Contributions to Economic Theory, Policy, Development and Finance: Essays in Honor of Jan Kregel

Michael Stephens | December 18, 2014

Kregel Festschrift

“This collection brings together distinguished scholars who have been influenced by Jan Kregel‘s prodigious contributions to the fields of economic theory and policy. The chapters cover and extend many topics analyzed in Kregel’s published work, including monetary economic theory and policy; aspects of the Cambridge (UK and US) controversies; Sraffa’s critique on neoclassical value and distribution theory; Post-Keynesianism; employment policy; obstacles in financing development; trade and development theories; causes and lessons from the financial crises in East Asia, Latin America, and Europe; Minskyan-Kregel theories of financial instability; and global governance. Combining rigorous scholarly assessment of the issues, the contributors seek to offer solutions to the debates on economic theory and the problem of continuing high unemployment, to identify the factors that determine economic expansion, and to analyze the impact of financial crises on systemic stability, markets, institutions, and international regulations on domestic and global economic performance.

The scope and comprehensive analyses found in this volume will be of interest to economists and scholars of economics, finance, and development.”

From the table of contents:

1. Jan Kregel’s Economics; Dimitri B. Papadimitriou
2. The Reconstruction of Political Economy: Alternative, Parallel Paths to Rediscovering the Distinctively Classical Surplus Approach; Mathew Forstater
3. Post-Keynesian, Post-Sraffian Economics: An Outline; Alessandro Roncaglia and Mario Tonveronachi
4. Money in The General Theory: The Contributions of Jan Kregel; L. Randall Wray
5. A Financial Analysis of Monetary Systems; Eric Tymoigne
6. Full Employment, Inflation and Income Distribution: Evaluating the Impact of Alternative Fiscal Policies; Pavlina R. Tcherneva
7. Can Employment Schemes Work? The Case of the Rural Employment Guarantee in India; Jayati Ghosh
8. Development Theory: Convergence, Catch-up or Leapfrogging? A Schumpeter-Minsky-Kregel Approach; Leonardo Burlamaqui and Rainer Kattel
9. The Access to Demand; Luiz Carlos Bresser-Pereira
10. Development Finance in the Era of Financial Liberalization; C.P. Chandrasekhar
11. From Miracle to Stagnation: The Last Two Stages of Mexico’s Economic Development; Julio López-Gallardo
12. The New Millennium Argentine Saga: From Crisis to Success and from Success to Failure; Mario Damill, Roberto Frenkel and Martín Rapetti
13. Global Governance for Financial Stability; Stephany Griffith-Jones and José Antonio Ocampo
14. What Did We Learn from the 1997-98 East Asian Crises?; Jomo Kwame Sundaram
15. Financial Crises and Countermovements: Comparing the Times and Attitudes of Marriner Eccles (1930s) and Mario Draghi (2010s); Erik S. Reinert
16. Can Basel III Work When Basel II Didn’t?; Fernando J. Cardim de Carvalho

You can download a sample chapter (pdf) from Palgrave.


Working Paper Roundup 12/15/2014

Michael Stephens | December 15, 2014

Outside Money: The Advantages of Owning the Magic Porridge Pot
L. Randall Wray
“Money is always introduced into economic models through very simple ways—whether by ‘helicopter drops,’ ‘inheritance from the past,’ or ‘deposit multipliers.’ Once introduced, money is largely irrelevant—neutral in the long run and non-neutral in the short run only because of ad hoc assumptions. This casual and misleading treatment of money contributed to the two greatest economic disasters since the Great Depression: the Global Financial Crisis and the Euro Crisis. In both cases, economists ‘could not see it coming’ because their understanding of money was deeply flawed. In the first instance, they misunderstood ‘inside’ money and led the rush toward the financial excesses that inevitably led to the 2008 crash. In the second, they designed a currency system based on a fundamentally flawed understanding of sovereign currency, creating a union that would inevitably fail. The alternative framework offered by the state money tradition—broadly defined—provides the understanding that would have prevented both disasters.”

Minsky, Monetary Policy, and Mint Street: Challenges for the Art of Monetary Policymaking in Emerging Economies
Srinivas Yanamandra
“This paper examines the emerging challenges to the art of monetary policymaking using the case study of the Reserve Bank of India (RBI) in light of developments in the Indian economy during the last decade (2003–04 to 2013–14). The paper uses Hyman P. Minsky’s financial instability hypothesis as the conceptual framework for evaluating the endogenous nature of financial instability and its potential impact on monetary policymaking, and addresses the need to pursue regulatory policy as a tool that is complementary to monetary policy in light of the agenda of reforms put forward by Minsky.”

