When President Obama signed the American Recovery and Reinvestment Act (ARRA) in February, his administration estimated that the $787 million package of transfers and tax cuts would create or save approximately 3.5 million jobs by the end of 2010, providing relief to low-income and vulnerable households while supporting aggregate demand.

In this Special Report, Levy scholars Zacharias, Masterson, and Kim provide a preliminary assessment of ARRA that points toward the necessity for a comprehensive employment strategy that goes well beyond the current legislation. While the ameliorating impact of the stimulus plan on the employment situation is surely welcome, say the authors, the government could have achieved far more at the same cost by skewing the stimulus package toward outlays rather than tax cuts.

Beyond loss of income, joblessness is associated with greater poverty, marginalization, and social exclusion; the current global crisis is clearly not helping. There is, therefore, a particular urgency to engage in dialogue and pursue new policy directions.

Research Scholar Rania Antonopoulos explores the impact of both joblessness and employment expansion on poverty, paying particular attention to the gender aspects of poverty and poverty-reducing public employment schemes targeting poor women. The author advocates public employment as a policy instrument that, when set up as a permanent institution, acts as an automatic stabilizer. Its main feature is that the government steps in as a guarantor to make available a job to those who fail to secure one through the market.

The rapid spread and global dimensions of the current financial crisis have drawn attention to the need for reform of the international financial system forged in 1944 at Bretton Woods. Most of the attention has focused on the role of the U.S. dollar and the need to find a substitute.

According to Senior Scholar Jan Kregel, discussions have ignored the basic criticisms (by John Maynard Keynes and Robert Triffin) of the functioning of the existing monetary system. The problem of the instability of the international reserve currency’s purchasing power is less a question of the asset that serves as that currency and more a question of the operation of the international adjustment mechanism. Is the mechanism automatic or coordinated, and is it sufficiently compatible with global aggregate demand to provide full employment and support the national development strategies of developing countries?

The present system of capital adequacy regulation for banks forces nonfinancial companies into debt (“enforced indebtedness”) and proposals to increase capital requirements during an economic boom (“dynamic provisioning”) simply accelerate the boom’s collapse.

The authors provide a preliminary assessment of the likely impact of the American Recovery and Reinvestment Act (ARRA) on median household income, gaps between population subgroups, and income inequality (i.e., the employment channel). They find that ARRA partially replaces lost jobs and has a remedial effect on median household money income but is unlikely to restore robustness to middle-class incomes or improve the money income of the bottom 60 percent of households. It is also unlikely that the legislation will redress the substantial gaps in money income between nonwhites and whites, single female–headed families and married couples, and less-educated and college graduates. The analysis points toward the necessity for a comprehensive employment strategy that goes well beyond ARRA (e.g., an expanded role for public employment).    

The stock flow–consistent (SFC) approach provides a general framework that allows the integration of important threads of heterodox macroeconomics that have tried to analyze the financialization of modern capitalist economies. However, the urge for realism has fostered the development of very large models and relatively complex computer simulations. Moreover, these short-period models are often used to shed light on long-period phenomena.

The authors believe that small SFC constructs can avoid the shortcomings of large models while addressing the concerns of heterodox economists and providing valuable (and possibly unconventional) insights into longer-period or dynamic phenomena. The key to Post Keynesian, structuralist, and heterodox dynamic analyses is using an approach that looks closely at the dynamics of both the size and the composition of sectoral balance sheets, as advocated by Levy Distinguished Scholar Wynne Godley.

Caste is a persistent determinant of power, economic inequality, and poverty in contemporary India. The authors offset the general lack of economic literature on caste relations by analyzing the relationship between overall wealth inequality and caste divisions. They find that the average Dalit and Adivasis groups had a substantial disadvantage in wealth relative to other groups. Moreover, the relative median wealth of the rural and urban Adivasis group was lower in 2002 than in 1991. They also find an increase in within-group inequality, and a sizable wealth gap between the Hindu forward castes and everyone else. The picture that emerges is one of comprehensive and persistent disparities for the disadvantaged groups.

Homeownership is viewed as a key measure of economic well-being and wealth, and a significant indicator of social assimilation. However, it is unevenly distributed, particularly along racial and ethnic lines.

Senior Scholar Philip Arestis highlights the main characteristics of a New Consensus Macroeconomics (NCM) model in an open economy, where the role of the exchange rate provides a channel of monetary policy in addition to aggregate demand and inflation expectations. He raises a number of issues with the model’s theoretical foundations and its inflation-targeting framework.

Two main weaknesses in the model are based on the absence of money and banks, and the equilibrium real rate of interest. Arestis is critical of the NCM model from a Keynesian perspective, and concludes that it is based on inconsistencies and a great deal of “ad hoc” input.

The current New Consensus Macroeconomic (NCM) model lays the foundation for the ubiquitous inflation-targeting policy strategies of modern central banks. In the face of recent dramatic economic events and the inability of academics and policymakers to prevent them, the NCM model has encountered significant criticism.

The author analyzes one of the main objections to the model; namely, the absence of any essential role for the government and fiscal policy. He concludes that fiscal policy could play a role in the NCM model that is at least as important as monetary policy.

A collaborative project of the United Nations Development Programme, Regional Bureau for Latin America and the Caribbean and the Bureau for Development Policy, in partnership with The Levy Economics Institute of Bard College

The Levy Institute will convene an international conference to present the merits and challenges of public job creation programs as a constitutive component of an economic recovery strategy. The conference will bring together policy advisers, members of government organizations, academics, and international development specialists to analyze and exchange views on various public employment initiatives, drawing on extensive research and the outcomes of country-level programs in South Africa, Argentina, India, Iran, and Chile, among others.

Organized by the International Working Group on Gender, Macroeconomics, and International Economics (GEM-IWG) and The Levy Economics Institute of Bard College with support from the Ford Foundation, the UNDP, and UNIFEM

This conference, which follows a two-week intensive seminar on the same subject, is part of the GEM-IWG Knowledge Networking Progam, which is designed to strengthen intellectual links among economists whose work focuses on the interface of gender, globalization, and macroeconomic policy. This year’s program centers on the origins and consequences of the global economic downturn.