Levy Institute Publications
One-Pager No. 56 | June 2018 | Mario TonveronachiThe European Commission's proposal for the regulation of sovereign bond-backed securities (SBBSs) follows the release of a high-level taskforce report, sponsored by the European Systemic Risk Board, on the feasibility of an SBBS framework. The proposal and the SBBS scheme, Mario Tonveronachi argues, would fail to yield the intended results while undermining financial stability.
Tonveronachi articulates his alternative, centered on the European Central Bank's issuance of debt certificates along the maturity spectrum to create a common yield curve and corresponding absorption of a share of each eurozone country’s national debts. Alongside these financial operations, new reflationary but debt-reducing fiscal rules would be imposed.Download:Associated Program(s):Author(s):Mario TonveronachiRelated Topic(s):
Strategic Analysis, April 2018 | April 2018 | Michalis Nikiforos, Gennaro ZezzaThe US economy has been expanding continuously for almost nine years, making the current recovery the second longest in postwar history. However, the current recovery is also the slowest recovery of the postwar period.
This Strategic Analysis presents the medium-run prospects, challenges, and contradictions for the US economy using the Levy Institute’s stock-flow consistent macroeconometric model. By comparing a baseline projection for 2018–21 in which no budget or tax changes take place to three additional scenarios, the authors isolate the likely macroeconomic impacts of: (1) the recently passed tax bill; (2) a large-scale public infrastructure plan of the same “fiscal size” as the tax cuts; and (3) the spending increases entailed by the Bipartisan Budget Act and omnibus bill. Finally, Nikiforos and Zezza update their estimates of the likely outcome of a scenario in which there is a sharp drop in the stock market that induces another round of private-sector deleveraging.
Although in the near term the US economy could see an acceleration of its GDP growth rate due to the recently approved increase in federal spending and the new tax law, it is increasingly likely that the recovery will be derailed by a crisis that will originate in the financial sector.
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Strategic Analysis, April 2017 | April 2017 | Michalis Nikiforos, Gennaro ZezzaFrom a macroeconomic point of view, 2016 was an ordinary year in the post–Great Recession period. As in prior years, the conventional forecasts predicted that this would be the year the economy would finally escape from the “new normal” of secular stagnation. But just as in every previous year, the forecasts were confounded by the actual result: lower-than-expected growth—just 1.6 percent.
The radical policy changes promoted by the new Trump administration dominated economic conditions in the closing quarter of the year and the first quarter of 2017. Markets have responded with exuberance since the November elections, on the expectation that the proposed policy measures would increase profitability by boosting growth and cutting personal and corporate taxes. However, an evaluation of the US economy’s structural characteristics reveals three key impediments to a robust, sustainable recovery: income inequality, fiscal conservatism, and weak net export demand. The new administration’s often conflicting policy proposals are unlikely to solve any of these fundamental problems—if anything, the situation will worsen.
Our latest Strategic Analysis provides two medium-term scenarios for the US economy. The “business as usual” baseline scenario (built on CBO estimates) shows household debt and GDP growth roughly maintaining their moribund postcrisis trends. The second scenario assumes a sharp correction in the stock market beginning in 2017Q3, combined with another round of private sector deleveraging. The results: negative growth and a government deficit of 8.3 percent by 2020—essentially a repeat of the crisis of 2007–9.Download:Associated Program:Author(s):Related Topic(s):
Research Project Reports, April 2018 | April 2018 | L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, Stephanie A. KeltonDespite reports of a healthy US labor market, millions of Americans remain unemployed and underemployed, or have simply given up looking for work. It is a problem that plagues our economy in good times and in bad—there are never enough jobs available for all who want to work. L. Randall Wray, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, and Stephanie A. Kelton examine the impact of a new “job guarantee” proposal that would seek to eliminate involuntary unemployment by directly creating jobs in the communities where they are needed.
The authors propose the creation of a Public Service Employment (PSE) program that would offer a job at a living wage to all who are ready and willing to work. Federally funded but with a decentralized administration, the PSE program would pay $15 per hour and offer a basic package of benefits. This report simulates the economic impact over a ten-year period of implementing the PSE program beginning in 2018Q1.
Unemployment, hidden and official, with all of its attendant social harms, is a policy choice. The results in this report lend more weight to the argument that it is a policy choice we need no longer tolerate. True full employment is both achievable and sustainable.Download:Associated Program:Author(s):Related Topic(s):
Research Project Report, February 2018 | February 2018 | Scott Fullwiler, Stephanie A. Kelton, Catherine Ruetschlin, Marshall SteinbaumAmong the more ambitious policies that have been proposed to address the problem of escalating student loan debt are various forms of debt cancellation. In this report, Scott Fullwiler, Research Associate Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum examine the likely macroeconomic impacts of a one-time, federally funded cancellation of all outstanding student debt.
The report analyzes households’ mounting reliance on debt to finance higher education, including the distributive implications of student debt and debt cancellation; describes the financial mechanics required to carry out the cancellation of debt held by the Department of Education (which makes up the vast majority of student loans outstanding) as well as privately owned student debt; and uses two macroeconometric models to provide a plausible range for the likely impacts of student debt cancellation on key economic variables over a 10-year horizon.
