circumstances. Stephen Kinsella of the University of Limerick, the Nobel laureate economist Joseph Stiglitz and Mauro Gallegati of Polytechnic University of Marche in Italy are collaborating on one such effort.

    In the meantime, Mr. Godley’s disciples say his record of forecasting still stands out. In 2007 Mr. Godley and Dr. Lavoie published a prescient model of euro zone finances, envisioning three outcomes: soaring interest rates in Southern Europe, huge European Central Bank loans to the region or brutal fiscal cuts. In effect, the euro zone has cycled among those outcomes.

    So what do the Godley models predict now? A recent Levy Institute analysis expresses concern not about serious financial imbalances, at least in the United States, but weak global demand. “The main difficulty,” they wrote, “has been in convincing economic leaders of the nature of the main problem: insufficient aggregate demand.” So far, they are not having much success.

    A version of this article appears in print on September 11, 2013, on page B1 of the New York edition with the headline: Embracing Economist Who Modeled the Crisis.

  • In the Media | August 2013

    Greece: Can It Get Even Worse?


    By Ronald Janssen

    Social Europe Journal, August 27, 2013. All Rights Reserved.

    While the German public opinion, courtesy of the debate in the run up to the next political elections, is discovering the fact that Greece will be needing a third bail out, a team of economists from the US – based Levy Institute describes how things look like from the side of Greece.

    Click here for the full article.

  • In the Media | August 2013

    Greece Needs a 21st Century Marshall Plan


    By Dimitri B. Papadimitriou
    Ekathimerini.com, August 12, 2013. © 2013 H Kaθhmepinh. All Rights Reserved.

    At their White House meeting last week, U.S. President Barack Obama assured Greek Prime Minister Antonis Samaras of his support as Greece prepares for talks with creditors on additional debt relief amid record-high unemployment.

    The U.S. should also endorse a new blueprint for recovery based on one of the most successful economic assistance programs of the modern era: the Marshall Plan.

    It is clear by now that the European Union’s policies in Greece have failed. Projections that government spending cutbacks would stop the economy’s free-fall proved to be wildly optimistic. The 240 billion euro ($319 billion) bailout from the euro area and International Monetary Fund has shown little sign of success, and Greece is experiencing its sixth year of recession.

    The spending cuts and tax increases, along with the dismissal of huge numbers of public-sector employees, demanded as a condition of the loans and assistance have only deepened the economic pain.

    Instead of changing course, however, euro-area economists have responded to bad news by revising their forecasts to reflect lower expectations. Those numbers document a staggering record of mistaken assumptions that has led to today’s failure.

    In December 2010, the so-called troika of lenders—the European Commission, the European Central Bank and the International Monetary Fund—predicted that their measures would move Greece’s unemployment rate to just under 15 percent by 2014. A year later, it changed the forecast to almost 20 percent.

    This month, the Hellenic Statistical Authority reported that unemployment rose to a record in May, with a seasonally adjusted jobless rate of 27.6 percent. The rate was 64.9 percent for people 15 to 24.

    Bold declarations that belt-tightening would produce growth have been pared back, too. Since 2010, the troika has gradually dropped its forecast for 2014 gross domestic product (in money terms) by almost 40 percent. IMF staff reported last week that GDP contracted 6.4 percent in 2012 and will drop 4.2 percent this year before expanding only a little in 2014.

    Yet, despite admissions that mistakes were certainly made, no consideration is being given to ending austerity measures. Nor has there been effort to devise a renewal agenda for Greece. The Marshall Plan offers a spectacularly successful model that could easily be adapted.

    Greece last faced economic ruin immediately after World War II. By 1949, the country was bankrupt, with virtually no industry; transportation networks, farmland and villages had been devastated, and about a quarter of the population was homeless.

    Marshall Plan funds allowed Greece to rebuild, start power utilities, finance businesses and aid the poor. And, because social chaos had created an opening for communist and extremist parties, the U.S. hoped the stimulus would stabilize democracy, even as it created wealth.

    Like other Marshall Plan nations, Greece experienced growth on a scale it had never known. The astonishing transformation was widely hailed as an “economic miracle,” and the nation continued to surge more than 20 years after the assistance ended.

    With that enormous achievement in mind, the Levy Economics Institute has constructed a macroeconomic model of what a Marshall-type recovery plan could do for the Greek economy today. We assumed a modest stimulus from EU institutions of 30 billion euros between 2013 and 2016 that would be directed at public consumption and investment, and particularly jobs. Here is how an EU-funded plan for recovery could succeed. Although past bailout funds benefited banks and financial institutions, with a large portion devoted to interest payments for creditors, the new program would focus on debt forgiveness, and then turn to reconstruction projects to rebuild national infrastructure and create public projects at the local level.

    A rebuilding plan could address Greece’s tremendous need to renovate schools, hospitals, libraries, parks, roads and bridges. Forests need to be replenished: Catastrophic fires have led to deforestation. Tourism once accounted for more than 25 percent of the economy; now, extraordinary beach cleanups are badly needed to attract visitors.

    University graduates, after having been trained at public expense, are now forced to seek opportunity outside Greece. They could make valuable contributions, introducing information technology and other know-how to the government, health and education sectors.

    These efforts could draw an idled, but ready and trained labor force, to construction, education, social service and technology. More employment would increase aggregate demand, which is now severely depressed. In turn, the multiplier effect of these expenditures would increase GDP substantially.

    Instead, Greece is applying “expansive austerity.” The idea is based on a contested theory, and the real-world results have been a humanitarian disaster. These policies are lowering demand by reducing incomes, which cuts into tax revenue. The inevitable result is higher deficits and debt-to-GDP ratios.

    For comparison, we modeled what we expect to happen in the coming years if Greece stays on its scheduled fiscal diet. The government has consistently been unable to meet troika-mandated deficit-reduction targets, and the lenders have consistently required further cutbacks.

    The results of our modeling exercise were clear: Under today’s policies, unemployment would continue to increase, reaching almost 34 percent by the end of 2016. Under a Marshall Plan scenario, the rate would fall to about 20 percent.

    Similarly, if Greece institutes the currently planned austerity measures, we calculate that its gross domestic product would reach about 158 billion euros by the end of 2016, compared with 162 billion euros projected for 2013. That would be more than 15 billion euros short of the troika-mandated target.

    If, alternatively, government squeezes harder to meet the required deficit-to-GDP ratio goals, the endgame will be even worse: A poor and increasingly out of work population, among other factors, will push GDP to about 148 billion euros, more than 30 percent below its 2008 peak. A Marshall Plan scenario would put GDP a little above the troika’s target.

    The first Marshall Plan wasn’t an act of charity or a bailout: It was an effective investment strategy to create a vibrant European economic market and prevent political disintegration. To institute a modern version, we need to revise discredited austerity theories—or the euro-area institutions that promote them.

    *Dimitri B. Papadimitriou is president of the Levy Economics Institute of Bard College.
     
  • In the Media | August 2013

    Greece Needs a 21st Century Marshall Plan


    By Dimitri B. Papadimitriou
    Bloomberg, August 11, 2013. All Rights Reserved.

    At their White House meeting last week, U.S. President Barack Obama assured Greek Prime Minister Antonis Samaras of his support as Greece prepares for talks with creditors on additional debt relief amid record-high unemployment.

    The U.S. should also endorse a new blueprint for recovery based on one of the most successful economic assistance programs of the modern era: the Marshall Plan.

    It is clear by now that the European Union’s policies in Greece have failed. Projections that government spending cutbacks would stop the economy’s free-fall proved to be wildly optimistic.

    The 240 billion euro ($319 billion) bailout from the euro area and International Monetary Fund has shown little sign of success, and Greece is experiencing its sixth year of recession.

    The spending cuts and tax increases, along with the dismissal of huge numbers of public-sector employees, demanded as a condition of the loans and assistance have only deepened the economic pain.

    Instead of changing course, however, euro-area economists have responded to bad news by revising their forecasts to reflect lower expectations. Those numbers document a staggering record of mistaken assumptions that has led to today’s failure.

    Shifting Forecasts
    In December 2010, the so-called troika of lenders—the European Commission, the European Central Bank and the International Monetary Fund—predicted that their measures would move Greece’s unemployment rate to just under 15 percent by 2014. A year later, it changed the forecast to almost 20 percent.

    This month, the Hellenic Statistical Authority reported that unemployment rose to a record in May, with a seasonally adjusted jobless rate of 27.6 percent. The rate was 64.9 percent for people 15 to 24.

    Bold declarations that belt-tightening would produce growth have been pared back, too. Since 2010, the troika has gradually dropped its forecast for 2014 gross domestic product (in money terms) by almost 40 percent. IMF staff reported last week that GDP contracted 6.4 percent in 2012 and will drop 4.2 percent this year before expanding only a little in 2014.

    Yet, despite admissions that mistakes were certainly made, no consideration is being given to ending austerity measures. Nor has there been effort to devise a renewal agenda for Greece. The Marshall Plan offers a spectacularly successful model that could easily be adapted.

    Greece last faced economic ruin immediately after World War II. By 1949, the country was bankrupt, with virtually no industry; transportation networks, farmland and villages had been devastated, and about a quarter of the population was homeless.

    Marshall Plan funds allowed Greece to rebuild, start power utilities, finance businesses and aid the poor. And, because social chaos had created an opening for communist and extremist parties, the U.S. hoped the stimulus would stabilize democracy, even as it created wealth.

    Like other Marshall Plan nations, Greece experienced growth on a scale it had never known. The astonishing transformation was widely hailed as an “economic miracle,” and the nation continued to surge more than 20 years after the assistance  ended.

    With that enormous achievement in mind, the Levy Economics Institute has constructed a macroeconomic model of what a Marshall-type recovery plan could do for the Greek economy today. We assumed a modest stimulus from EU institutions of 30 billion euros between 2013 and 2016 that would be directed at public consumption and investment, and particularly jobs.

    Debt Forgiveness
    Here is how an EU-funded plan for recovery could succeed. Although past bailout funds benefited banks and financial institutions, with a large portion devoted to interest payments for creditors, the new program would focus on debt forgiveness, and then turn to reconstruction projects to rebuild national infrastructure and create public projects at the local level.

    A rebuilding plan could address Greece’s tremendous need to renovate schools, hospitals, libraries, parks, roads and bridges. Forests need to be replenished: Catastrophic fires have led to deforestation. Tourism once accounted for more than 25 percent of the economy; now, extraordinary beach cleanups are badly needed to attract visitors.

    University graduates, after having been trained at public expense, are now forced to seek opportunity outside Greece. They could make valuable contributions, introducing information technology and other know-how to the government, health and education sectors.

    These efforts could draw an idled, but ready and trained labor force, to construction, education, social service and technology. More employment would increase aggregate demand, which is now severely depressed. In turn, the multiplier effect of these expenditures would increase GDP substantially.
    Instead, Greece is applying “expansive austerity.” The idea is based on a contested theory, and the real-world results have been a humanitarian disaster. These policies are lowering demand by reducing incomes, which cuts into tax revenue. The inevitable result is higher deficits and debt-to-GDP ratios.

    For comparison, we modeled what we expect to happen in the coming years if Greece stays on its scheduled fiscal diet. The government has consistently been unable to meet troika-mandated deficit-eduction targets, and the lenders have consistently required further cutbacks.

    The results of our modeling exercise were clear: Under today’s policies, unemployment would continue to increase, reaching almost 34 percent by the end of 2016. Under a Marshall Plan scenario, the rate would fall to about 20 percent.

