The Levy Economics Institute of Bard College is pleased to announce that it will hold the second annual Minsky Summer Seminar June 18�26, 2011. The Seminar will provide a rigorous discussion of both the theoretical and applied aspects of Minsky�s economics, with an examination of meaningful prescriptive policies relevant to the current economic and financial crisis.

The Summer Seminar will be of particular interest to graduate students, recent graduates, and those at the beginning of their academic or professional careers. The teaching staff will include well-known economists concentrating on and expanding Minsky�s work.

Applications may be made to Susan Howard at the Levy Institute ([email protected]), and should include a current curriculum vitae. Admission will include provision of room and board on the Bard College campus. A limited number of small travel reimbursements of $100 for U.S. fellows and $300 for foreign fellows, respectively, will be available to participants.

Due to limited space availability, the deadline for applications is March 31, 2011.

President Dimitri B. Papadimitriou and Research Scholar Greg Hannsgen evaluate the current path of fiscal deficits in the United States in the context of government debt and further spending, economic recovery, and unemployment. They are adamant that there is no justification for the belief that cutting spending or raising tax rates by any amount will reduce the federal deficit, let alone permit solid growth.

The worst fears about recent stimulative policy and rapid money-supply growth are proving to be incorrect once again. We must find the will to reinvigorate government, to maintain Keynesian macro stimulus, and to mend some of the holes in the U.S. social safety net, they say. Programs that address key economic problems at the household level, such as an employer-of-last-resort program, can never bankrupt a sovereign nation like the United States.

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China�s high output growth rates are a result of capital accumulation, export-led growth policies, and industrialization. The authors analyze the evolution of exports since the 1960s, focusing on the sophistication of China�s export basket and the number of products with comparative advantage (diversification). They find that China�s productive structure was already complex in the 1960s, setting the stage for high growth, with comparative advantage in both labor-intensive and sophisticated products.

The authors observe that some form of government intervention underlies all successful cases of structural transformation. China�s spectacular performance is the result of industrial policies that allowed the accumulation of product-specific capabilities. Moreover, the country is positioned to continue performing well if policymakers focus more on employment creation and structural transformation targets than on growth targets.

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This working paper outlines the background information and data used in the preparation of Public Policy Brief no. 108. According to these Levy Institute scholars, the government needs to identify useful projects and select investments that have the potential for massive public job creation. They find that social sector investment, such as early childhood education and home-based care, generates more than twice the number of jobs as infrastructure spending and almost 1.5 times the number of jobs as green-energy spending.

The authors also find that their recommendations are more effective in providing jobs to people with the least education. Thus, the social and psychological impacts of social care investment are beneficial for both the recipients and their communities.

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These authors from the Asian Development Bank use a cross-country growth regression model to project long-term annual average growth rates for 147 countries over the 2010�30 period. Their analysis shows that China will be unable to grow at its current 9�10 percent annual pace because of a deceleration in the rate of accumulation of capabilities. India, on the other hand, will surpass China and continue to grow at its present rate.

The authors� growth projection for China is comparable to that of other studies, while that for India is a percentage point higher. Russia is calculated to grow at a low annual rate of 1.0 to 1.2 percent, while the United States will expand at a rate of 2.1 to 2.6 percent�higher than the growth rates for Germany and Japan.

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The highly educated workforce of former Soviet Union countries has not guaranteed a successful transition from a socialist to a market-based economy. Research Associate Tamar Khitarishvili finds that education in Georgia has contributed little to workplace earnings, and that returns to education are very low compared to other transition countries. In addition, there is little evidence of an increasing trend in returns despite economic expansion.

Khitarishvili also finds that education provides a higher probability of finding a job as opposed to raising wages (an issue that has been overlooked in the transition literature). The Georgian economy has expanded in state-financed industries such as public administration and education that employ a highly educated workforce but pay relatively low wages.

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The strategies firms adopt to resolve agency problems (such as conditioning pay on observed productivity) can have profound effects on labor markets by affecting gender and racial inequality, labor market segmentation, and unemployment. Research Associate James B. Rebitzer and Lowell J. Taylor analyze the principal agent model from a behavioral perspective and consider the complications that arise when the agent/principal relationship is placed within the context of a firm or labor market.

The authors find that the introduction of behavioral features into agency models leads to novel and important results: for example, professional norms combined with properly designed incentives can protect consumers from exploitation, and high-powered extrinsic incentives can corrode employee motivation. The application of behavioral economics to agency in employment relationships is relatively new, and the authors outline a number of promising areas of research.

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Mainstream monetary theory has not explained adequately the response of central banks to the financial crisis. Marc Lavoie, University of Ottawa, Canada, analyzes the implications of changes in the operating procedures of the Federal Reserve since August 2007. He finds that the Fed lost control over the federal funds rate following the failure of Lehman Brothers, and that the causal mainstream link between reserves, money, and prices was broken.

Most mainstream monetary theory that applies to central banking is worthless, says Lavoie, including the notion of a money multiplier and the presumed causal relationship between bank reserves at the central bank and price inflation. Furthermore, it cannot be claimed that sizable excess reserves have a potentially large inflationary effect.

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