The authors find that cancellation would have a meaningful stimulus effect, characterized by greater economic activity as measured by GDP and employment, with only moderate effects on the federal budget deficit, interest rates, and inflation (while state budgets improve). These results suggest that policies like student debt cancellation can be a viable part of a needed reorientation of US higher education policy.
Download:Associated Program(s):Author(s):Scott Fullwiler Stephanie A. Kelton Catherine Ruetschlin Marshall SteinbaumRelated Topic(s):
e-pamphlet, March 2016 | March 2016 | Jordan Brennan
American Prosperity in Historical PerspectiveJordan Brennan, of Unifor and the Canadian Centre for Policy Alternatives, examines the rise of income inequality and the deceleration of economic growth in the United States in this two-part analysis. The first section explores the consolidation of corporate power, through mergers and acquisitions, between 1895 and 2013, and finds that reduced competition, declines in fixed asset investment, and the rise of practices such as stock buybacks have shifted investment away from the real economy, leading to weak economic growth and rising income inequality. The second section of Brennan’s analysis examines the interplay of labor unions, inflation, and income inequality. The author observes that the decline of unions as a countervailing force to corporate power and anti-inflationary monetary policy have shifted income away from middle- and lower-income groups. Similarly, he observes that over the past century inflation has tended to redistribute income from capital to labor—from the upper to the lower income strata. In this context, he observes that anti-inflation policy is a use of state power to effect a regressive redistribution of income.Download:Associated Program:Author(s):Jordan Brennan
Public Policy Brief No. 145, 2018 | June 2018 | Mario Tonveronachi
An Assessment and an Alternative ProposalIn response to a proposal put forward by the European Commission for the regulation of sovereign bond-backed securities (SBBSs), Mario Tonveronachi provides his analysis of the SBBS scheme and attendant regulatory proposal, and elaborates on an alternative approach to addressing the problems that have motivated this high-level consideration of an SBBS framework.
As this policy brief explains, it is doubtful the SBBS proposal would produce its intended results. Tonveronachi’s alternative, discussed in Levy Institute Public Policy Briefs Nos. 137 and 140, not only better addresses the two problems targeted by the SBBS scheme, but also a third, critical defect of the current euro system: national sovereign debt sustainability.Download:Associated Program(s):Author(s):Mario TonveronachiRelated Topic(s):
Public Policy Brief No. 144, 2017 | September 2017 | Jan Kregel
A Radical Proposal Based on Keynes’s Clearing UnionIn light of the problems besetting the eurozone, this policy brief examines the contributions of John Maynard Keynes and Richard Kahn to early debates over the design of the postwar international financial system. Their critical engagement with the early policy challenges associated with managing international settlements offers a perspective from which to analyze the flaws in the current euro-based financial system, and Keynes’s clearing union proposal offers a template for a better approach. A system of regional federations employing a clearing system in which members either retained their own currency or used a common currency as a unit of account in registering debits and credits for settlement purposes would preserve domestic policy independence and retain regional diversity.
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Policy Note 2018/4 | May 2018 | Thomas Masterson, Ajit Zacharias
Some Lessons from Ghana and TanzaniaIn this policy note, Thomas Masterson and Ajit Zacharias address the nexus between wage employment, consumption poverty, and time deficits in the context of Ghana and Tanzania. Based on a recently completed research project supported by the Hewlett Foundation, the authors apply the Levy Institute Measure of Time and Consumption Poverty (LIMTCP) to estimate whether the jobs that are likely to be available to potential employment-seeking, working-age individuals in consumption-poor households—who are predominantly female in both countries—can serve as vehicles of “economic empowerment.” They investigate this question using two indicators of empowerment, asking (1) whether the individual would be able to move their household to at least a minimal level of consumption via the additional earnings from their new job and (2) whether the individual would be deprived of the time required to meet the minimal needs of care for themselves (personal care), their homes, and their dependents.Download:Associated Program(s):Author(s):Related Topic(s):
Policy Note 2018/3 | May 2018 | L. Randall WrayThe idea of a universal job guarantee (JG) policy for the United States has become the subject of renewed public debate due to a number of high-profile political endorsements. L. Randall Wray recently coauthored a report that presented a JG proposal—the Public Service Employment program—along with estimates of the economic impact of the plan. However, several other variants have been proposed and/or endorsed. In this policy note, Wray seeks to establish common ground among the major JG plans and provides an initial response to critics.Download:Associated Program:Author(s):Related Topic(s):