    Shrinking GDP
    Similarly, if Greece institutes the currently planned austerity measures, we calculate that its gross domestic product would reach about 158 billion euros by the end of 2016, compared with 162 billion euros projected for 2013. That would be more than 15 billion euros short of the troika-mandated target.

    If, alternatively, government squeezes harder to meet the required deficit-to-GDP ratio goals, the endgame will be even worse: A poor and increasingly out of work population, among other factors, will push GDP to about 148 billion euros, more than 30 percent below its 2008 peak. A Marshall Plan scenario would put GDP a little above the troika’s target.

    The first Marshall Plan wasn’t an act of charity or a bailout: It was an effective investment strategy to create a vibrant European economic market and prevent political disintegration. To institute a modern version, we need to revise discredited austerity theories—or the euro-area institutions that promote them.

    (Dimitri B. Papadimitriou is president of the Levy Economics Institute of Bard College.)
  • In the Media | August 2013

    Amnesty for Undocumented Immigrants Would Not Burden US Economy—Levy Economics Institute


    By Ellen Freilich

    Reuters, August 9, 2013. © Thomson Reuters. All Rights Reserved.

    The recently passed Senate bill—S. 744, or the Border Security, Economic Opportunity, and Immigration Modernization Act—that would take significant steps toward comprehensive reform, is being held up in the Republican-controlled House of Representatives, with a “path to citizenship” for undocumented immigrants the apparent sticking point.

    A recent report from the Congressional Budget Office estimated the following:

    All told, relative to the committee-approved bill, the Senate-passed legislation would boost direct spending by about $36 billion, reduce revenues by about $3 billion, and increase discretionary costs related to S. 744 by less than $1 billion over the 2014-2023 period.

    Nathan Sheets and Robert Sockin at Citigroup are even more sweeping in their endorsement of immigration’s economic upside:

    We find that immigration has been a major driver of growth in the United States, the euro area, and the United Kingdom. Specifically, we find that about one-third of the growth in these economies over the past decade can be attributed to immigration. Stated bluntly, the average immigrant appears to have contributed roughly as much to GDP as the average person in the domestic-born population. We also find that a more rapid pace of immigrant inflows in the decades ahead will result in a corresponding increase in the level and growth rate of GDP.

    Yet according to a report rom the Levy Economics Institute, a liberal research group at Bard College, these broad endorsements fail to push back appropriately against the specific claim that is the law’s major point of contention: the purported economic costs of granting amnesty to undocumented immigrants.

    The Levy research argues that “legalizing a significant proportion of the undocumented immigrant population would not impose serious costs on either the economy in general or the social insurance system in particular.”

    In fact, author Selçuk Eren, a Levy research scholar, finds maintaining the status quo would be economically wasteful.

    Legalization would lead to increased benefit payouts for social insurance programs, since it would make a portion of the currently undocumented population eligible for benefits. At the same time, bringing undocumented immigrants into the legal labor pool would boost capital accumulation in the U.S. economy, the Institute said. Compared to legal immigrants, undocumented workers end up sending more of their savings back to their home countries as remittances.

    Moreover, offering a path to legal immigration status should increase labor productivity as newly legalized immigrants become able to better match their skills to the jobs available without having to maneuver through the shadows of the grey labor market.

    When we ran the numbers on a scenario in which 50 percent of undocumented immigrants became legal immigrants, the positive effects of the former outweighed the costs of the latter, leading to net benefits in the form of overall increases in capital stock, output, consumption, and labor productivity. These positive macroeconomic effects would also feed into improvements in the finances of the social insurance system.

    As a result, the overall costs to the system would ultimately be negligible: in order to support new beneficiaries, Social Security and unemployment insurance tax rates would need to increase by only 0.13 and 0.01 percentage points, respectively. Moreover, for the sake of simplicity we assumed that all currently undocumented immigrants pay into Social Security and unemployment insurance.

    Macroeconomic improvements would be fairly modest, amounting to around one- to two-tenths of 1 percent for many measures, the report said. The Institute also estimates an overall contribution of $36 billion per year to the U.S. economy. But while small, that’s hardly a downside.

    Still,  Eren concludes:

    We cannot reasonably oppose comprehensive immigration reform on the basis of the alleged economic burden of offering a pathway to citizenship. Even when we isolate this most controversial element of reform, maintaining the status quo is the most costly option.

  • In the Media | August 2013

    Austerity's Failure in Greece: Time to Think the Unthinkable


    By C. J. Polychroniou
    Truthout, August 7, 2013. All Rights Reserved.

    Further austerity can only worsen Greece's economic plight, particularly already-catastrophic unemployment, warns Dimitri B. Papadimitriou, president of the Levy Economics Institute, according to the Institute's macro-economic model. But "unthinkable" economic policies—suggested by conservative and progressive economists alike—could.

    In early 2010, Greece's staggering deficit/debt problems turned into a major financial crisis when its sovereign debt was downgraded by rating agencies into junk territory, freezing Greece out of international capital markets. On May of that year, Europe and the International Monetary Fund (IMF) agreed to a €110 billion financing plan for Greece, which involved major budget cuts, slashes in wages and pensions, sharp tax increases, labor market reforms and privatization of state assets—i.e., a financing plan with the usual neoliberal adjustment strings attached. The plan was such a flop that it led less than two years later to a second bailout program worth €130 billion, which included even harsher structural adjustment and austerity measures than the first loan agreement.

    The primary aim of the first financial bailout of Greece was the repayment of loans, mainly to German and France banks, which were highly exposed to Greek sovereign debt. Today—and after a rather large haircut for private holders of Greek debt—most Greek public debt is held by the official sector—European Union (EU) government treasuries, the IMF, and the European Central Bank (ECB).

    Greece's financial sovereignty is under the direct command of the troika of the European Commission, the IMF and the European Central Bank (ECB), and virtually all of the money received by Greece's international lenders and through the privatization of state assets and publicly owned enterprises goes toward the repayment of debt. In the meantime, the Greek economy and society are administered shock therapy of the kind described by Naomi Klein in her book The Shock Doctrine, with the explicit aim of institutionalizing an extreme neoliberal order. Already, Greek wages are being steadily reduced to 1970s levels (the actual intent is to bring Greek wages in line with those of other Balkan nations—i.e., Bulgaria, Romania); workers' rights have all but disappeared; social public services are being dismantled and the unemployment rate, currently at 27.4%, is the highest in the European Union. Amazingly enough, IMF, EU and Greek government officials treat these developments as evidence that the Greek program is on the right track—in fact, insisting on more austerity measures.

    In the midst of this economic catastrophe, Greece is experiencing social decomposition not seen in Western societies since the end of the second world war—highlighted by the massive shrinkage of the middle class and the meteoric rise of the new poor—and a profound political crisis, underlined by the complete distrust exhibited by 90% of the population toward the government and the parliament (i.e., the political system as a whole). According to the same recent poll, 80% of the population mistrusts the European Union, while 68% brace themselves for worse days ahead. It is no surprise, therefore, that the sharpest rise of a neo-Nazi party in all of Europe is taking place today in Greece. Most of the support for Golden Dawn, a political party of thugs whose members do their best to imitate Hitler's "brown shirts," comes from unemployed and uneducated youth.

    On the positive side, Greece's Coalition of the Radical Left (Syriza) has also surged in the polls, receiving in the last round of national elections, held in June 2012, nearly 27% of the popular vote, slightly less than three percentage points below the conservatives who came first. In the 2009 national elections, Syriza had managed to attract only 4.6% of the popular vote. However, in the event of a victory in the next elections, the challenges it faces are daunting: Will it form a government with the conservatives? If not, will it opt for political anarchy? Will it be able to secure the renegotiation of the loan terms with the troika, which has so far been its main strategy for dealing with the catastrophe of Greece? If not, will it force Greece out of the euro?

    The international bailouts of Greece have been an unmitigated economic and social disaster, as a recently released econometric analysis of the Greek economic crisis by the Levy Economics Institute of Bard College attests, dispelling EU/IMF and Greek government officials' myths and lies about the alleged success of the Greek program. Even so, the options for the future of Greece remain starkly limited.

    In an interview for Truthout, Dimitri B. Papadimitriou, president of the Levy Economics Institute of Bard College, executive vice president and Jerome Levy Professor of Economics at Bard, discusses with C. J. Polychroniou (a research associate and policy fellow at the Levy Institute and columnist for the Greek newspaper Eleftherotypia) the findings of the Institute's study on the Greek economic crisis and their implications for the future of Greece.

    The Levy Economics Institute of Bard College has just published a major econometric analysis of the impact of "expansionary austerity" in Greece, with you as its lead author, which contradicts European Union (EU) and International Monetary Fund (IMF) claims that the experiment is producing positive results and actually makes a mockery of the Greek government's portrayal of the experiment as a "success story." How would you summarize the state of the Greek economy?

    This is the sixth year of Greece's Great Depression, with an economy in free fall after the EU/IMF austerity kicked into effect as part of the May 2010 bailout agreement, a policy which not only continues unabated but insists on an even higher dosage of the same medicine when the patient's condition deteriorates. The Greek GDP shrank by almost 5% in 2010, by over 7% in 2011, by 6.5% in 2012, and it is expected to shrink by an additional 4.5-5% by the end of 2013. The country's unemployment rate hit double digits shortly after the austerity measures were implemented and is currently above 27%. As expected, poverty and inequality have skyrocketed during the last three and a half years, and suicides plague a nation that was traditionally immune to such phenomena. Moreover, in spite of all the sacrifices made by average Greek citizens who have seen their standard of living reduced to 1970s levels because of major cuts in wages, social benefits and pensions and sharp tax increases as part of the classic IMF structural adjustment program imposed by the country's international lenders and followed by the compliant Greek governments, the nation's debt has been steadily increasing and currently stands at 160.50% of the GDP even after a large "haircut" of sovereign debt held by the private sector took place in 2012.

    In this context, it is simply mind boggling that anyone can possibly consider such outcomes as positive signs of an economic policy at work, let alone a "success story." But the dreadful economic and social trends we are witnessing are not surprising at all; on the contrary, they were long expected as consequences of discredited economic dogmas associated with neoliberalism. The simulations of the Levy Institute's specially constructed stock-flow macro-model show clearly that any fiscal consolidation during recessionary times does not result in a "success story" but, instead, in further economic decline.

    The ongoing Greek catastrophe is so immense that it staggers the imagination. Reversing Greece's downward economic trend poses now severe policy challenges as the options have become truly narrow. In the course of three and a half years of wild neoliberal experimentation, Greece has been transformed from an advanced economy into an emerging economy on the verge of a humanitarian crisis.

    Indeed, on what grounds then did the IMF and the EU expect austerity to work in the case of Greece, especially when the economy was already in a recession, and why don't they terminate this dangerous pursuit when all economic evidence is stacked against it?

    Recent reports from the IMF reveal that concerns from employees of the Fund about the first bailout program succeeding were voiced in 2010. But it's obvious that they were ignored and, instead of doing the obvious, that is, providing Greece with a much larger bailout program and in the spirit of true assistance rather than in the spirit of punishment, they focused on saving large French and German banks from incurring big losses on their holdings of Greek sovereign debt and, in so doing, hoping to prevent erosion of investors' confidence and contagion for other Eurozone highly indebted countries like Spain and Italy.

    Both the IMF and the EU produced rather optimistic scenarios about the effects of their policies on Greece, but all their projections were based on faulty evaluations of the country's public finances and erroneous estimates of the fiscal multipliers and their effect on austerity for an economy already in recession. However, despite the Fund's admission of big errors, both the IMF and the EU dismiss the need for either a revision or termination of the program, insisting dogmatically in turn that the program is "broadly correct." In the end, though, they will have to consider yet another debt restructuring before terminating the program, since the failure of the Greek program may seal the ultimate demise of the Fund and the dissolution of the Eurozone.

