Minsky Summer Seminar: Apply Before March 1st

Michael Stephens | February 9, 2016

The deadline to apply for this year’s Hyman P. Minsky Summer Seminar is approaching:

Organized by the Levy Economics Institute of Bard College with support from the Ford Foundation

Levy Institute
Annandale-on-Hudson, New York

June 10–18, 2016

The seventh Minsky Summer Seminar will be held at the Levy Economics Institute in June 2016. The annual Summer Seminar provides 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. Organized by Jan Kregel, Dimitri B. Papadimitriou, and L. Randall Wray, the Seminar program is geared toward graduate students and those at the beginning of their academic or professional careers. The teaching staff includes well-known economists concentrating on and expanding Minsky’s work.

Applications may be made to Kathleen Mullaly at the Levy Institute (mullaly@levy.org), and should include a current curriculum vitae. Admission to the Summer Seminar includes provision of room and board on the Bard College campus.

Due to limited space availability, the deadline for applications is March 1, 2016.

A user name and password are required for the Summer Seminar webpage; participating students may log in by clicking here.


Folbre on Gender and Economics

Michael Stephens | February 8, 2016

Senior Scholar Nancy Folbre was interviewed by Woman’s Work on the wage gap and women’s underrepresentation in economics:

Folbre: [M]arket logic doesn’t apply to care of dependents, a more traditionally feminine obligation. Children, the sick, and the frail elderly don’t fit the preconditions for consumer sovereignty in market exchange. Most care of dependents takes place outside the market. Women generally take more responsibility for this care than men do. …

The whole concept of concern for other people or interdependent utilities or obligations for other people, these are largely absent from the market paradigm. The textbook assumption is that participants in the market don’t care about other people, they have independent preferences. They are basically making decisions based on prices and income. It’s a very narrow, stripped down characterization. In some instances, it may be accurate. But a lot of the work that women, in particular, do doesn’t involve impersonal transactions.

We live in a world shaped by a moral division of labor that is highly gendered.

Read the rest here.


Auerback on Debt and the US Economy

Michael Stephens |


How Long Until Greece Recovers?

Michael Stephens | February 5, 2016

The Levy Institute has completed its most recent medium-term projections for the Greek economy. The outlook, unsurprisingly, isn’t reassuring.

The baseline simulation, which assumes the continuation of current policy, shows the GDP growth rate turning positive in 2017 and reaching 2 percent in 2018. Yet, in a reflection of how much damage has been done by the crisis, even if Greece managed a growth rate around that pace (2.1 percent per year), it would take until 2030 for real GDP to return to its 2006 level. It’s fair to wonder whether such a delayed recovery — with little relief on the horizon for the elevated numbers of poor and unemployed in Greece — is politically and socially sustainable.

And there’s worse news in the report. The baseline generated by the authors’ model for Greece reflects a scenario in which future growth would be export-driven. But this increase in Greek exports would not be generated primarily by price competitiveness (“the price elasticity of Greek exports is low while the income elasticity is high”). That is, the decline of Greek wages — the centerpiece of the official “internal devaluation” strategy — isn’t projected to produce much of a payoff in terms of net exports.

Instead, the rise of exports in this scenario is almost entirely due to assumptions about the economic health of Greece’s trading partners; assumptions taken from the IMF. And as the authors caution, the IMF is likely overstating European growth prospects. So this lost decade-and-a-half for Greece (more, if you’re counting from the onset of the crisis) is actually the “optimistic” scenario.

What can be done? Some of the plans being considered are simply too tame. The authors run a second simulation based on the implementation of a “Juncker Plan”: an increase in public investment for Greece, funded by European institutions, of €1 billion in 2016, €2 billion in 2017, and €3 billion in 2018. The results suggest such a program could help raise GDP growth rates (to -0.4 percent in 2016, 2.9 percent in 2017, and 2.8 percent in 2018), but according to the authors the lag between output and jobs would still leave unemployment too high for too long. Something better targeted, and less reliant on the good will of European institutions, is required. More on that soon.

Read the full Strategic Analysis here and the One-Pager version here.


Stormy Fantasies about Labor Cost Competitiveness

Jörg Bibow | January 27, 2016

Lamenting that intellectual inertia is responsible for slow progress in economics, Servaas Storm sets out to teach a lesson to everyone who may still be foolish enough to believe that relative labor costs matter for international competitiveness and that diverging unit labor cost trends – specifically persistent wage moderation in Europe’s largest economy, Germany – may have played a rather critical role in sinking Europe’s monetary union. It is a dangerous myth, Storm proclaims, that labor costs drive competitiveness. He suggests that the eurozone crisis originated from a different set of causes altogether; German wages are little more than trivia.