An Outline of a Progressive Resolution to the Euro-area Sovereign Debt Overhang: How a Five-year Suspension of the Debt Burden Could Overthrow Austerity
Dimitris P. Sotiropoulos, John Milios, and Spyros Lapatsioras
“This paper sketches a political proposal to the problem at the level of the euro area (EA) from a progressive viewpoint. Dealing with the debt overhang in an increasing number of EA economies is primarily a political issue. The related technical details are not politically neutral: they are integral parts of political strategies attempting to influence the outcome of the ongoing social and political struggles all over Europe.”

“Our main strategy is for the European Central Bank (ECB) to acquire a significant part of the outstanding sovereign debt (at market prices) of the countries in the EA and convert it to zero-coupon bonds. No transfers will take place between individual states; taxpayers in any EA country will not be involved in the debt restructuring of any foreign eurozone country. Debt will not be forgiven: individual states will agree to buy it back from the ECB in the future when the ratio of sovereign debt to GDP has fallen to 20 percent. The sterilization costs for the ECB are manageable. This model of an unconventional monetary intervention would give progressive governments in the EA the necessary basis for developing social and welfare policies to the benefit of the working classes. It would reverse present-day policy priorities and replace the neoliberal agenda with a program of social and economic reconstruction, with the elites paying for the crisis.”

The Determinants of Long-Term Japanese Government Bonds’ Low Nominal Yields
Tanweer Akram and Anupam Das
“Japanese government bonds’ (JGBs) nominal yields have stayed exceptionally low since the mid 1990s, even though the country experienced chronic fiscal deficits, the government’s net and gross debt ratios rose sharply and remained elevated, and international credit rating agencies have downgraded its yen-denominated sovereign debt several times. This is contrary to the conventional wisdom, which holds that higher government deficits and indebtedness lead to upward pressures on government bonds’ nominal yield.”

“The theoretical reasons for long-term JGBs’ low nominal yields are simple: (1) The government of Japan exercises monetary sovereignty and Japan’s government debt is issued in its own currency, (2) the BOJ largely controls short-term interest rates by setting the policy rate, and it also influences JGBs’ nominal yields though asset purchases, forward guidance, and communication tools, (3) low inflation and deflationary pressures have also contributed to keeping JGBs’ nominal yields low in Japan, and (4) the demand for government debt remains strong, as the country’s domestic financial institutions hold the bulk of it.”


“Interesting Times” Ahead for Euroland

C. J. Polychroniou | December 8, 2014

The Levy Economics Institute of Bard College co-organized an international conference on November 21-22 in Athens, Greece, on the continuing crisis in the eurozone.

Among the speakers were:

• Elga Bartsch, Morgan Stanley’s chief European economist;

• Peter Bofinger, a German academic economist and a member of the German Chancellor’s Council of Economic Advisers;

• Marek Belka, governor of Poland’s central bank;

• Giannis Dragasakis, a Greek politician and member of the Greek parliament for the Coalition of the Radical Left (SYRIZA);

• Heiner Flassbeck, a former director of the Division on Globalization and Development Strategies of the United Nations Conference on Trade and Development (UNCTAD) and former vice minister of the German Federal Ministry of Finance;

• Patrick Honohan, governor of Ireland’s central bank;

• Stuart Holland, a British academic economist teaching in Portugal and a former member of the British parliament;

• Stephen Kinsella, an Irish academic economist;

• numerous Greek economists, including Panagiotis Liargovas, the head of Parliamentary Budget Office at Greek Parliament; and, last but not least,

• scholars from the Levy Institute, including its president (Dimitri B. Papadimitriou), who heads the Institute’s macro-modeling team projects.

Adding to this rather illustrious list of speakers were panel moderators from The New York Times, Wall Street Journal, Bloomberg News, National Public Radio (USA), and various daily newspapers in Greece.

While there were some disagreements on policy matters among the panelists, it seems that most speakers reached the following conclusions: continue reading…


Levy Institute Master’s Program Webinars

Michael Stephens | December 4, 2014


The Levy Economics Institute Master of Science in Economic Theory and Policy is an innovative degree program focusing on empirical and policy analysis, with extensive research opportunities. To learn more about the program and receive an application fee waiver, attend one of our upcoming webinars:

Saturday, December 6, at noon (EST): Co-hosted by Program Director Jan Kregel. Research focus: Monetary Policy and Financial Structure

Wednesday, January 7, at 5pm (EST): Co-hosted by Research Scholar Michalis Nikiforos. Research focus: Macroeconomic Theory and Modeling

To join a webinar, simply click here at the time listed above.

Please visit our website for more information about the program:

Regular Decision deadline: January 15. Scholarships available.


The Answer to the Unemployment Problem Is More Jobs

L. Randall Wray | December 3, 2014

Dean Baker, everyone’s favorite progressive economist (mine, too), has an interesting take on our unemployment problem: Give more paid vacations.

The idea is that if all the employed work less, employers will need to hire the unemployed to produce what the already employed won’t be producing while sunning themselves on Florida’s beaches.

