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BlogForget about deficits. Fix the banks
Levy senior scholar James K. Galbraith argues in the Los Angeles Times this morning that deficit hawks are pursuing the wrong prey. In a nutshell: The real cause of our deficits and rising public debt is our broken banking system. The debts our economic leaders deplore were largely due to the collapse of private credit, [...] -
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Wynne Godley, continued
The Economist’s obituary for the late Wynne Godley generated a couple of worthwhile letters. A key passage: Your obituary of Wynne Godley (May 29th) did an injustice to his considerable intellectual achievements in macroeconomics and his courage in going against the orthodoxy that has ruled the economics profession for the past three decades. You can read [...] -
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Review: Plumbing the Squam Lake Report
The Squam Lake Report (Princeton University Press) is a set of recommendations by 15 leading economists on reforming the financial system. Considering the magnitude of the recent financial crisis, it is surprising how little change the book proposes. Certainly, the first step in devising a set of recommendations for reform is to understand what went [...] -
Working Paper No. 602Fiscal Responsibility: What Exactly Does It Mean?
The use of government fiscal stimulus to support the economy in the recent economic crisis has brought increases in government deficits and increased government debt. This has produced an interest in sustainable government debt and the role of deficits in the economy. This paper argues in favor of a concept of "responsible" government policy, referring […] -
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Greek default widely expected
Bloomberg polled international subscribers to its Bloomberg Professional Service and found that 73 percent expect a Greek default. These subscribers are described as decision-makers in finance, economics etc. The full story is here. You can also read the poll and results for yourself by clicking on the “attachment” tab at the top of the window. [...] -
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Wynne Godley was right
In a sobering column in the Financial Times, Edward Chancellor reminds us that the late Wynne Godley was right in predicting that large private deficits in the U.S. would lead to trouble–and that the Eurozone, when it was formed, might become a tragic disinflationary trap. The end of the column is particularly noteworthy: He went [...] -
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When do deficits matter?
Nervous financial markets and waves of fiscal austerity spreading across Europe raise an important question: when does a country’s budget deficit become a problem? The easy answer, of course, is that a deficit is too large when it can no longer be financed. But by that time it’s too late, so it’s important to ask [...] -
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Maybe Keynes hasn’t been translated yet
The Germans too are embarking on a fiscal austerity program, and consumers aren’t spending there either. -
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Austerity Britain
David Cameron, the new PM, warns that the nation’s fiscal hole is even deeper than it seemed, and that savage spending cuts will be required. An important union leader calls Cameron’s speech “a chilling attack on the public sector, public sector workers, the poor, the sick and the vulnerable.” The full (and sobering) story is [...] -
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Men not working
The Bureau of Labor Statistics released its May employment situation report today and the news was mostly grim. Sure, unemployment dropped to 9.7 percent from 9.9 percent. But don’t get too excited, because almost all the new jobs created in May were for census-takers, and these folks will be unemployed again soon. In more bad [...] -
Working Paper No. 601
Too Big to Fail in Financial Crisis
Regulatory forbearance and government financial support for the largest US financial companies during the crisis of 2007–09 highlighted a "too big to fail" problem that has existed for decades. As in the past, effects on competition and moral hazard were seen as outweighed by the threat of failures that would undermine the financial system and […] -
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One less worry
The world has its usual cornucopia of troubles, but if you were worried about federal deficits, you can at least set those aside and focus on unemployment, oil spills and other here-and-now concerns. That’s the message of Levy Senior Scholar James K. Galbraith in this lively interview with Ezra Klein. Galbraith offers this historical perspective: [...]