    One of the major arguments often made by troika in defense of neoliberal economic reforms in Greece is that the nation's labor market is highly inflexible. How does one define inflexible labor markets, and do they actually exact a high economic toll as neoliberals claim that they do?

    The word "inflexible" is cosmetic; it means workers should not be protected by strong unions with bargaining agreements covering wages and benefits, adhering to hiring and separation, and nondiscrimination clauses with recourse to state authority for noncompliance. The neoliberal doctrine makes no distinction between product and labor markets. But labor is not like rice where its price is bid up or pushed down dependent on supply and demand. In this line of thought, labor is simply a cost that can be cut and not an asset that can be developed. More and more evidence provides contrary results to those claimed by the neoliberal thinking.

    Wages have been dramatically cut in Greece, yet the unemployment rate continues to rise. Who benefits from low-income workers?

    Based on a Harmonized Competitiveness Indicator measuring unit labor costs, the relative Greek unit labor costs have decreased more than in any other Eurozone member country except for Germany, which systematically maintains lower values by severely suppressing wages. Despite the lower wages, unemployment is soaring because the country is in a deepening recession caused by the continuing and ever stronger grip of austerity that compresses both private and public consumption and investment. Under these circumstances, rising unemployment will further push wages downward - benefiting the private corporate sector, to be sure, much smaller now than its precrisis size. And as it has been widely reported, in Greece, many workers are either not "officially" employed, or paid regularly (in many private sector jobs workers are paid in small installments or are unpaid for several months) and/or have their social insurance contributions made on their behalf. Above all, the declining fortunes do not affect consumer prices that are continuously rising, pushing more and more people into deeper poverty.

    Both the Greek government and the EU have shown remarkable indifference so far to the problem of unemployment in Greece, which, among other things, has led to the increasing strength of the neo-Nazi party "Golden Dawn." Why isn't anything being done to address the unemployment problem?

    I don't think the Greek government is indifferent to the scourge of unemployment. But once you are forced to accept other people's money you have no choice but to abide with conditions placed from the lenders. Lenders are indifferent about lost output and unemployment, rising poverty and all other social and economic ills that come along. Where a government can be faulted is in its very poor negotiation skills with its lenders. The Greek governments clearly did not play their cards right against Berlin, Brussels and Frankfurt and Washington. The Greek governments can be blamed for continuously accepting even harsher austerity, pretending that ideological shifts are divorced from the economic conditions emanating from its very actions. The blame game is already a tired and unconvincing ploy.

    The econometric analysis on the state of the Greek economy involves model simulations in order to assess the impact of austerity for the next three years. What should we expect if the current policies of austerity continue?

    Our projections, which are derived from a stock-flow-consistent macroeconomic model especially constructed for Greece, show the faulty design of the troika program that yields inconsistent targets of deficit to GDP ratios, growth of GDP and unemployment. Our own simulations show that, should the agreed program of austerity continue unrevised, it will deliver a rising unemployment - reaching a high rate of 34% by the end of 2016, contradicting the troika's corresponding rate of slightly more than 20%. It is astonishing to think that even if their projections are correct - and there is plenty of evidence from their past four worsening revisions that they are not - that a higher than 20% unemployment should render the effort "successful."

    Greek political life is undergoing profound changes, and the Coalition of the Radical Left (Syriza) has an historic opportunity to rise to power. What should it do in the event that it forms a government but fails to compel Greece's international lenders to put an end to the vicious austerity measures and the ongoing national catastrophe?

    A progressive party like Syriza may have the unique opportunity by its sheer rise to power to engage in a different sort of negotiation. We should not forget that there is already a division in the house of troika. If Syriza were able to band with the other South European Eurozone members, this can become easier. Irrespective of this synergy, the division between the IMF and the European Commission can turn out to be advantageous to the strategy that Syriza has advocated: suspension of interest payments until growth emerges and then resumption of interest payments linked to GDP growth.

    Furthermore, this will need to be supplemented with a higher allocation of structural funds with no matching contribution for a number of years. (More than 40 billion euros have been paid toward interest that can be refunded). This can be made possible only if the present government's pronouncements of achieving a primary budget balance are realized. If this is not achievable—most likely it is not—then the options are more or less of the unthinkable sort. This includes the introduction of a parallel national nonconvertible currency, including government tax-based bonds traded and used for payment of taxes at par. The parallel currency can start with government consumption expenditures including the instituting of a carefully designed and monitored guaranteed public service employment program as advocated by the late Hyman Minsky. The experience of such jobs programs is encouraging. Design, monitoring and evaluation of the program would be under the aegis of a central state authority with many regional branches along the lines of the successfully designed Americorps structure in the US. The parallel currency will eventually replace the euro for all internal transactions, but more importantly, as mentioned, it will not be convertible to the euro—avoiding speculative attacks. Even though this may sound like a radical idea, it has been suggested by many conservative and progressive economists alike. 
    Associated Program:
    Author(s):
    C. J. Polychroniou
  • In the Media | August 2013

    Financial Benefits of Legalizing Undocumented Immigrants Outweigh Costs


    By Mike Sunnucks
    The benefits of legalizing many of the 11 million undocumented immigrants under business-backed reforms being considered by Congress outweigh the costs.

    That is according to a new study by the Levy Economics Institute at Bard College in New York.

    A white paper by Selcuk Eren contends legalized unauthorized immigrants would leave under-the-table jobs and start paying Social Security and other taxes, get better paying jobs and may save and spend more on their lives here in the U.S. rather than sending that money back to family in Mexico and other home countries.

    “Legalization should be expected to increase the level of capitalization in the U.S. economy,” Eren said.

    Immigrants send as much as $25 billion a year back to home countries, according to the Center for Immigration Studies.

    In many cases, undocumented immigrants also live on cash without credit cards or even bank accounts.

    Business and economic advocates of legalization argue the reform bill in Congress will bring those workers out of the shadows and into the mainstream economy.

    Eren acknowledges legalizing undocumented immigrants could add some strains on social services and welfare programs, but concludes the economic benefits outweigh those costs.

    A study earlier this year by Arizona State University's Morrison Institute expects legalization to increase immigrants’ wages by as much as $3,100 each per year. The ASU report said immigrants with legal status can get better jobs and earn higher wages than those being paid under the table or working with fake identification. Currently, unauthorized immigrants in Arizona make $27,100 a year on average.

    A Congressional Budget Office report also expects reforms — if passed by Congress — to hike immigrants wages by 12 percent. But the same report said American worker wages would remain flat or decline slightly over the next two decades if reforms pass.

    National and Arizona business interests are pushing hard for reforms to pass Congress. Agriculture and construction companies as well as chambers of commerce in Arizona back reforms as do high-tech CEOs such as Facebook’s Mark Zuckerberg, Google’s Eric Schmimdt and Yahoo’s Marissa Meyer. The reform bill increases the number of foreign worker visas, including for engineers and high-tech workers.
  • In the Media | July 2013

    A Marshall Plan for Greece


    By Ellen Freilich
    Reuters, July 30, 2013. @2013 Thomson Reuters. All rights reserved. 

    The spectacular failure of “expansionary austerity” policies has set Greece on a path worse than the Great Depression, according to a study from the Levy Economics Institute of Bard College.

    Using their newly-constructed macroeconomic model for Greece, the Levy scholars recommend a recovery strategy similar to the Marshall Plan to increase public consumption and investment.

    “A Marshall-type recovery plan directed at public consumption and investment is realistic and has worked in the past,” the authors of the report said.

    Employment in Greece is in free fall, with more than one million jobs lost since October 2008 — a drop of more than 28 percent, leaving the “official” unemployment rate in March at 27.4 percent, the highest level seen in any industrialized country in the free world during the last 30 years, the Levy Institute scholars said.

    The study argues the austerity policies espoused by the “troika,” the group of international lenders who funded Greece’s bailouts, have failed and that continuing those prescriptions will only worsen Greece’s jobs, growth, and deficit outlook.

    “With joblessness in Greece now above 27 percent – a stark indicator of the troika’s failure to accurately project the consequences of their own policies, it’s astonishing that (European Commission) and (International Monetary Fund) officials continue to ask for more of the same,” Levy Institute President Dimitri Papadimitriou and Research Scholars Michalis Nikiforos and Gennaro Zezza wrote in their analysis.

    “The Greek Economic Crisis and the Experience of Austerity: A Strategic Analysis,” seeks answers to Greece’s downward spiral of lost growth and employment combined with higher public deficits and debt.

    That spiral is the consequence of “foolish policy” enacted by the Greek government as it tried to comply with the terms of a fiscal consolidation program imposed by its international lenders, the economists said.

    Using the Levy Institute macroeconomic model of the Greek economy, or LIMG – a stock-flow consistent model similar to the Institute’s model of the U.S. economy, the Levy scholars analyze the economic crisis in Greece and recommend policies to restore growth and increase employment.

    Based on the LIMG simulations, the authors found that a continuation of austerity policies would lead to lower GDP and higher unemployment numbers than those forecast by the troika.

    In their baseline scenario, the authors contend that, based on the troika’s projections for changes in government revenues and outlays, GDP will grow more slowly and the unemployment rate will rise more sharply (to near 34 percent by the end of 2016) than the troika contends they will.

    The baseline scenario asserts that deficit targets will not be met, with the deficit-to-GDP ratio reaching 7.6 percent by 2016.

    Meeting the troika’s deficit targets, the LIMG model shows, would cause GDP and employment to decline even further than in the baseline scenario – another example of the “faulty thinking” used to support the troika’s projections, which the Levy scholars call too optimistic.

    “In addition to the errors in the values of the fiscal multipliers and the doctrine of ‘expansionary austerity,’ there are implicit supply-side effects emanating from market liberalization and internal devaluation, with all effects converging to produce higher output growth and employment, together with lower deficit-to-GDP ratios,” Papadimitriou, Nikiforos, and Zezza argue.

    “These flaws help to explain why, in the absence of any level of economic stimulus, the troika projections are so optimistic,” they said.

    The study’s authors conclude by recommending a recovery strategy centered on an expanded direct public-service job creation program.

    Their projections show that, using funds from the European Investment Bank or other EU institution, a modest fiscal boost of $30 billion (used at a rate of about $2 billion each quarter) would fundamentally change the outlook for Greece’s economy.

    GDP growth would exceed all previous scenarios. Jobs would  increase more than 200,000 jobs over the baseline “troika” scenario, and the government deficit would be lower than their baseline and GDP-target scenarios.

    “The simulations discussed show clearly that any form of fiscal austerity results in output growth and employment falling into a tailspin that becomes harder and harder to reverse,” the Levy scholars write.

    “We have shown that a relatively modest fiscal boost funded by the appropriate European Union institutions could not only arrest the further declines in GDP and employment, but also reverse their trend and put them on the road to recovery,” the authors of the study said.
  • In the Media | July 2013

    The Greek Catastrophe and a Possible Way Out


    Open Democracy, July 24, 2013. All Rights Reserved.

    The lead author of a major econometric analysis of the Greek economic crisis discusses the disastrous outcomes of the policies enforced on Greece by its international lenders, and the IMF’s admission that it made serious errors in its assessment of the impact of austerity on the Greek economy and society. 

    C. J. Polychroniou: The Levy Economics Institute has just released a Strategic Analysis report (pdf), with you as its lead author, on the Greek economic crisis and the effects of austerity on growth and employment. The analysis relies on the Institute’s specially designed macroeconomic model for the Greek economy, which is similar to the Institute’s model of the US economy. First, what does the model consist of and how accurate has it been so far in assessing and predicting trends in the US economy?