I fear that Servaas Storm will further add to existing confusions about both German wages and the widely misdiagnosed and never-ending eurozone crisis more generally. His blog of January 8, 2016 titled “German wage moderation and the eurozone crisis: a critical analysis” (see here) is hardly a masterpiece in analytical coherence. I will focus on some key issues.

Storm appears to be making three big points. First, German wage moderation is a mere fiction. If Germany’s competitiveness improved at all under the euro, that was the result of nothing else but its engineering ingenuity: “It was German engineering ingenuity, not nominal wage restraint or the Hartz ‘reforms’, which reduced its unit labor costs. Any talk of Germany deliberately undercutting its Eurozone neighbors is therefore beside the point.” Second, Storm essentially agrees with the “consensus narrative” recently proposed by a group of CEPR-associated researchers (see here) which sees the origin of the eurozone crisis in rampant capital flows causing massive intra-eurozone current account imbalances. German wage moderation does not feature at all in the consensus narrative, a conspicuous neglect that prompted Peter Bofinger’s recent critical response (see here; and also here). Storm’s attack therefore reserves some special venom for Bofinger (amongst various other proponents of the wage moderation hypothesis, including this author). Third, the eurozone’s real underlying problem, according to Storm, is that the euro has “not led to a convergence of member countries’ production, employment, and trade structures, but rather to a centrifugal process of structural divergence in production.” Somehow – but other than through wage moderation! – Germany got even stronger in high value-added, higher-tech manufacturing under the euro, while the eurozone South remained stuck with low value-added, lower-tech manufacturing.

In the course of presenting these three points (or hypotheses) Storm not only thoroughly misrepresents the “wage moderation hypothesis,” he also fails to shed any new light on the supposed role of capital flows, while ending up with the rather disheartening proposition that the euro is essentially nonviable until the eurozone’s production structures converge to the German standard.

Regarding the first point, the idea that German wage moderation may be fiction rather than fact, I am simply baffled. The wage moderation hypothesis (at least as I have presented it; see here, here, and here, for instance), starts from the following facts (data courtesy of Eurostat and the OECD). First, Germany’s unit labor cost trend stayed persistently below the common stability norm as set by the ECB; reneging on the golden rule of currency union. Second, German wage inflation was the clear outlier in the downward direction. Third, German productivity growth barely met the euro area average. continue reading…


Why Minsky Matters, Reviewed in Times Higher Education

Michael Stephens | January 13, 2016

L. Randall Wray’s recently published book on the work of Hyman Minsky (Why Minsky Matters: An Introduction to the Work of a Maverick Economist) was reviewed by Victoria Bateman for Times Higher Education. Here’s a taste:

Having experienced the pain of a new Great Depression, the very least we should expect is that economists try to learn from it. Unfortunately, still too few of them understand the importance of what Minsky had to say …. While Minsky is now quite well known, his contributions are still widely ignored or misunderstood.

In terms of name recognition or casual citation, there’s been a lot of progress made in raising Minsky’s profile. As for comprehension of his vision of economics and public policy (or the influence of that vision on policymaking), there’s a tremendous amount of work ahead. Here’s hoping the book helps us move a little further along that path. Read the entire review here.


The Only Graph Needed to Explain the New Year’s Dive of 2016: Larry Summers Sort-Of Gets It, the Fed Doesn’t Seem to Get It, and the Media Seems Hardly Aware of It

Michael Stephens | January 11, 2016

by Daniel Alpert

A practically unnoticed phenomenon underpins the negative U.S. economic data trends we saw in Q4 2015 and the enormous increase in market volatility in the first week of 2016: the United States’ global competitors are—once again—using vast pools of low-wage, underutilized labor, a huge excess of domestic production capacity, and/or the ever-stronger U.S. dollar, to grab whatever share of demand they can in order to maintain/recover growth in a sluggish global economy.

While the plummeting price of energy—the result of insufficient global demand and huge new oversupply from North America itself—has cut America’s energy deficit to a level less than 20 percent of its 2008 peak, the overall current account deficit of the U.S. grew rapidly in 2014 and, more alarmingly, in 2015.  The nation’s current account is the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers.

But here’s the brutal bottom-line: the non-energy portion of the U.S. current account deficit, relative to GDP, has ballooned by 236 percent since its low in December 2013, during which period the energy deficit fell by 57 percent.

