A conference organized by The Levy Economics Institute of Bard College with support from the FORD FOUNDATION

Post-recession exit strategies and the need for a new financial architecture will be the focus of the Levy Institute’s Annual Hyman P. Minsky Conference in 2010. More detailed information, including the full conference program, will be posted on our website as it becomes available.

The Hyman P. Minsky Summer Seminar will provide a rigorous discussion of both theoretical and applied aspects of Minsky’s economics, with an examination of meaningful prescriptive policies relevant to the current economic and financial crisis.

Application deadline: March 31, 2010. For more information, visit www.levy.org.

The controversial title of this brief is based on a belief that the nature of the euro itself limits Euroland’s fiscal policy space. The nations that have adopted the euro face “market-imposed” fiscal constraints on borrowing because they are not sovereign countries.

Research Associate Stephanie A. Kelton and Senior Scholar L. Randall Wray warn that the prospects for stabilizing the euro appear grim unless these nations can avert market-induced financial constraints—for example, by establishing a sizable European Union budget and giving the European Parliament fiscal authority on par with that of the U.S. Congress. Since such measures are likely to be politically, culturally, and socially difficult, a trend toward dissolution remains a possibility.

>> Read complete text (pdf)

The Obama administration’s efforts with regard to the financial crisis have largely focused on preserving the financial interests of major banks. Research Associate Éric Tymoigne and Wray believe that maintaining the status quo is not the solution, since re-creating the financial conditions that led to disaster will set the stage for a recurrence of the Great Depression or a Japanese-style “lost decade.” The financial bailout, they say, has crowded out more sensible spending policies.

The authors describe the leveraging of income and equity by households, firms, and financial institutions as the underlying cause of the crisis. They recommend federal spending programs that directly provide jobs and sustain employment, thereby helping to restore the creditworthiness of borrowers, the profitability of firms, and the fiscal position of state and federal budgets. The government’s programs will not work unless they deal with the core issue: many financial institutions are probably insolvent and should not be saved because they form a barrier to sustainable recovery.

>> Read complete text (pdf)

In this report, Research Scholar Thomas Masterson and Senior Scholars Ajit Zacharias and Edward N. Wolff examine trends in economic well-being between 1959 and 2007 based on the race/ethnicity of households. They find that changes in household wealth and net government expenditure are the key elements in the story that unfolds about racial differences.

The level of racial disparity has stagnated over the past 40 years. The experience of the 1960s, which includes poverty alleviation, public education, affirmative action, and increased public sector employment for nonwhites, shows that government policy can be instrumental in diminishing racial inequality. Therefore, it is imperative to contemplate serious policy initiatives to address this issue, such as a proactive strategy that combines elements of both asset building and job creation.

>> Read complete text (pdf)

This is a companion paper that discusses methodological issues of a heuristic model based on Hyman P. Minsky’s financial instability hypothesis (FIH) that was developed by Vercelli in Working Paper No. 579 (see below). In the author’s view, these issues have hindered the development of a research program based on Minsky’s insights.

Vercelli points out that Minsky’s contributions are topical as a result of his underlying vision concerning the workings of a sophisticated monetary economy, not his analytical constructs. The FIH’s relevance for mitigating financial crises has increased with time and will continue to do so, if we analyze Minsky’s insights and fully understand his powerful methodological approach.

>> Read complete text (pdf)

This paper forms the basis for Public Policy Brief No. 104 and Policy Note 2009/10. The thrust of Research Scholar Greg Hannsgen and President Dimitri B. Papadimitriou’s analysis is that the National Industrial Recovery Act and the National Labor Relations Act did not prolong or worsen the Great Depression. Rather, the New Deal era strengthens the case for the effectiveness of fiscal policies and jobs programs.

The authors note that John Maynard Keynes’s general theory of an economy is still apropos, and that the number of jobs created by the Works Progress Administration and other federal agencies was perhaps more important than the size of the fiscal stimulus. They therefore recommend a permanent employer-of-last-resort (ELR) program, as proposed by Hyman P. Minsky, to mitigate the effects of today’s Great Recession.

>> Read complete text (pdf)

According to orthodoxy, the current crisis is a result of excessive liquidity and a euphoric real estate boom. Wray believes that the crisis stems from the long-term transformation of the global financial system by “money managers” who control huge pools of institutional funds. The liquidity crisis could have been resolved very quickly if the Federal Reserve had immediately opened the discount window to all financial institutions, he says.

The United States now faces a massive insolvency problem and rapidly declining employment and production. The unrecognized issue is that gross insolvencies at the larger financial institutions are the result of unprecedented fraud rather than subprime loans. Moreover, the planned fiscal stimulus will fall far short of what is needed, despite the fact that the United States can financially “afford” to resolve the crisis.

>> Read complete text (pdf)

Most definitions of the “Minsky moment” establish a link between crucial features of the subprime crisis and Minsky’s financial instability hypothesis (FIH). Vercelli provides a more rigorous definition of a Minsky moment based on a restatement of the core of Minsky’s hypothesis, and suggests an alternative to Minsky’s threefold taxonomy that classifies a unit’s financial conditions based on continuous measures of liquidity and solvency. Vercelli believes that Minsky’s narrow threefold classification has likely hindered the development of analytical models of the FIH.

The author outlines policy insights on how to mitigate the financial cycle and stabilize the economy, including stricter capital requirements and well-designed constraints on the units’ illiquidity and indebtedness. He recommends that the financial authorities enforce these rules irrespective of the phase of the economic cycle.

>> Read complete text (pdf)