    Dimitri B. Papadimitriou
    :
    The model’s theoretical foundations are rooted in Wynne Godley’s new Cambridge approach to economics, developed in the 1980s, enabling economists and the public alike to produce a serious study of how the whole economic system functions. The determination of national income, GDP growth, inflation and unemployment are all predominant concerns by which the public judges the success or failure of governments. The US model on which the model for Greece is based has had a rather spectacular success in predicting first the 2001-02 recession and subsequently very early on the American and the global financial crisis of 2007-08. An increasing number of economists and policymakers have come to realize the power of its predictive capacity, at least for the US.

    C.J.P: Reading the report, the first thing that stands out is that Greece is in a depression today (in addition to suffering from malaria, hungry school children and a surge in suicides) which is worse than anything experienced during the Great Depression of the 1930s in the US. This is shocking when we consider that benefits for those in retirement and the unemployed for example, did not even exist in the US until 1935. From this analysis, what is the driving force behind the ongoing and deepening economic crisis in Greece?


    D.B.P:
     
    It is true the Great Depression never looked so good as seen currently from Greece. Whereas during the Great Contraction, US government spending for consumption not infrastructure continued to grow, helping to arrest the economy’s decline, in Greece the same spending has fallen severely every year since 2008 with last year being the steepest drop in the country’s continuing downturn.

    This continuous decline is in concert with the country’s international lenders’ requirement in exchange for the two bail-out plans. This is an application of the dangerous idea of austerity that has been proven catastrophic wherever it has been applied during recessions, with the predictable consequences we are currently witnessing. During downturns, private consumption and investment are on declining paths and it falls on the public purse to stimulate the declining aggregate demand. The economic and social conditions you mention are the consequences of a foolish policy based on a discredited economic theory of “expansive austerity” along with labour market reforms as the best, most appropriate medicine for growth in countries like Greece running large government deficits and debt as percentages of GDP.       

    C.J.P: The IMF has admitted to miscalculations of the fiscal multipliers in the implementation of the austerity measures in Greece, yet the European authorities insist on fiscal restraint and implicitly accuse the IMF of playing politics. Who’s kidding whom here?  The IMF and the EU represent today what I call the “twin monsters of global neoliberalism.” So why should any economist be paying attention to what the IMF says? Action, after all, is what matters – and theirs towards Greece certainly haven’t changed. Correct? 

    D.B.P
    :
    The IMF’s confession to big errors in the first rescue programme about three years ago has been viewed as irrelevant, and the Fund still insists that no matter what it did, then, Greece would have suffered a deep downturn. In effect, all three - IMF, EC and ECB (the troika) - still refuse to acknowledge the flawed handling of the Greek sovereign debt crisis, maintaining to the contrary that the overall policy was correct.

    As my colleagues and I at the Levy Institute suggested when the first bailout programme was arranged, the amount was far smaller than required and the consequences of government spending cuts and tax increases were deeply underestimated.  But those charged with running the European Union and the IMF would not increase the bail-out funds to assist Greece, opting instead for muddling through until the big European banks (read German and French primarily) were willing to slough off their Greek bond holdings, thereby not risking contagion and the erosion of investor confidence in other troubled southern European economies, i.e., Spain and Italy. 

    Conventional wisdom and free market ideology are alive and well, and very many economists consider themselves as high priests and defenders of this religion that informs IMF’s standard austerity remedies, despite the overwhelming evidence to the contrary.   

    C.J.P: These “twin monsters of global neoliberalism” and the Greek government seem to have placed their recovery hopes for the domestic economy on an exports boost.  The Institute’s report analysis challenges this assumption. Why?

    D.B.P
    :
    Exports have been on caught up in an unstable trend before and after the crisis and unable to offset the drop in domestic demand. The strategy imposed by the troika aimed at increasing exports through internal devaluation (a decrease in unit labour costs) has not brought about the anticipated effects, despite the reduction in relative unit labour costs achieved since in 2010.

    Despite this decline in unit labour costs, consumer prices have not followed suit unlike in the single case of the European hegemon, Germany, that systematically maintains lower values in both. An analysis of the country’s exports by destination and technology content shows that the countries that import the bulk of Greek agricultural and medium-low technology goods and services are outside the euro area.

    Greece has suffered a reduction in its exports to countries such as Germany, once a major foreign market. The recent large increase in the value of Greek exports is due to oil refinery operations positively affected by increases in the price of oil. In short, the current strategy of grounding Greece’s recovery on exports is not only wrong-headed but also will shift production toward sectors with lower value added, and larger volatility in oil-related trade.

    C.J.P: Levy Institute projections are also highly pessimistic about unemployment and GDP growth rates in the middle term, questioning once again the rather optimistic predictions made recently by the European Commission and the IMF.  How much worse can unemployment get in Greece, which, as the Institute’s report states, already suffers“the highest level of any industrialized country in the free world during the last 30 years?”

    D.B.P
    :
    IMF and EC projections of GDP growth and employment are bizarrely incompatible within the framework of the imposed austerity policy. As our model simulations show, to meet the troika’s targets of government deficit to GDP ratios from now to 2016, even more austerity would be necessary, further depressing GDP and employment.

    On the other hand, to meet the troika’s growth and employment targets will require the reversal of austerity and a fiscal stimulus of close to a further 41 billion euros between now and 2016. Their projections have been consistently revised downwards four times between May 2010 and the latest occasion in June 2013. 

    The fact is that since the peak in October 2008, over 1 million jobs have been lost, and there are no signs of meaningful easing of the flawed programme forthcoming. With joblessness now at 27%, a stark indicator of the troika’s and the government’s failure to accurately project the consequences of their own policies, it is astonishing that they continue to ask for more of the same. Our own simulations of unemployment show that more jobs would be lost should the current austerity policy be continued, with unemployment climbing the charts, and soaring close to 34% by the end of 2016.  

    C.J.P: To the surprise of many observers abroad, the Greek population has remained rather stoical (or, some might say, politically apathetic) in the midst of a deepening crisis and the collapse of the nation. How do you explain this attitude when, for years, the impression given to the outside world was that contemporary Greek society thrived on a culture based on political radicalism?

    D.B.P
    :
    One easy answer would be that Greeks have are suffering from austerity fatigue. The other and perhaps more important explanation is that we should never take underestimate the capacity for a social meltdown. The Greek population may appear politically apathetic at present but the continuing social chaos has created a ever-wider opening for an extremist party. Only a progressive party of the left can reverse today’s carnage on the ground.    

    C.J.P: The way out of the crisis, according to the Institute’s Strategic Analysis report, is a recovery strategy along the lines of the Marshall Plan. Is it economics or politics and ideology that blocks discussions and initiatives from relying on the public sector for providing the necessary economic stimulus, via increases in public consumption and investment for a return to growth?


    D.B.P
    :
    Our model’s simulations demonstrate that an EU-funded Marshall-type recovery programme would be a real “success story” for Greece. If it were directed at public consumption and investment and particularly at jobs this would put Greece on the road to recovery. The first Marshall plan wasn’t charity or a bailout. It was an effective investment strategy to create a vibrant European economic market and prevent political disintegration.

    As Winston Churchill told us, we should learn from history. European leaders and our government need to learn fast. Instituting such a programme would necessitate our revising what are now discredited economic theories, together with the European institutions that continue to promote them. 
  • In the Media | June 2013

    Coming Soon: Another London Whale Shocker?


    By Dimitri B. Papadimitriou
    The Huffington Post, June 18, 2013. Copyright © 2013 TheHuffingtonPost.com, Inc. All Rights Reserved.

    Remember last summer? The London Whale, that blockbuster adventure thriller, triggered one chill after another as the high-risk action at JPMorgan Chase was revealed. Today, the threats posed by megabanks remain just below the surface—no crisis at the moment—but they’re equally dangerous. A major sequel this year cannot be ruled out.

    Dodd-Frank, the law designed to reform the financial system, had already been on the books for two years when JPMorgan’s troubles surfaced. In an effort to figure out how it failed to prevent massive losses by one of the world’s largest banks, a Senate subcommittee investigated. This spring, it issued its report on the outsize positions taken by the bank’s Chief Investment Office (CIO)—with a lead trader known as ‘the London Whale’—and the department’s subsequent six billion dollar crash.

    The committee detailed a list of concealed high-risk activities, and determined that the CIO’s so-called ‘hedging’ activities were really just disguised propriety trading, that is, volatile, high-profit trades on behalf of the bank itself, rather than on behalf of its customers in return for commissions.

    Levy Economics Institute Senior Scholar Jan Kregel has taken these conclusions a step further, after analyzing the evidence. In a new research paper he makes the case that the primary cause of the bank’s difficulties was not that it engaged in proprietary trading: It was the concealment of this activity through the creation of a ‘shadow bank’, with the express purpose of this hardly-visible bank-within-the-bank being to create profits. What began as a unit to hedge risks—a safeguard—no longer served that purpose. He argues that when megabanks operate across all aspects of finance, this expansion of propriety trading becomes inevitable.

    The solution, Kregel says, is not to prevent hedging, but rather to recognize that it can never be consistently profitable. A true hedging unit only generates profits when a bank’s bets on its primary investments are unexpectedly wrong. The legitimate hedge is expected to run losses most of the time, if the bank’s strategy and credit assessments are accurate. And for this reason, hedging activity should never be funded from customer deposits.

    Did the London Whale revelations result in protections for bank customers—and their federal insurers—from this kind of gambling?

    Dodd-Frank will reach its third anniversary in July. It mandated that Congress write 398 rules. About two-thirds of the deadlines for those rules have been missed. In addition, the hiring of regulators has been stalled in Washington, further undermining implementation of the law.

    One rule that limited trading on derivatives contracts, the kind of activity that led to the London Whale debacle, was successfully challenged in the courts by a finance trade group. Another, the “Volcker Rule,” would require banks to separate consumer lending from speculative trading. It was Dodd-Frank’s most ambitious provision. Bank lobbyists have successfully kept regulators way behind schedule on finalizing it. Last week, an anti-regulatory bill to roll back other restrictions on derivatives trading passed in the House (the same bill was shelved last summer while the spotlight was on the London Whale). These are only a few examples. Attempts to reign in the recklessness are relentlessly dismantled as soon as they’re proposed.

    A new bill to increase capital standards for the biggest banks has also recently surfaced. The requirement that these institutions hold less debt and more assets, sponsored by Sherrod Brown (D-Ohio) and David Vitter (R-Louisiana), would, in addition, limit the federal safety net to only cover traditional banking activities. It faces tough opposition.

    I’ve written before about the limits of Dodd-Frank’s scope, and the fundamental changes we need to make in how we approach financial regulation if it is going to succeed. Kregel’s analysis pinpoints some of the key abuses that urgently need to be addressed. Despite all the obstacles, the responsibility remains to reform banks that are too big to fail, and even, apparently, to regulate.

    Meanwhile, the Senate subcommittee’s report has been forwarded to the Justice Department, where no particular indictments are anticipated. Until our increasingly fragile system is strengthened, expect a remake of the London Whale story. Only the cast and crew will change.
  • In the Media | May 2013

    Gli azionisti di JP Morgan al voto sulla doppia poltrona di Dimon. Le tre lezioni della "Balena"


    Di Elena Bonanni
    FIRSTOnline, 21 Maggio 2013. Tutti i diritti riservati.