Look, I’m all for shorter workweeks. It is ridiculous that labor’s push somehow got stuck a century ago at the 40-hour workweek in the USA. Employed Americans work more hours per year than just about any other workforce on the planet.

Avg Annual Hours Worked_FRED

But, as Joan Robinson once declared, the only thing worse than working as a wage slave is to be unemployed. Just ask the Italians, who now have the highest unemployment rate since they started keeping records. Thanks to the EMU and German fiscal rectitude!

I see shorter work days and more paid vacations as a progressive goal to humanize the work place. More time to enjoy one’s family, recreation, and the arts. More time for self-improvement and community involvement. More time for our wage slaves to enjoy the life of leisure long pursued by the leisure classes.

However, last on my list of arguments for a shorter workweek would be the claim that it will create more jobs for the unemployed. continue reading…


Galbraith and Skidelsky: The End of Normal and the Future of Work (Video)

Michael Stephens | November 13, 2014

Here are the keynote addresses delivered by James Galbraith (“The End of Normal”) and Robert Skidelsky (“The Future of Work”) at the 12th International Post Keynesian Conference (more videos from the conference can be found here):



Berlin Wall

Jörg Bibow | November 12, 2014

Germany is celebrating: it is 25 years ago that the Berlin Wall came down, marking the end of Stasi tyranny, and much more than that. No doubt that is reason to celebrate, for Germany, Europe, and the world. As a German and European, I am celebrating too.

Alas, this is also an occasion for hearing that tiresome story again about how costly and burdensome it was for Germany to reunite. For instance, Terence Roth writes a piece in the WSJ titled “After Fall of Berlin Wall, German Unification Came With a Big Price Tag.” Now, this kind of statement really needs to be qualified, especially as the myth about the “burden of unification” paved the way for yet another German myth a few years later that has proven rather catastrophic for Europe: namely, the myth that Germany had to “restore its competitiveness,” which it apparently had lost in the context of reuniting. Undisturbed by any doubt or reason, the German authorities live in their mythical world of economic virtue and vice, famously referred to by finance minister Wolfgang Schäuble as his “parallel universe.” Let’s try to get the matter straight then.

To begin with, it is unquestionably true that German unification came along with a big price tag. But the price Germany ended up paying was only partly due to the wreckage that communism had produced in the east. The macroeconomic policy response, featuring ultra-tight money and mindless fiscal austerity, proved far more costly. In 1991, both Germany’s consumer price inflation and budget deficit as a share of GDP were about 3 percent. Imagine the Federal Reserve responding to the historical challenge and responsibility of national reunification by monetary overkill—which is exactly what the Bundesbank chose to do, hiking rates to 10 percent and pressuring fiscal policy into sharp tightening too. Ironically, this counterproductive macro policy mix pushed headline inflation up, apart from crushing growth. As a consequence, on top of the legacy of wreckage in East Germany, unemployment in former West Germany doubled as 1.5 million jobs (5 percent of the labor force) were destroyed. Unsurprisingly, Germany struggled until 1998 to get the budget deficit back to just below 3 percent. Only the smaller part of the rise in Germany’s debt ratio from 40 to 60 percent of GDP over the 1990s owed to East German legacies (see here and here).

This is not where the story ends though. continue reading…


Why the Eurozone Needs a Treasury

Jörg Bibow | November 11, 2014

Slowly but surely a new consensus is emerging emphasizing the need for Europe’s currency union to organize public investment as a means to overcome its crisis, by now in its seventh year; the outlook being truly grim. Back in July President-elect of the European Commission Jean-Claude Juncker called for a €300bn public-private investment program. ECB president Mario Draghi lent his support to the idea in his Jackson Hole speech, finally acknowledging that the eurozone is suffering from deficient aggregate demand.

Former EU Commission President Mario Monti has also recently thrown in his voice, observing that public investment has been crushed by the Stability and Growth Pact and relentless austerity drive undertaken across the continent in its name. In its latest World Economic Outlook, the IMF highlights that at the current juncture public investment is as close to a free lunch as it ever gets: countries renege on their grandchildren’s possibilities by not going for it. For far too long the debate in Europe was exclusively focused on the liability side of the public ledger: debt. But it is the asset side, the public investment undertaken, or not, which is far more relevant in shaping our future.

Today, embarking on a joint public investment initiative represents a special opportunity for the eurozone, a chance to fix the euro regime’s ultimate defect: the lack of fiscal union. The scheme proposed here is simple and straightforward. The idea is to create a Euro Treasury as a vehicle to pool future eurozone public investment spending and have it funded by proper eurozone treasury securities. The Euro Treasury would allocate investment grants to euro member states based on their GDP shares. And it would collect taxes to service the interest on the common debt, also exactly in line with member states’ GDP shares. The arrangement amounts to a rudimentary fiscal union, not a transfer union though, as benefits and contributions are shared proportionately. Nor would the joint public debt issued for investment purposes mutualize any existing national debts. Instead, the Euro Treasury securities would provide the means to fund the joint infrastructure spending that is the basis for the union’s joint future.