One-Pager No. 55 | May 2018 | Pavlina R. TchernevaThe job guarantee (JG) is finally getting the public debate it deserves, according to Pavlina R. Tcherneva, and criticism is expected. Following the Levy Institute’s latest report analyzing the economic impact of a JG proposal and providing a blueprint for its implementation, Tcherneva responds to alarmist claims that the JG is (1) an expensive big-government takeover, (2) unproductive and impossible to manage, (3) dangerously disruptive to the private sector, and (4) inflationary.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 909 | July 2018 | Liudmila Malyshava
Applying Minsky’s Theory of Financial Fragility to International MarketsThis inquiry argues that the successful completion of the transition process in the post-Soviet economies is constrained by the prevailing social structure and low levels of technological progress, both of which require institutional reforms aimed at increasing growth in national income, productivity, and the degree of export competitiveness. Domestic policy implementation has not shown significant improvements on these fronts, given its short-term orientation, but instead resulted in stagnating growth rates, continuously accumulating levels of external debt, and decreasing living standards. The key to a successful completion of the transition process is therefore a combination of policies targeted at the dynamic transformation of production structures within an environment of financial stability and favorable macroeconomic conditions.Download:Associated Program(s):Author(s):Liudmila MalyshavaRelated Topic(s):
Working Paper No. 908 | June 2018 | W. Lee Hoskins, Walker F. Todd
Rethinking the Role of Money and Markets in the Global EconomyMany of the hopes arising from the 1989 fall of the Berlin Wall were still unrealized in 2010 and remain so today, especially in monetary policy and financial supervision. The major players that helped bring on the 2008 financial crisis still exist, with rising levels of moral hazard, including Fannie Mae, Freddie Mac, the too-big-to-fail banks, and even AIG. In monetary policy, the Federal Reserve has only just begun to reduce its vastly increased balance sheet, while the European Central Bank has yet to begin. The Dodd-Frank Act of 2010 imposed new conditions on but did not contract the greatly expanded federal safety net and failed to reduce the substantial increase in moral hazard. The larger budget deficits since 2008 were simply decisions to spend at higher levels instead of rational responses to the crisis. Only an increased reliance on market discipline in financial services, avoidance of Federal Reserve market interventions to rescue financial players while doing little or nothing for households and firms, and elimination of the Treasury’s backdoor borrowings that conceal the real costs of increasing budget deficits can enable the American public to achieve the meaningful improvements in living standards that were reasonably expected when the Berlin Wall fell.Download:Associated Program:Author(s):W. Lee Hoskins Walker F. ToddRelated Topic(s):
Book Series, March 2018 | March 2018 | Jan Kregel
Edited by Marcella Corsi, Jan Kregel, and Carlo D'IppolitiEdited by Marcella Corsi, Sapienza University of Rome, Levy Institute Director of Research Jan Kregel, and Carlo D’Ippoliti, Sapienza University of Rome, this new collection of 16 essays is dedicated to Alessandro Roncaglia and deals with the themes that “have characterized his work or represent expressions of his personality, his interests and method," particularly his contributions to the interpretation of classical political economists as a means for informing present-day policy.
Published by: Anthem Press
Book Series, April 2018 | April 2018 | Joel Perlmann
From Ellis Island to the 2020 CensusIn America Classifies the Immigrants: From Ellis Island to the 2020 Census (Harvard University Press, 2018), Senior Scholar Joel Perlmann traces the evolution of thinking about “race” and “ethnic groups” in America. Beginning with the 1897 “List of Races and Peoples” through the proposed 2020 changes for the US Census, Perlmann examines the shifting ideas about racial and national differences that shape our social and legal policies.
Published by: Harvard University Press
Volume 27, No. 2 | April 2018 | Elizabeth Dunn, Michael StephensThis issue of the Summary opens with a policy note regarding the predictions of an impending Chinese “Minsky moment” and the far more likely prospect of another crisis in the United States. It also presents the results of a research project investigating the macroeconomic impact of a one-time cancellation of existing US student loan debt.
Working papers included in this issue examine Hyman Minsky’s and Abba Lerner’s writings on the functional finance approach to fiscal policy; the forces underlying the gender pay gap in the countries of the former Soviet Union; and the impact of corporate taxes on capital and labor in a modern, open economy. The issue closes with a look at the newest book in the Levy Institute Book Series, a compilation of essays dedicated to classical political economist, Alessandro Roncaglia.
Program: Monetary Policy and Financial Structure
- L. RANDALL WRAY, Does the United States Face Another Minsky Moment?
- L. RANDALL WRAY, Functional Finance: A Comparison of the Evolution of the Positions of Hyman Minsky and Abba Lerner
Program: Gender Equality and the Economy
- TAMAR KHITARISHVILI, Gender Pay Gaps in the Former Soviet Union: A Review of the Evidence
Program: Economic Policy for the 21st Century
- SCOTT FULLWILER, STEPHANIE A. KELTON, CATHERINE RUETSCHLIN, and MARSHALL STEINBAUM, The Macroeconomic Effects of Student Debt Cancellation
- SAMIKSHA AGARWAL and LEKHA S. CHAKRABORTY, Corporate Tax Incidence in India
New Books in the Levy Institute Book Series
- Classical Economics Today: Essays in Honor of Alessandro Roncaglia, edited by MARCELLA CORSI, JAN KREGEL, and CARLO D’IPPOLITI
Download:Author(s):Elizabeth Dunn Michael Stephens
- 27th Annual Hyman P. Minsky Conference
- The Hyman P. Minsky Summer Seminar