    Gli azionisti votano oggi in assise sulla separazione delle cariche di presidente e ceo dopo gli scandali—Trema la doppia poltrona di Dimon—Le tre lezioni della balena di Londra dell'economista Jan Kregel (Bard College)—Il caso JPMorgan è diventato il terreno di gioco su cui si sta disputando la sfida sulla Volcker rule tra Senato e lobbies finanziarie

    Il regno di Jamie Dimon non è imploso (per ora) sullo scandalo della Balena di Londra (ma non solo). L’ultimo re di Wall Street, come è stato soprannominato dal Financial Times, non dovrà dividere il trono con un nuovo presidente (solo il 32% ha votato a favore della separazione delle poltrone di ceo e presidente). Più scivolosa risulta invece la posizione di tre membri della Commissione sui rischi (David Cote, ceo Honeywell International; James Crown, presidente di Henry Crown and Company; Ellen Futter, presidente del Museo americano di storia naturale) che hanno ottenuto sostegno da meno del 60% dei soci. 

    CtW Investment group, che rappresenta i fondi pensione dei sindacati, ha già chiesto le loro dimissioni. Tra i soci “ribelli” è diffusa la convinzione che i tre direttori non abbiano le competenze e che la banca abbia bisogno di nuovi manager in grado di supervisionare il risk management. Un cambio della guardia e un miglioramento delle competenze può sempre essere utile. Così come è necessaria la sostituzione di chi non ha supervisionato bene. Oltre al trader Bruno Iksil, soprannominato “la Balena di Londra”, JP Morgan ha infatti già licenziato anche i vertici del Chief Investment Office, la divisione londinese responsabile delle perdite, compresa la numero uno Ina Drew. E ha fatto causa a Javier Martin-Artajo, il supervisore di Iksil.

    Ma, nella realtà finanziaria di oggi, non sembra questa una soluzione sufficiente per evitare in futuro una nuova Balena. Né a JPMorgan né in qualsiasi altra istituzione finanziaria. Tutti si sono infatti focalizzati su “chi sapeva cosa e quando” e su chi era responsabile per aver dissimulato la situazione agli azionisti e alla comunità finanziaria. Ma nello studio “More swimming lessons from the london whale”, l’economista Jan Kregel (Bard College-New York), che analizza e amplia le conclusioni del report della Sottocommissione permanente per le indagini del Senato americano, rileva come il caso della Balena di Londra evidenzi implicazioni più importanti la stabilità del sistema finanziario. 

    Infatti, se i problemi fossero dovuti a incompetenza o stupidità, come suggerito dallo stesso ceo Dimon, allora la questione potrebbe essere risolta con la rimozione dei responsabili. “Da questo punto di vista—rileva Kregel—una volta che i responsabili vengono rimossi (come è successo) e le condizioni ripristinate (lo smantellamento dell’unità), tutta la questione può in effetti essere trattata se non come “una tempesta in una teiera”, come è stata inizialmente descritta da Dimon, come una goccia nel mare dei profitti di JPMorgan complessivi, come è stata successivamente presentata. 

    Dopo tutto, nessuno è perfetto e tutti fanno errori. Ma questa lettura farebbe perdere di vista le importanti questioni sistemiche sollevate dalle operazioni del Cio in generale e del Scp in particolare”. E che devono invece riportare l’attenzione sui rischi non risolti dalla normativa Dodd-Frank. A partire dalle stesse dimensioni delle istituzioni finanziarie  troppo grandi perché il management possa sapere effettivamente cosa succede e troppo grandi per essere regolate, la prima delle tre lezioni che emergono dallo studio di Kregel sul report della Sottocommissione del Senato e che Firstonline ripercorre in una serie di articoli.

    TROPPO GRANDE PER ESSERE SUPERVISIONATA

    I documenti dell’indagine del Senato hanno dato disclosure aggiuntiva e più dettagliata sulle comunicazioni tra i trader del Synthetic credit Portfolio (Scp), i loro manager del Chief investment office (Cio) e il top management della banca. “Questi scambi—scrive Kregel—non solo  riconfermano il fatto che il management ha dato una rappresentazione non corretta agli azionisti e ai regolatori dei dettagli e l’ampiezza delle difficoltà della divisione Chief investment office (Cio), ma ha anche reso chiaro che il management non aveva una comprensione approfondita delle operazioni  del Scp o dei motivi delle difficoltà di questa divisione”.  

    Per l’economista i documenti suggeriscono che è altamente probabile che i diversi livelli di management accusati di aver diffuso false informazioni non avevano la più pallida idea delle operazioni dell’unità Scp e del perché fosse entrata in sofferenza: nessun a quanto pare si era accorto delle difficoltà del Scp fino all’inizio del 2012. “Le comunicazioni del primo trimestre del 2012—rileva Kregel—suggeriscono che il management stesse lottando per capire cosa stesse andando male anche quando approvò misure che nelle intenzioni avrebbero dovuto risolvere il problema”. Ma che invece causarono un deterioramento più veloce del valore del portafoglio dell’unità che chiaramente non era stato compreso.

    Kregel rileva come né il Senato né l’indagine interna di JPMorgan sostengano l’idea che la banca fosse semplicemente troppo grande perché qualsiasi manager potesse avere conoscenza diretta delle operazioni multiple della divisione di cui era responsabile. E ovviamente non poteva neanche il boss di JPMorgan quando parlò della famosa “tempesta nella teiera”. Kregel spiega che ogni livello di management faceva affidamento sulle informazioni passate dai subordinati, i quali a loro volta avevano poca conoscenza diretta dell’unità che stavano gestendo, fino ai trader che per loro stessa ammissione non capivano le performance del portafoglio che loro stessi avevano creato e che furono poi sostituiti da individui con ancora meno comprensione delle difficoltà che stavano fronteggiando. 

    “La spiegazione più probabile della cattiva informazione relativa alla Balena—conclude Kregel—è un enorme fallimento del controllo e della regia manageriale che non è stato il risultato di un inganno deliberato ma piuttosto la risposta naturale di individui che erano pagati generosamente per assumersi la responsabilità ma che semplicemente non sapevano cosa stesse succedendo perché la taglia e la complessità dell’organizzazione lo rendeva impossibile—ancora una volta, la prova di una istituzione troppo grande da gestire efficacemente e a maggior ragione da regolare. Se la complessità è chiaramente una minaccia maggiore alla stabilità finanziaria rispetto alla grandezza, è di solito, ma non solo, la grandezza che porta alla complessità”.     
    Associated Program:
    Author(s):
    Jan Kregel
  • In the Media | May 2013

    JPMorgan e la Balena, l'economista Jan Kregel: sostituire i responsabili non basta


    Di Elena Bonanni
    FIRSTOnline, 21 Maggio 2013. Tutti i diritti riservati.

    LE TRE LEZIONI DELLA BALENA DI LONDRA/1 Jamie Dimon ha superato il voto sulla doppia poltrona mentre la fronda degli azionisti "ribelli" chiede le dimissioni dei tre membri della Commissione rischi che non hanno superato il 60% dei consensi— Ma il problema di JPMorgan non è solo la sostituzione dei manager “incompetenti”—Lo spiega l'economista Jan Kregel.

    Il regno di Jamie Dimon non è imploso (per ora) sullo scandalo della Balena di Londra (ma non solo). L’ultimo re di Wall Street, come è stato soprannominato dal Financial Times, non dovrà dividere il trono con un nuovo presidente (solo il 32% ha votato a favore della separazione delle poltrone di ceo e presidente). Più scivolosa risulta invece la posizione di tre membri della Commissione sui rischi (David Cote, ceo Honeywell International; James Crown, presidente di Henry Crown and Company; Ellen Futter, presidente del Museo americano di storia naturale) che hanno ottenuto sostegno da meno del 60% dei soci.

    CtW Investment group, che rappresenta i fondi pensione dei sindacati, ha già chiesto le loro dimissioni. Tra i soci “ribelli” è diffusa la convinzione che i tre direttori non abbiano le competenze e che la banca abbia bisogno di nuovi manager in grado di supervisionare il risk management. Un cambio della guardia e un miglioramento delle competenze può sempre essere utile. Così come è necessaria la sostituzione di chi non ha supervisionato bene. Oltre al trader Bruno Iksil, soprannominato “la Balena di Londra”, JP Morgan ha infatti già licenziato anche i vertici del Chief Investment Office, la divisione londinese responsabile delle perdite, compresa la numero uno Ina Drew. E ha fatto causa a Javier Martin-Artajo, il supervisore di Iksil.

    Ma, nella realtà finanziaria di oggi, non sembra questa una soluzione sufficiente per evitare in futuro una nuova Balena.
     Né a JPMorgan né in qualsiasi altra istituzione finanziaria. Tutti si sono infatti focalizzati su “chi sapeva cosa e quando” e su chi era responsabile per aver dissimulato la situazione agli azionisti e alla comunità finanziaria. Ma nello studio “More swimming lessons from the london whale”, l’economista Jan Kregel (Bard College-New York), che analizza e amplia le conclusioni del report della Sottocommissione permanente per le indagini del Senato americano, rileva come il caso della Balena di Londra evidenzi implicazioni più importanti la stabilità del sistema finanziario. 

    Infatti, se i problemi fossero dovuti a incompetenza o stupidità, come suggerito dallo stesso ceo Dimon, allora la questione potrebbe essere risolta con la rimozione dei responsabili. “Da questo punto di vista—rileva Kregel—una volta che i responsabili vengono rimossi (come è successo) e le condizioni ripristinate (lo smantellamento dell’unità), tutta la questione può in effetti essere trattata se non come “una tempesta in una teiera”, come è stata inizialmente descritta da Dimon, come una goccia nel mare dei profitti di JPMorgan complessivi, come è stata successivamente presentata. 

    Dopo tutto, nessuno è perfetto e tutti fanno errori. Ma questa lettura farebbe perdere di vista le importanti questioni sistemiche sollevate dalle operazioni del Cio in generale e del Scp in particolare”. E che devono invece riportare l’attenzione sui rischi non risolti dalla normativa Dodd-Frank. A partire dalle stesse dimensioni delle istituzioni finanziarie  troppo grandi perché il management possa sapere effettivamente cosa succede e troppo grandi per essere regolate, la prima delle tre lezioni che emergono dallo studio di Kregel sul report della Sottocommissione del Senato e che Firstonline ripercorre in una serie di articoli.

    TROPPO GRANDE PER ESSERE SUPERVISIONATA

    I documenti dell’indagine del Senato hanno dato disclosure aggiuntiva e più dettagliata sulle comunicazioni tra i trader del Synthetic credit Portfolio (Scp), i loro manager del Chief investment office (Cio) e il top management della banca. “Questi scambi—scrive Kregel—non solo  riconfermano il fatto che il management ha dato una rappresentazione non corretta agli azionisti e ai regolatori dei dettagli e l’ampiezza delle difficoltà della divisione Chief investment office (Cio), ma ha anche reso chiaro che il management non aveva una comprensione approfondita delle operazioni  del Scp o dei motivi delle difficoltà di questa divisione”.  

    Per l’economista i documenti suggeriscono che è altamente probabile che i diversi livelli di management accusati di aver diffuso false informazioni non avevano la più pallida idea delle operazioni dell’unità Scp e del perché fosse entrata in sofferenza: nessun a quanto pare si era accorto delle difficoltà del Scp fino all’inizio del 2012. “Le comunicazioni del primo trimestre del 2012—rileva Kregel—suggeriscono che il management stesse lottando per capire cosa stesse andando male anche quando approvò misure che nelle intenzioni avrebbero dovuto risolvere il problema”. Ma che invece causarono un deterioramento più veloce del valore del portafoglio dell’unità che chiaramente non era stato compreso.