Currently, eurozone public investment spending is at a very depressed level of around 2 percent of GDP. continue reading…


Germany’s Über-Economists Are Rampant Again

Jörg Bibow | October 31, 2014

The rest of the world is holding its breath as the eurozone continues wobbling along the brink of deflation. In fact, numerous member states are already experiencing what it means to let “it” happen again. With the region stuck in depression since 2008, Euroland authorities are writing fresh world records in failing to improve the well-being of their citizens. The only thing that keeps rising in the eurozone is indebtedness—as the unsurprising consequence and symptom of its collective austerity insanity.

But that is not how the German authorities, or for that matter German economists, view the world. Blatantly ignoring the dismal facts that their favored medicine has produced, they never tire of calling for more of the same: austerity, austerity, and another extra dose of austerity please. By contrast, anything that might possibly help to turn fortunes around gets rejected out of hand as conflicting with the requirements of stability-oriented policymaking. In Germany, neither facts nor economic theory matter at all, it seems. Policy prescriptions simply have to match the ruling austerity-cum-competitiveness ideology, no matter what.

Hans-Werner Sinn, president of Munich’s IFO think tank, provided us with a fresh sample of German economic wisdom about a month ago, calling on Germany’s Chancellor Angela Merkel to stop ECB President Mario Draghi from even trying to regain control over its primary price stability mandate, defined as “below but close to two percent” inflation. Eurozone HICP inflation is currently running at only 0.3 percent. But even the thought of the ECB purchasing government bonds is giving rise to hyperinflation fears among German economists, it seems. It’s all a matter of principle and firm belief.

Professor Sinn is known to readers of Germany’s tabloid Bild-Zeitung as the country’s smartest economist. As if to confirm this popular verdict, Professor Sinn was at least making one valid point in his FT op-ed: namely, that the ECB has finally stopped ignoring super-low inflation while the eurozone’s political leadership remains stuck in denial. As the political authorities continue dreaming their austerity-boosts-growth delusion, the ECB (at last) has started devising actions intended to stop the nightmare reality from getting worse. To be sure, it is not an enviable position for any central bank to be in. The ECB is learning the hard way that not having a euro treasury partner means doing the tango on your own (which may look somewhat curious, if not ridiculous). But perhaps some central bankers have come to realize that not even trying to solo-dance might be judged as gross negligence should the eurozone end up sinking into full-blown deflation and chaos.

Professor Sinn reminds his fellow German citizens that they may petition the German Federal Constitutional Court in case they fear that their country’s Basic Law gets trampled upon. The law says that Germany can transfer monetary policy to a European institution that is independent and committed to the primary goal of price stability. This would seem to open up the interesting possibility that the court, if petitioned by its citizens, could also force German politicians to take action against the Bundesbank for failure, as part of the Eurosystem, to effectively stem deflation. Of course this is not exactly what Professor Sinn has in mind. It is utterly inconceivable that Germans, supposedly scared of nothing else in the world but hyperinflation, could ever worry too much about the opposite threat wreaking havoc across Europe—even as destructively-low inflation has been the reality for quite some time now.

And then there is Otmar Issing, formerly a professor of economics at Würzburg University and chief economist at the Bundesbank and then the European Central Bank. His recent FT op-ed is a response to worldwide calls on Germany to change its steadfastly-held austere fiscal stance and finally help the eurozone to recover. Here is Professor Issing’s diagnosis of the situation: continue reading…


New Book: Economic Development and Financial Instability, Selected Essays

Michael Stephens | October 28, 2014

The first collection of essays by Jan Kregel, focusing on the role of finance in development and growth, has just been made available through Anthem (edited by Rainer Kattel).

From the foreword by G. C. Harcourt:

As I wrote in my remarks when Jan and I were the co-recipients of the 2011 Veblen Commons Award, “I regard Jan as the best all-round general economist alive” (Journal of Economic Issues, XLV, June 2011, 261). I have been nagging him for years to bring out a volume (preferably volumes) of his essays for surely, in his case, the whole is greater than the sum of the parts, splendid though each part is. … Jan is steeped in the history of our subject. He has an intimate knowledge and understanding of the work of past greats and the relevance of their contributions to their times and ours. Jan has an especially deep understanding of the nature of money and finance, and of the institutions associated with them and of the indissoluble relationship between them and the real economy, whether in developed or developing economies. He couples this with a flair for designing humane, realistic policies, in the process bringing out clearly the shortcomings of existing institutions and policies in a wide variety of settings.

Economic Development and Financial Instability_Selected Essays Kregel