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

From his extensive research, Hyman Minsky was convinced that economic systems are prone to financial instability and crisis, and urged that lessons be learned from the crisis of 1929–33 so that “it”—the Great Depression—could not happen again. This year’s conference draws upon many Minskyan themes, including reconstituting the financial structure; the reregulation and supervision of financial institutions; the relevance of the Glass-Steagall Act; the roles of the Federal Reserve, FDIC, and Treasury; the moral hazard of the “too big to fail” doctrine; debt deflation; and the economics of the “big bank” and “big government.” The conference will also compare European and Latin American responses to the global financial crisis and proposals for reforming the international financial architecture. Moreover, central bank exit strategies, both national and international, will be considered.

The deadline for registration is April 8. A limited number of seats are still available. To register, and to view a complete list of the scheduled speakers, visit www.levy.org. The full event program will be posted shortly.

Research Scholar Gennaro Zezza updates the Levy Institute’s previous Strategic Analysis (December 2009) and finds that the 2009 increase in public sector aggregate demand was a result of the fiscal stimulus, without which the recession would have been much deeper. He confirms that strong policy action is required to achieve full employment in the medium term, including a persistently high government deficit in the short term. The alternative is an ongoing unemployment rate above 10 percent that would represent a higher cost to future generations.

Zezza’s scenario assumes permanent tax cuts and a larger increase in government outlays related to both expenditures and transfers to the private sector. An expansionary fiscal policy will sustain output and employment, but it will also cause the external balance to deteriorate. And since this scenario perpetuates international imbalances, a different growth strategy is needed.

The United States has the most expensive health care system in the world, yet its system produces inferior outcomes relative to those in other countries. Marshall Auerback and Senior Scholar L. Randall Wray examine the U.S. health care reform debate and argue that the basic structure of the health care system is unlikely to change because “reform” measures actually promote the status quo. They believe that the fundamental problem facing the U.S. health care system is the unhealthy lifestyle of many Americans.

The authors prefer to see a reduced role for private insurers and an increased role for government funding, along with greater public discussion of environmental and lifestyle factors. A Medicare buy-in (“public option”) for people under 65 would provide more cost control (by competing with private insurance), help to solve the problem of treatment denial based on preexisting conditions, expand the risk pool of patients, and enhance the global competitiveness of U.S. corporations—thus bringing the U.S. health care system closer to the “ideal” low-cost, universal (single-payer) insurance plan.

>> Read complete text (pdf)

India is the first country to institutionalize gender budgeting within its Ministry of Finance. Research Associate Lekha S. Chakraborty focuses on incorporating gender-sensitive fiscal policies at the local level, against the backdrop of fiscal federalism and the Thirteenth Finance Commission of India. This approach to financial devolution would help to identify unique spatial gender needs that depart from one-size-fits-all gender-budgeting policies.

The author recommends that fiscal transfers be made on a per capita basis, with relative adjustments for regional poverty (i.e., “backwardness”). Moreover, states with adverse juvenile sex ratios should be penalized, she says, given the magnitude of the problem of “missing girls” in India. The best approach is to integrate gender concerns in the local budgetary process, ensure transparency and accountability through better governance, and enhance women’s participation and “voice” so that they have more power to influence public expenditures.

>> Read complete text (pdf)

Senior Scholar Edward N. Wolff updates his previous analysis of household wealth in the United States (see Working Paper No. 502) and finds skyrocketing indebtedness leading to a “middle-class squeeze,” along with evidence that most gains in wealth and income accrue to the uppermost quintile. As a result of stagnating incomes, middle-class households have incurred more debt in order to finance normal consumption expenditures. Rising debt made the middle-class vulnerable to income shocks, setting the stage for the mortgage crisis and financial meltdown in 2008–09.

Wolff finds that there has been a marked deterioration in middle-class wealth (to 1992 levels) and a narrowing of racial disparities in wealth holdings in the 2001–07 period. Wealth has declined considerably since 2007, however, while wealth inequality has risen sharply. Moreover, almost 17 percent of homeowners are “underwater.”

>> Read complete text (pdf)

Tsu-Yu Tsao and Andrew Pearlman, Bard College, develop a general framework to quantify earnings differentials between black and white physicians, and to disaggregate the effects of firm-versus-consumer discrimination. They find that potential discrimination plays a small role in the racial wage gap among physicians, and that discrimination by firms may actually favor black physicians.

This study is the first to document higher returns, based on experience, for blacks relative to whites. The authors offer three reasons for this unique result: sample homogeneity, exceptional talent, and psychology.

>> Read complete text (pdf)

The Summary updates current Levy Institute research, with synopses of new publications, accounts of professional presentations by the research staff, and an overview of Levy Institute events. This issue leads off with an updated Strategic Analysis that confirms that strong policy action in the United States, combined with a high government deficit, is required to achieve full employment.

Also in this issue are summaries of papers that provide insight into reforming the U.S. banking and global financial systems, and stabilizing retirement funds. Other papers evaluate trends in household wealth, investment strategies for job creation, and discrimination in the labor market.

>> Read complete text (pdf)

The Report is aimed at a diverse general audience interested in policy matters. The current issue highlights a brief by Levy Institute scholars that concludes that social sector investment generates more jobs than infrastructure spending or investing in green energy. It also summarizes our latest Strategic Analysis, concerning the policy action required to emerge from the current recession, as well as other recent public policy briefs and working papers, and provides announcements of upcoming events and news of the Institute and its scholars.

>> Read complete text (pdf)