A simple consideration of history tells us that each new piece of legislation contains loopholes that benefit a new class of entrepreneurs. Some of these loopholes are small, but others are such that one could drive a bullion-laden truck through them. Shubik suggests creating a “war gaming group” to stress-test all major new legislation, with a first prize of $1 million to be awarded to the competing lawyer or team of lawyers who finds the most egregious loophole—a small amount relative to the potential savings.

When the financial control mechanisms are insufficient to prevent serious damage to the fundamental economy, the system requires a fail-safe mechanism similar in power and structure to the Federal Reserve System. Shubik proposes a Federal Employment Reserve Authority (FERA) devoted to monitoring the “natural rate of unemployment,” which is dependent on society’s existing institutions, laws, customs, and technology.

FERA would require a central authority in Washington, with a branch in each state to oversee local projects. The author lists several basic principles that should guide the new agency: avoid supervision of projects where in-house expertise is lacking, do not employ individuals directly, ensure transparency of information sources, and coordinate bids for projects with federal and state funding authorities.

The ad hoc emergency approach to the current economic crisis could waste billions of dollars by mismatching skills and needs. According to Shubik, we need to line up and coordinate at least four sets of talents—political, bureaucratic, financial, and industrial—for both “quick fix” and longer-term solutions. Moreover, we will need to enlist the help of many of the individuals associated with bringing on the crisis in the first place.

In the midst of the current global crisis, there is grave concern that progress made in poverty reduction and women’s equality will be reversed and impede realization of the United Nations’ Millennium Development Goals. Research Scholar Rania Antonopoulos explores both well-known and less discussed paths of transmission through which crises affect women’s work and overall well-being in female-intensive industries such as textiles, agriculture, and tourism, as well as in unpaid production activities that are particularly important in the context of developing countries.

Financial markets and the private sector cannot be relied upon to turn around the global economy, so it is up to national governments and the international community to intervene with measures such as fiscal stimulus packages, along with policies and strategies that will lift all boats more evenly. The cost of not acting boldly may have irreversible consequences for both the developed and the developing world.  

According to the author, the role of the state needs to be reemphasized in order to save America and the global economy. The private/public sector balance has to shift and the neoliberal economic model has to be modified. Auerback notes the reemergence of state-driven capitalism (a “back to the future” investment paradigm), where many governments are enacting massive economic stimulus packages and taking a central role in promoting economic growth strategies. The Washington Consensus will ultimately be perceived as an historical anomaly, he says.

The global economic downturn in 2008 caused most economists to return to the theories of John Maynard Keynes, as almost everyone supported fiscal stimulus policies in stagnating nations worldwide. Keynes recognized that unemployment is a persistent feature of the capitalist economy because there are no endogenous market processes to eliminate it.

Senior Scholar L. Randall Wray notes that economists and policymakers have resisted policy that would actually achieve full employment, and have overlooked the fact that Keynes advocated “targeted” spending programs; that is, focusing government spending on areas that are operating well below capacity and directing spending toward increasing capacity to meet social goals (e.g., President Roosevelt’s New Deal jobs programs). Wray advocates a government employer-of-last resort program and maintains that it is affordable, since the United States is a sovereign government operating with its own currency in a floating exchange rate regime.

In this report, the authors present new evidence on the pattern of economic inequality in the United States. They find that the LIMEW and two official measures of inequality indicate higher inequality in 2004 than in 1959. According to the LIMEW, the surge in inequality between 1989 and 2000 reflects the large increase in income from wealth for the top rungs of the economic ladder. The authors’ findings suggest a rather bleak picture for the lower and middle classes in terms of sharing the economic pie.

According to all measures, base income and income from wealth contributed positively to the increase in inequality, while net government expenditures and taxes moderated that increase. The principal reason for the decline in inequality during the latest subperiod (2000–04) was the fall in income from nonhome wealth in response to the bust of the financial markets rather than a reduction in earnings inequality or changes in government redistributive policies.

International financial flows transmit financial instability and are the source of unsustainable external debt. Senior Scholar Jan Kregel analyzes proposals to increase stability and manage volatility from the standpoint of Hyman P. Minsky’s financial instability hypothesis (i.e., hedge, speculative, and Ponzi financing).

Kregel reviews the post–World War II international trade and financial system, and finds that its institutions have caused volatility. Risk, rather than cash flow, is the homogeneous commodity traded in financial markets today, reducing diversity and leading to instability of the international financial system. In essence, the United States is in a deficit, Ponzi-style financial position.

The Report is aimed at a diverse general audience interested in policy matters. It includes interviews with prominent scholars and public officials who can provide insights into current topics of debate, editorials by Levy Institute research staff, summaries of new publications, synopses of conferences and other events, and news of the Institute and its scholars.