    Kregel rileva come né il Senato né l’indagine interna di JPMorgan
     sostengano l’idea che la banca fosse semplicemente troppo grande perché qualsiasi manager potesse avere conoscenza diretta delle operazioni multiple della divisione di cui era responsabile. E ovviamente non poteva neanche il boss di JPMorgan quando parlò della famosa “tempesta nella teiera”. Kregel spiega che ogni livello di management faceva affidamento sulle informazioni passate dai subordinati, i quali a loro volta avevano poca conoscenza diretta dell’unità che stavano gestendo, fino ai trader che per loro stessa ammissione non capivano le performance del portafoglio che loro stessi avevano creato e che furono poi sostituiti da individui con ancora meno comprensione delle difficoltà che stavano fronteggiando.

    “La spiegazione più probabile della cattiva informazione relativa alla Balena—conclude Kregel—è un enorme fallimento del controllo e della regia manageriale che non è stato il risultato di un inganno deliberato ma piuttosto la risposta naturale di individui che erano pagati generosamente per assumersi la responsabilità ma che semplicemente non sapevano cosa stesse succedendo perché la taglia e la complessità dell’organizzazione lo rendeva impossibile—ancora una volta, la prova di una istituzione troppo grande da gestire efficacemente e a maggior ragione da regolare. Se la complessità è chiaramente una minaccia maggiore alla stabilità finanziaria rispetto alla grandezza, è di solito, ma non solo, la grandezza che porta alla complessità”. 
    Associated Program:
    Author(s):
    Jan Kregel
  • In the Media | May 2013

    Rania Antonopoulos: In Greece, 173,000 Persons among the 950,000 Registered Unemployed Are Less Than 24 years old


    Interview by Kostas Kalloniatis
    Eleftheritypia, May 19, 2013. All Rights Reserved.

    Youth unemployment is just one part of the wider problem of unemployment and of course requires specialized interventions to tackle it, according to Rania Antonopoulou, professor at Bard College, director of the research division for gender equality of the Levy Economics Institute, and associate researcher with the Labour Institute of the GSEE.

    Antonopoulos considers largely inadequate, if not hypocritical, the recent interest of the European political leadership in youth unemployment and considers the motivation to be in part fear of the risk of social explosion (recent media statements by Draghi, Barroso Leta, etc., provide support for this claim).

    She informs us that in the eurozone in 2012 there were 3.4 million unemployed young people aged 15–24, but roughly four times more unemployed were between 25 and 54 years old (12.6 million), with the result that young people constitute 27 percent of this total unemployed (up to 54 years old). In Greece, respectively, young unemployed stood at 173,000 persons in 2012, as compared to 950,000 unemployed aged 25–54 years, comprising a mere 18.2 percent.

    Antonopoulos underlines a crucial difference, especially for policy, between:

    A. the unemployment rate: for youth it was 55.3 percent in Greece in 2012; namely, for every 100 employed and unemployed young people, 55.3 were unemployed, when for the 24–54 age working age population group this rate was 23.4 percent;

    B. the ratio of unemployment to the total population of a certain age group, which includes everyone (the employed, the unemployed, and those not looking for work): for the young in Greece was only 16.2 percent in 2012 due to the fact that the vast majority are students, soldiers, etc. (i.e, a rate that is much less than the rate of unemployment) when the comparable number for ages 24–54 years was 20 percent ( much closer to their corresponding unemployment rate above); and

    C. the share of the unemployed by age group among the total number of persons that are unemployed, which for the young unemployed in Greece amounted in 2012 to 14.4 percent, which means that the remaining 85.6 percent of the unemployed were 25 years of age or older.

    Now, for Mr. Barroso and Co. the most important criterion is the unemployment rate. But for Ms. Antonopoulos the most important measure for guiding policy is the last measure, the share by age composition of the unemployed.

    With all this, Antonopoulos does not claim that there is  no need to pay attention to youth unemployment or university graduates seeking their first job. Instead, she proposes that equal attention, perhaps more attention, needs to be directed  to those who lost their jobs and are not as young.

    Therefore, she believes that the issue of unemployment in general needs to be addressed with anti-austerity pro-growth policies based on domestic demand stimulus, and that a focus in this particular period exclusively on youth unemployment based on erroneous calculations or political considerations (supposedly in response to the lost generation) is misguided. Priority should be given to the creation of an employer-of-last-resort policy—like the New Deal—capable of designing employment programs that match the capabilities of the unemployed to social needs, with the assistance of the trade unions, local communities and their elected governments, and the unemployed themselves.

    For youth unemployment, she indicated that specialized interventions along the lines of current interventions in Sweden and Finland are appropriate.
  • In the Media | April 2013

    Rania Antonopoulos: The Value Added of the Levy Institute Measure of Time and Income Poverty (LIMTIP)


    Latin America and Gender Equality Bulletin (UNDP), April 2013. All Rights Reserved.

    In this interview, Rania Antonopoulos, a senior scholar and co-author of the research project report “Why Time Deficits Matter: Implications for the Measurement of Poverty,” discusses the importance of combining income and time poverty measurements in order to reach an effective reduction of poverty and promote more egalitarian societies.
  • In the Media | April 2013

    Banking Regulation: Closed for Business


    By David Dayen
    The American Prospect, April 24, 2013. All Rights Reserved.

    Satisfied with the meager reforms of the Dodd-Frank financial-reform bill, the Treasury is standing in the way of further efforts to rein in mega-banks.


    These are heady times for the bipartisan group of reformers seeking a safer and more manageable U.S. financial system. The leaders of this movement, Senators Sherrod Brown and David Vitter, introduced legislation yesterday to force the biggest banks to foot the bill for their own mistakes by imposing higher capital requirements. The bill would increase equity (either retained earnings or stock) in the financial system by $1.1 trillion and incentivize mega-banks to break themselves up, according to a Goldman Sachs report. Brown and Vitter previewed the legislation earlier this week at the National Press Club, insisting that the new regulations on risky mega-banks would diminish threats to the U.S. economy and prevent taxpayers from having to bail out banks in the future. Vitter also said the legislation would “level the playing field and take away a government policy subsidy, if you will, that exists in the market now favoring size.” With momentum, broadening support, and tangible legislation to push, bank reformers feel better positioned for success than they have since the passage of Dodd-Frank.

    Or rather, they did until the Treasury Department poured a giant bucket of cold water on their effort. In a speech to the Levy Economics Institute of Bard College's annual Minsky Conference last Thursday, Undersecretary for Domestic Finance Mary Miller claimed that Dodd-Frank had already solved the “Too Big to Fail” problem. Miller indicated that mega-banks do not enjoy an unfair advantage in their borrowing costs and that recent boosts to capital standards were already working to strengthen the financial system. Having a big public speech at an important venue by a top official the week before the release of Brown-Vitter sends a clear message about the Treasury’s position. “She is not going off the cuff in a policy speech like that,” said former Special Inspector General for the Troubled Asset Relief Program (TARP) and persistent bank critic Neil Barofsky. “This seems like a carefully measured response to Brown-Vitter that the regulatory-reform shop, from the Treasury perspective, is closed.”

    The resistance should not surprise anyone. Under Timothy Geithner, Treasury was openly hostile to far-reaching congressional proposals to constrain mega-banks. Despite the change in leadership at the department, many holdovers from the Geithner era, including Miller, still hold high-level positions. In his confirmation hearings, Treasury Secretary Jack Lew stated flatly that Dodd-Frank had dealt with the Too Big to Fail problem. Most important, Lew works for President Obama: Reaching an agreement to break up mega-banks by forcing them to carry more capital would represent a tacit admission that Dodd-Frank, widely touted as a centerpiece of the president's first term, failed in its core mission of stabilizing the financial system.

    Given that Miller is a 26-year veteran of the investment-management firm T. Rowe Price, it is no surprise that she espouses Wall Street’s worldview.

    What’s striking about Miller’s speech is how closely it mirrors the arguments set forth in several recent papers put out by the big banks, their lobbyists, and their allies. This includes the previously mentioned report on Brown-Vitter by Goldman Sachs; a policy brief by the Financial Services Forum and co-signed by the leading lobbyist groups for the banking industry; and a report with the cheery title "Banking on Our Future" by Hamilton Place Strategies (HPS), a public-relations firm staffed by top communications officials from the last three Republican presidential campaigns (HPS has admitted that its clients include large financial institutions). All of these reports were released in the past few months in an effort to derail Brown-Vitter. Given that Miller is a 26-year veteran of the investment-management firm T. Rowe Price, it is no surprise that she espouses Wall Street’s worldview.   For example, Miller discounts an influential working paper from the International Monetary Fund (IMF) showing an $83 billion annual subsidy for mega-banks from their Too Big to Fail status by saying its evidence “predates the financial crisis and Dodd-Frank’s reforms.” This is precisely the argument the Financial Services Forum made, ignoring the fact that there are plenty of post-crisis studies hat show the subsidies persist. Miller highlights the resolution authority granted to the Federal Deposit Insurance Corporation (FDIC) under Dodd-Frank, which allows the FDIC to wind down any systemically important financial institution verging on collapse rather than resorting to a bailout. She says that, to the extent that a cost-of-borrowing advantage exists for mega-banks, resolution authority “should help wring it the rest of the way out of the market.” In practically the same language, HPS writes that resolution authority “helps eliminate any potential funding advantage big banks are thought to have.” And in providing statistical support for increased capital, Miller notes, “The 18 largest bank-holding companies … doubled the amount of their Tier 1 common equity capital over the last four years.” Goldman Sachs uses precisely this statistic, writing that “common equity has doubled for U.S. banks” since the financial crisis.

    Critics have assailed the bank-industry papers for their unrealistic views about the risks in the current system and over-optimistic evaluations of the impact of the most recent regulatory changes. The truth is that Dodd-Frank has emerged from the gate slowly, bank lobbyists have successfully gutted many of its provisions, and much of it remains in flux. Miller approvingly highlights the Volcker rule as a key financial reform, but the final rule has been delayed nearly a year and has yet to be adopted. The proposed rule to tax systemically important institutions, for example, would cost as little as $28 million, about .2 percent of annual earnings. Other provisions like resolution authority could prove unworkable in an interconnected, global financial system and amid the pressure of catastrophic collapse. Stanford economics professor Anat Admati, author of the book The Banker's New Clothes does not believe Dodd-Frank will hold up in a crisis, comparing it to “preparing for a disaster like an earthquake by putting an ambulance at the corner.”

    Since Brown-Vitter relies so heavily on imposing new capital requirements, Miller’s alignment with the industry on capital is the most telling section of her speech. Miller says that recently imposed capital rules—negotiated under an international process in Basel, Switzerland—are sufficient for banks to cover their own losses. But while the Basel rules as much as tripled capital requirements, as the Financial Times’s Martin Wolf quipped, when the standards were released in 2010, “tripling almost nothing does not give one very much.” Critics also argue that current capital rules afford banks far too many opportunities to use creative accounting to game the system. The rules allow banks to calculate their capital needs using “risk-weighted” assets, counting each type of asset differently based on its assumed level of risk. Banks use risk-weighting to sharply reduce the amount of capital they have to hold—by as much as 50 percent, according to some calculations. In the event of a systemic collapse where all assets fail, regardless of the accounting games, banks would not have the funds necessary to stay solvent. Indeed, during the 2008 financial crisis, investment banks like Lehman Brothers were allowed by the Securities and Exchange Commission to risk-weight assets, and nearly all of them failed. Meanwhile, Sheila Bair at the FDIC rejected risk-weighting, and the commercial banks her agency insured fared better. Brown-Vitter would ban risk-weighting in their capital standards, but Miller simply counsels to stay the course.

