The Hyman P. Minsky Summer Seminar and Conference (June 19–29) 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. A limited number of speaking slots are still available. Topics of interest for submissions include stock-flow modeling and policy simulations; financial fragility; reconstituting the financial structure; asset bubbles; and employment of last resort (ELR) and macroeconomic stability. Further information is available at www.levyinstitute.org.
WEB LAUNCH
The Levy Economics Institute Blog
The Levy Institute has launched a blog that will enable our worldwide network of scholars to bring their research to bear on the economic issues of the day. Recent postings include Congressional testimony by Senior Scholar James K. Galbraith urging a thorough investigation of the U.S. financial crisis for evidence of fraud, and a graph showing the extraordinary levels of tax evasion in Greece and other European countries overburdened with debt. The graph accompanied a posting by Research Scholar Gennaro Zezza, who, during the height of the eurozone crisis, commented on the consequences if the Greek contagion were to infect Italy. Zezza estimated that if everyone in that country paid their taxes, Italy’s large fiscal deficits would probably shrink to zero. The blog will also feature regular contributions from Levy President Dimitri B. Papadimitriou.
NEW PUBLICATIONS
Public Policy Brief No. 111, 2010
This brief argues that deficits do not burden future generations with debt, nor do they crowd out private spending. Authors Yeva Nersisyan and Senior Scholar L. Randall Wray base their conclusions on the premise that a sovereign nation with its own currency cannot become insolvent, and that government financing is unlike that of a household or firm. Moreover, they observe that automatic stabilizers, not government bailouts and the stimulus package, have prevented the U.S. economic contraction from devolving into another Great Depression.
The authors dispense with (unsubstantiated) concerns about deficits and debts, noting that they mask the real issue: the unwillingness of deficit hawks to allow a (democratic) government to work for the good of the people. In lieu of exiting the eurozone and regaining control of domestic policy space, Nersisyan and Wray suggest that the eurozone countries create a supranational fiscal authority similar to the U.S. Treasury that is able to spend like a sovereign government.
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Working Paper No. 593, May 2010
Amit Bhaduri
Two general features in a crisis are a loss of confidence in the financial sector and the transmission of the crisis to the real economy through aggregate demand. Using a schematic model that focuses on consumption, author Amit Bhaduri formally integrates the mechanism of interaction between these features in a developed market economy.
A loss of confidence can arise in two analytically distinct ways: the financial sector might lose the borrowing public’s confidence when the public is increasingly burdened with debt; and, in contrast, confidence collapses when the “fragile” financial sector is unable to cope with its own liquidity requirements (i.e., there is overborrowing by the public in the real sector and overlending by the financial sector). The author notes that his simple model should be judged by its ability to isolate and capture some crucial mechanisms that caused the collapse of financial confidence, thus paving the way to crisis.
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Luiz Carlos Bresser-Pereira
The banking and social crisis that began in 2007 represents a turning point in the history of capitalism. Author Luiz Carlos Bresser-Pereira summarizes the major changes in the world financial markets since the end of Bretton Woods (i.e., financialization and neoliberalism), and argues that these perverse developments, along with deregulation and the refusal to regulate financial innovations, caused the crisis. And despite the worldwide Keynesian response, he says, the consequences will be particularly harmful to the poor.
Bresser-Pereira foresees further increases in the power of professionals relative to capitalists, greater income inequality in rich countries but declining global inequalities as a result of redistribution to the developing countries, mitigation of capitalism’s instability as a result of reregulation, and the emergence of stronger middle-income countries under a new development strategy. In sum, global capitalism will change for the better because it will be neither financialized nor neoliberal.
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This paper by Research Associate Jörg Bibow investigates the spreading of the global financial crisis to emerging market economies and the systemic deficiencies in the global monetary and financial order. When the bubble burst, the effectiveness of self-insurance and secure policy space were limited, so there was a massive macro policy response worldwide. As exports stalled, developing countries had a strong self-interest to stimulate domestic demand, while international cooperation helped to forestall recourse to beggar-thy-neighbor policies.
The key issue for developing countries is reform of the global order, but such reform does not appear to be forthcoming. Bibow advises developing countries to pursue comprehensive capital account management policies (as in China and India) that contain rent extraction through foreign (indirect) investment, along with financial liberalization. This approach is in direct opposition to the preaching of the International Monetary Fund.
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