    Treasury’s rejection of Brown-Vitter has serious implications. On Monday, Senate Banking Committee chairman Tim Johnson reacted to Brown-Vitter by saying that regulators should finish implementing Dodd-Frank before Congress moves to enact additional reforms. Johnson didn’t cite Miller’s speech, but he didn’t have to: Democratic leaders in Congress will naturally resist turning against the wishes of their president and his economic team. And many rank-and-file lawmakers will cede to the perceived expertise of the Treasury Department. This gives Treasury outsized control of the financial-reform debate, which they’ve used to weaken and soften reforms at virtually every step of the Dodd-Frank process and beyond. In fact, Treasury officials credit themselves with stopping Sherrod Brown’s 2010 proposal to cap bank size. An anonymous senior official said at the time, “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”

    This all means that Brown-Vitter is likely to sit on a shelf unless and until Wall Street generates another crisis. With Sherrod Brown in line to potentially take over the Senate Banking Committee in 2014, reformers may benefit from the wait. But it will be a wait.

    Financial-reform advocates see Brown-Vitter as a major opportunity for President Obama to “get on the right side of history” and address the continued riskiness and complexity of modern finance. But Treasury’s primary concern appears to be limiting any constraints on the record profits of those mega-banks, rather than protecting the public from threats to the rest of the economy. As Barofsky concluded, “Treasury has defended the status of the Too Big to Fail banks every step of the way, why would they stop now?”
  • In the Media | April 2013

    Narayana Kocherlakota at 2013 Minsky Conference


    For video excerpts from Minneapolis Fed President Narayana Kocherlakota’s speech "Low Real Interest Rates," presented at the Levy Institute’s 22nd Annual Minsky Conference in New York on April 18, click here. Includes audience and press Q&A.

  • In the Media | April 2013

    Is the Fed's Medicine Really Poison?


    By Caroline Baum
    Bloomberg View, April 22, 2013. All Rights Reserved.

    It's not every day that a central banker admits that his medicine for curing the last crisis may be laying the groundwork for the next. But that's exactly what Narayana Kocherlakota, President of the Federal Reserve Bank of Minneapolis, said last week at the annual Hyman P. Minsky Conference at the Levy Economics Institute of Bard College.

    Kocherlakota said low real interest rates are necessary to achieve the Fed's dual mandate of maximum employment and stable prices. He also said that low real rates lead to inflated asset prices, volatile returns and increased merger activity, all of which are signs of financial market instability. Listen to what he calls his "key conclusion"—and what I'd call a true conundrum:

    "I've suggested that it is likely that, for a number of years to come, the FOMC will only achieve its dual mandate of maximum employment and price stability if it keeps real interest rates unusually low. I’ve also argued that when real interest rates are low, we are likely to see financial market outcomes that signify instability. It follows that, for a considerable period of time, the FOMC may only be to achieve its macroeconomic objectives in association with signs of instability in financial markets."

    Just think about that for a minute: What the Fed needs to do in order to achieve its macroeconomic objectives will create instability in financial markets. There's more:

    "On the one hand, raising the real interest rate will definitely lead to lower employment and prices. On the other hand, raising the real interest rate may reduce the risk of a financial crisis —- a crisis which could give rise to a much larger fall in employment and prices. Thus, the Committee has to weigh the certainty of a costly deviation from its dual mandate objectives against the benefit of reducing the probability of an even larger deviation from those objectives."

    Damned if we do, damned if we don't. Other Fed officials have warned about froth in asset markets, but none to my knowledge has been as forthright in describing the Fed's life-saving medicine as systemic poison.

    Like his colleagues, Kocherlakota believes effective supervision and regulation of the financial sector are the best ways to address threats to macroeconomic stability. Yeah, and the tooth fairy leaves money under your pillow if you're good.

    For central bankers to believe regulation is the answer, they have to ignore history and disregard the tendency for regulators to be co-opted by those they are assigned to regulate, a phenomenon known as "regulatory capture."

    The Minsky Conference was the ideal place for Kocherlakota to deliver his remarks. Minsky observed that, during periods of prosperity and financial stability (the Great Moderation), investors are lulled into taking on more risk with borrowed money.

    At some point, investors are forced to sell assets to repay loans, sending asset prices into a downward spiral as cash becomes king. This is what's known as a "Minsky moment."

    Kocherlakota seems to be saying such an outcome is inevitable. If only he could tell us when.
  • In the Media | April 2013

    Economists Slow to Detect Dodgy Data


    By Gareth Hutchens
    The Age (Melbourne), April 21, 2013. All Rights Reserved.

    If we needed more evidence that economics is not a science, we have it now.

    A shock wave hit the economics world this week when two of its most famous practitioners—Kenneth Rogoff and Carmen Reinhart—were found to have produced some very dodgy data to support their claims about the consequences of high government debt.

    It comes back to a research paper of theirs, Growth in a Time of Debt widely quoted since it was published in 2010. The paper shows that if government debt becomes too high—say, around 90 per cent of gross domestic product—then economic growth will almost always suffer. Global policymakers have taken it to mean that if countries with too-high debt levels want to kick-start flagging economies then they ought to begin the resuscitation process by reducing debt levels first.

    It has been repackaged into a simple message: Reduce your debt and economic growth will begin to pick up. But the corollary is that highly indebted governments should not try to spend their way out of economic stagnation because spending more will only make things worse. It has helped to provide the intellectual justification that the proponents of austerity wanted; thus the wave of austerity policies washing around the world since 2010. Millions of people have suffered because of it.

    But the intellectual edifice for the global austerity movement was severely weakened this week after it emerged that professors Reinhart and Rogoff had made some basic errors in their interpretation of data that supported their research. The errors were discovered by Thomas Herndon, a student at the University of Massachusetts Amherst's doctoral program in economics. He published a paper this week explaining what he found, with help from two of his teachers, Michael Ash and Robert Pollin.

    The paper shows Reinhart and Rogoff had omitted data, made a mistake in their Excel spreadsheet, and used a bizarre statistical methodology, all of which skewed results. It set the academic world ablaze.

    As Nobel laureate Paul Krugman wrote: "In this age of information, maths errors can lead to disaster. NASA's Mars Orbiter crashed because engineers forgot to convert to metric measurements; JPMorgan Chase's "London Whale" venture went bad because modellers divided a sum instead of an average. So, did an Excel coding error destroy the economies of the Western world?"

    Reinhart and Rogoff have acknowledged they made a spreadsheet error, but they also say it didn't affect their result much.

    "It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful," they said. "We do not, however, believe this regrettable slip affects in any significant way the central message of the paper or that in our subsequent work."

    But in the brouhaha that followed, a few people have been asking why it took so long for Reinhart and Rogoff's research to be tested.

    Imagine you've handed your assignment in at school. You make some wonderful claims in it about the way the world works. Your research—based on an analysis of data of 44 countries spanning 200 years—has led you to discover that high government debt to GDP ratios above a "90 per cent threshold" almost always lead to a slowdown in economic growth. It's a law that seems to hold no matter what you throw at it. You can compare different countries in disparate regions, and once you try to take account of the fact that a country's political and financial systems evolve over time you can mix and match these things across centuries of data and the law stays the same.

    It's a striking thesis. And luckily for you, you're not expected to hand your data in with your assignment so your work can be checked. Your teacher takes your word for it. That's not how the scientific method is supposed to work. Some economists, such as L. Randall Wray of the Levy institute, say they have written to Reinhart and Rogoff in the past to ask for data, but have been rebuffed. "They ignored our request. I have heard from several other researchers that Reinhart and Rogoff also ignored their repeated requests for the data," Professor Wray wrote this week.

    It is sobering to be reminded that economic analyses, produced in this way, can have such influence in the real world. It's worth remembering next time we hear some politician referring to "economic modelling" that supports his or her claim.
  • In the Media | April 2013

    There's No Need for All This Economic Sadomasochism


    By David Graeber
    The Guardian, April 21, 2013. All Rights Reserved.

    If Reinhart and Rogoff's 'error' has discredited the prevailing policy dogma, now is the time for an alternative that works

    The intellectual justification for austerity lies in ruins. It turns out that Harvard economists Carmen Reinhart and Ken Rogoff, who originally framed the argument that too high a "debt-to-GDP ratio" will always, necessarily, lead to economic contraction – and who had aggressively promoted it during Rogoff's tenure as chief economist for the IMF – had based their entire argument on a spreadsheet error. The premise behind the cuts turns out to be faulty. There is now no definite proof that high levels of debt necessarily lead to recession.

    Will we, then, see a reversal of policy? A sea of mea culpas from politicians who have spent the last few years telling disabled pensioners to give up their bus passes and poor students to forgo college, all on the basis of a mistake? It seems unlikely. After all, as I and many others have long argued, austerity was never really an economic policy: ultimately, it was always about morality. We are talking about a politics of crime and punishment, sin and atonement.

    True, it's never been particularly clear exactly what the original sin was: some combination, perhaps, of tax avoidance, laziness, benefit fraud and the election of irresponsible leaders. But in a larger sense, the message was that we were guilty of having dreamed of social security, humane working conditions, pensions, social and economic democracy.

    The morality of debt has proved spectacularly good politics. It appears to work just as well whatever form it takes: fiscal sadism (Dutch and German voters really do believe that Greek, Spanish and Irish citizens are all, collectively, as they put it, "debt sinners", and vow support for politicians willing to punish them) or fiscal masochism (middle-class Britons really will dutifully vote for candidates who tell them that government has been on a binge, that they must tighten their belts, it'll be hard, but it's something we can all do for the sake of our grandchildren). Politicians locate economic theories that provide flashy equations to justify the politics; their authors, like Rogoff, are celebrated as oracles; no one bothers to check if the numbers actually add up.

    If ever proof was required that the theory is selected to suit the politics, one need only consider the reaction politicians have to economists who dare suggest this moralistic framework is unnecessary; or that there might be solutions that don't involve widespread human suffering.

    Even before we knew Reinhart and Rogoff's study was simply wrong, many had pointed out their historical survey made no distinction between the effects of debt on countries such as the US or Japan – which issue their own currency and therefore have their debt denominated in that currency – and countries such as Ireland, Greece, that do not. But the real solution to the eurobond crisis, some have argued, lies in precisely this distinction.

    Why is Japan not in the same situation as Spain or Italy? It has one of the highest public debt-to-GDP ratios in the world (twice that of Ireland), and is regularly featured in magazines like the Economist as a prima facie example of an economic basket case, or at least, how not to manage a modern industrial economy. Yet they have no problem raising money. In fact the rate on their 10-year bonds is under 1%. Why? Because there's no danger of default. Everyone knows that in the event of an emergency, the Japanese government could simply print the money. And Japanese money, in turn, will always be good because there is a constant demand for it by anyone who has to pay Japanese taxes.

    This is precisely what Ireland, or Spain, or any of the other troubled southern eurozone countries, cannot do. Since only the German-dominated European Central Bank can print euros, investors in Irish bonds fear default, and the interest rates are bid up accordingly. Hence the vicious cycle of austerity. As a larger percentage of government spending has to be redirected to paying rising interest rates, budgets are slashed, workers fired, the economy shrinks, and so does the tax base, further reducing government revenues and further increasing the danger of default. Finally, political representatives of the creditors are forced to offer "rescue packages", announcing that, if the offending country is willing to sufficiently chastise its sick and elderly, and shatter the dreams and aspirations of a sufficient percentage of its youth, they will take measures to ensure the bonds will not default.

    Warren Mosler and Philip Pilkington are two economists who dare to think beyond the shackles of Rogoff-style austerity economics. They belong to the modern money theory school, which starts by looking at how money actually works, rather than at how it should work. On this basis, they have made a powerful case that if we just get back to that basic problem of money-creation, we may well discover that none of this is ever necessary to begin with. In conjunction with the Levy Institute at Bard College, they propose an ingenious, yet elegant solution to the eurobond crisis. Why not simply add a bit of legal language to, say, Irish bonds, declaring that, in the event of default, those bonds could themselves be used to pay Irish taxes? Investors would be reassured the bonds would remain "money good" even in the worst of crises – since even if they weren't doing business in Ireland, and didn't have to pay Irish taxes, it would be easy enough to sell them at a slight discount to someone who does. Once potential investors understood the new arrangement, interest rates would fall back from 4-5% to a manageable 1-2%, and the cycle of austerity would be broken.

    Why has this plan not been adopted? When it was proposed in the Irish parliament in May 2012, finance minster Michael Noonan rejected the plan on completely arbitrary grounds (he claimed it would mean treating some bond-holders differently than others, and ignored those who quickly pointed out existing bonds could easily be given the same legal status, or else, swapped for tax-backed bonds). No one is quite sure what the real reason was, other than perhaps an instinctual bureaucratic fear of the unknown.

    It's not even clear that anyone would even be hurt by such a plan. Investors would be happy. Citizens would see quick relief from cuts. There'd be no need for further bailouts. It might not work as well in countries such as Greece, where tax collection is, let us say, less reliable, and it might not entirely eliminate the crisis. But it would almost certainly have major salutary effects. If the politicians refuse to consider it – as they so far have done – it's hard to see any reason other than sheer incredulity at the thought that the great moral drama of modern times might in fact be nothing more than the product of bad theory and faulty data series.
  • In the Media | April 2013

    There Could Still Be Runs on the Money Market Funds


    By Robert Lenzner
    Forbes, April 20, 2013. All Rights Reserved.

    The President of the Federal Reserve Bank of Boston, Erick Rosengren, suggested this week that there could still be runs on money market mutual funds, as took place at the peak of the 2008 financial crisis, since these funds have “no capital” and invest in uninsured short term securities of banks and other financial service firms. While debate over potential regulatory solutions for money market funds continues on, the Boston Fed chief, emphasized that the safety of the money market mutual funds are a “significant unresolved issue.”

    As of April 13 there was $903.56 billion in retail money market funds sponsored by Fidelity, T. Rowe Price, Dreyfus, Invesco and others, The total amount of all kinds of money market funds, some owned by institutional investors, was $2.6 trillion. The average weekly yield was a record low of only 0.02%.

    He also singled out the issue of capital for the broker-dealer fraternity, where he raised the problem of “virtually no change for broker-dealers since the collapse of Lehman Brothers in September, 2008 and the shotgun marriage of Merrill Lynch into BankAmerica. The solution Rosengren recommended was that the “larger(these investment firms) get the higher the capital ratio”: should be imposed on them. The Boston Fed chief executive, speaking at Bard College’s Levy Institute conference on the economy and financial markets, seemed to be suggesting that the cause for this vacuum in policy is that “Regulatory bodies haven’t evolved as much as the financial markets.” In other words, 5 years after the 2008 meltdown we still have a major challenge in trying to make the global financial system secure against runs and speculative bubbles. There is still further to go in the structural reorganization of the danger from derivatives, but he believes clearing derivatives contracts on exchanges and the decline in bilateral transactions has reduced an element of risk.

    Nevertheless, Rosengren made crystal clear in conversation after his talk that he “sees no bubbles anywhere, not even in real estate where prices are still below their 2006 peak.” He believes prices of residential real estate in Boston and New York are still 15-20% under their peak—and prices in Miami, Phoenix, Las Vegas, California– are still priced at a steeper discount to the peak in 2006.

    As for the economy in general, Rosengren sees “traction” picking up momentum, in which case he would support the “prudent” position of gradually reducing the QE stimulus program. However, he is troubled by the fact that monetary policy(quantitative easing and record low interest rates) are in conflict with fiscal policy, the restraint of sequester and reduction of federal, state and local government spending, ie “the Obama cuts.”
  • In the Media | April 2013

    The Wealthiest 20% Own 72%; The Poorest 20% Only 3%


    By Robert Lenzner
    Forbes, April 19, 2013. All Rights Reserved.

    The growing disparity in wealth made the great recession worse and the recovery weaker than ever before. This nation’s wealth disparity widened more than ever before over the last five years because of the steep decline in the value of residential homes and stagnant wages for the lower and middle income groups in the U.S., explained a member of the Federal Reserve Board, Sarah Bloom Raskin, in a speech that explored for the first time a fresh explanation about the obstacles holding back economic growth.

    This “financial vulnerability and marginal ability” to recover from the decline in the wealth of lower income and middle income Americans is “undermining our country’s strength,” Governor Raskin emphasized in New York yesterday at an economic conference sponsored by the Levy Institute at Bard College and the Ford Foundation. Raskin admitted to a feeling of frustration at the central bank about the inability of the Fed’s low interest rate policy together with the expansion in the money supply to alleviate this growing disparity between the wealthy and the rest of American families. She admitted there was current exploration at the Board level of the central bank that “our macro models should be adjusted,” because four years into the recovery a confluence of factors have contributed to a weak recovery.

    “Inequality contributed to the severity of the recession,” Raskin said flatly, and blamed this inequality- for the “differential expectations” in the future between well-off families– with those families not so well off, who were battered by a plunge in the value of their homes, a high level of debt and a continuance of lower wages. I had never heard that theme so sharply expressed as the blame for the mediocre rate of growth we are experiencing.

    Here are the Fed’s latest breakdown on the disparity in wealth. The top 20% of the population own 72% of the nation’s wealth in large part due to their vast holdings in the common shares of publicly held companies. By comparison, the poorest 20% of the U.S. population only own 3% of the wealth, and so were unable to shelter themselves when their homes declined in value, often below the face value of their mortgage and their take-home pay was not growing– or they lost their jobs.

    The distribution of wealth inequality is far worse than the disparity in incomes. Nonetheless, the Fed Governor suggested it does explain the lower levels of consumer spending. As to income disparity between 1979 and 2007, the Federal Reserve figures shows the highest income cohort doubled their annual compensation when adjusted for inflation. The top 1% of earners in the nation saw their share of the national income rise from 10% to 20%. Meanwhile the bottom 40% of the nation’s workers saw their share of the national income decline slightly from 13% to 10%.

    The middle class average income rose in those 30 years to 2007 by only 20% or less than 1% a year, underscoring just how much middle income Americans have fallen behind their wealthier brethren. Fed Governor Raskin called this performance “sluggishness.”

    One hopeful sign is the gradual increase in prices for residential homes throughout the United States. This trend has restored some semblance of household wealth for homeowners from low income and middle income sectors of the population. Another 10% increase in home values, Gov. Raskin suggested, would allow many more low income families to stay in their homes.

    More worrisome, however, is the trend for more and more jobs to be only part-time with less pay and less benefits. “We have lost 9 million jobs,” she said and the growing trend for new jobs to be part-time employment or involving contingent work is “no way to upward mobility” in America.
  • In the Media | April 2013

    Treasury's Miller: No Banks Will Be Bailed Out


    By Greg Robb
    MarketWatch, April 19, 2013. All Rights Reserved.

    WASHINGTON (MarketWatch) – No financial institution, regardless of its size, will be bailed out by taxpayers again, Treasury Undersecretary for Domestic Finance Mary Miller said Thursday. As a result of the Dodd-Frank bank regulatory reform, "shareholders of failed companies will be wiped out; creditors will absorb losses; culpable management will not be retained and may have their compensation clawed back; and any remaining costs associated with liquidating the company must be recovered from disposition of the company's assets and, if necessary, from assessments on the financial sector, not taxpayers," Miller said in a speech at the Levy Economics Institute of Bard College. Miller also said evidence was mixed on whether large financial institutions continue to benefit from lower borrowing costs. The Treasury will continue to work to reduce the risks posed by large financial companies and to put in place measures to wind the companies down if the need arises, Miller said. 
  • In the Media | April 2013

    Inflation Is Very, Very Low. Time to Worry?


    By Annalyn Kurtz
    CNNMoney, April 19, 2013. All Rights Reserved.

    Prices aren't going up very much. Should we celebrate?

    Not really. Inflation that's too low could be a bad sign for the U.S. economy, and some Federal Reserve officials are starting to get concerned. 

    Speaking to reporters on Wednesday, St. Louis Fed President James Bullard pointed to the Fed's preferred measure of inflation—personal consumption expenditures, minus food and energy—which recently has shown that prices are up 1.3% over a year ago.

    "That's pretty low," Bullard said at a Levy Economics Institute event. "I'm getting concerned about that, and I think that gives the FOMC some room to maneuver on its monetary policy."

    The Fed typically aims to keep inflation around 2% a year. Inflation at that level is considered healthy, coinciding with solid economic growth, a growing job market and gradually rising wages.

    "Economic history has shown that economies perform best with slightly higher levels of inflation, such as 2% to 3%," said Bernard Baumohl, chief global economist for the Economic Outlook Group. "Low and dormant inflation translates into a dormant economy."

    Why is low inflation bad? There are a few key reasons.

    First, when companies don't have any leeway to raise prices, they're more apt to cut costs, which could mean a cutback in hiring. Second, if inflation remains so low, consumers are not as motivated to rush out and spend, Baumohl said.

    Third, when inflation is low, it doesn't offer a large buffer against deflation if an economic shock occurs. Deflation—when prices fall—often freezes up spending, because who wants to go out and buy an item now, if they expect it to be cheaper in six months?

    Related: The Geeky Debt Fix that Might Work
    And fourth, low inflation often comes along with lower wage and revenue growth.

    Even with the recent low inflation data, Bullard's comments Wednesday came as a bit of a surprise to Fed watchers. For one, most Fed criticism lately has focused on how the central bank's unprecedented push to stimulate the U.S. economy could eventually lead to rapid inflation or asset bubbles. Fed policies are already cited as a key reason why stocks have recently hovered near five-year highs.

    Second, Bullard is known for leaning slightly hawkish. Just minutes before he met with reporters Wednesday, he gave a speech arguing that the Fed's stimulative policies probably won't solve the job market's problems.

    "I found Bullard's comments yesterday the most interesting in some time," said Ellen Zentner, senior economist for Nomura. "It suggests that other hawks could follow suit if lower inflation persists."

    The Fed has kept its key short-term interest rate near zero since 2008. When that wasn't enough to boost the U.S. economy, it launched several bond-buying sprees, known as quantitative easing, in an attempt to lower long-term interest rates.

    The Fed is now running its third such round of asset purchases, buying $85 billion in Treasuries and mortgage-backed securities each month.

    The program remains highly controversial, and most of the conversation lately has been speculation about when the Fed will start tapering off, and eventually ending, those bond buys.

    But on Wednesday, Bullard went so far as to say that if the inflation rate falls further, the Fed may have to think about increasing its monthly asset purchases, rather than winding them down anytime soon.

    His colleague, Minneapolis Fed President Narayana Kocherlakota, backed that sentiment Thursday.

    Kocherlakota is considered a Fed dove and has long favored stimulus, but if inflation was to fall even further, he said "that would make me in favor of even more accommodation," he told reporters.

    Bullard is a voting member on the Fed's policymaking committee this year, but Kocherlakota is not. Even so, if low inflation persists, expect to hear more Fed officials discuss the issue in the months ahead.