Alpert_The Only Graph_Fig1

The U.S. economy is showing weakness in Nearly Everything But Employment (“NEBE”) and even its salutary pace of job formation is plagued by an unusual level of temporary and low wage hiring, painfully low labor force participation and very low levels of nominal wage growth. Consumption is therefore not rising in a manner anywhere near the rise in headline job formation. And the demand-push inflation that one would normally expect to have emerged with the creation of 5.6 million jobs over 24 months is nowhere to be found.  In fact, the U.S. is joining the rest of the world in a persistent pattern of alternating deflation and disinflation (“lowflation”).

The substantial slowdown in China, the evident failure of Abenomics in Japan, the collapse of the Brazilian and Argentinian economies, and a failure of the eurozone to get off the mat despite the “anything it takes” monetary posture of the European Central Bank, have all contributed to declining global aggregate demand for all sorts of production. This has been reflected particularly acutely in the energy and other commodities sectors.

All of the foregoing constitute a bitter pill for the United States economy which, better than any other, was able to substantially reduce its trade deficit from the end of the recession through 2013 and to lever its size, its willingness to engage in extraordinary monetary easing early and often during and following the Great Recession, and its inherent resiliency to produce at least a tepid recovery while other regions slowed or remained mired in slump.

After all its deft maneuvering, the U.S. is once again being inundated by cheap imports and seeing its ability to export severely impaired, because of a combination of its competitors’ internal deflation and efforts (direct and indirect) to devalue their currencies relative to the U.S. dollar and each other’s.  This is vastly constraining U.S. economic growth and may result in its contraction at some point during 2016.

This nearly universal beggar-thy-neighbor behavior has all the makings of a very serious global economic disruption and proceeds from the same global economic imbalances that we saw before, during and after the Great Recession; the vast oversupply of labor, production, and capital relative to aggregate demand for all three.

Where is this coming from? continue reading…


Registration Now Open for 25th Annual Hyman P. Minsky Conference

Michael Stephens | December 17, 2015

25th Minsky Conference Banner

The 2016 Minsky Conference will address whether what appears to be a global economic slowdown will jeopardize the implementation and efficiency of Dodd-Frank regulatory reforms, the transition of monetary policy away from zero interest rates, and the “new” normal of fiscal policy, as well as the use of fiscal policies aimed at achieving sustainable growth and full employment. Is economic policy leading to another Minsky moment?

Organized by the Levy Economics Institute of Bard College with support from the Ford Foundation

Levy Economics Institute of Bard College
Annandale-on-Hudson, New York 12504

April 12–13, 2016

The attendance fee is $75 and due upon registration. To register, click here.

Visit the conference website for more information about accommodations and directions to the Levy Institute. (Program details will be posted as they become available.)

A list of participants is below the fold: continue reading…


Applying the Brakes: Four Long and Winding Roads to “Normalcy” for the Fed

Michael Stephens | December 15, 2015

by Daniel Alpert

It is highly likely that this week will see the Federal Reserve’s Open Market Committee elect to increase the Fed Funds policy rate of interest for the first time since June of 2006, and after slashing the rate to the lowest level in history—approaching the so-called zero lower bound.

But the return journey to interest rate policy rate normalcy will be a long and winding one. The ability to influence longer term interest rates, over which the Fed has no direct control, will be even more limited (in fact, after the Fed’s move and any interim market volatility, long term market interest rates are likely to fall if the global economy maintains it present trend).

Yet it is very clear that the policy makers at the Fed are quite anxious to regain the control over monetary policy that they very much lack at the zero lower bound—if only to be able to do something when a new recession emerges.

Here, then, are the four routes that the Fed may choose to head down in order to achieve interest rate normalization, and my opinion of how effective (or ineffective) each policy is likely to be if implemented.


The Policy Rates—Fed Funds and the Discount Rate

How it Works:
The Federal Reserve Banks are the banks to the banking industry. When a bank is short of liquidity (generally overnight) it can obtain loans from the Fed, based on the quality of its balance sheet and/or the pledge of specific assets (discounting). The Fed sets a target rate for each of these policy rates and, in normal times, these rates often act as a benchmark for banks’ own short term lending to clients, as banks lend at a margin to their own cost of funding.

Effectiveness in Current Environment:
When lending activity is brisk, and bank liquidity is tighter, the Fed Funds rate (and, to a far lesser extent, the discount rate, as discounting is far less common) can have a substantial impact on market interest rates. But today, banks are awash in surplus liquidity. Even if a bank needs an overnight injection of liquidity, it can easily find that from another bank, happy to lend the money rather than leave it idle. The banking system in the aggregate has over $2 trillion of excess reserves (vs. mandatory reserves), most of which is on deposit at the Fed itself. So raising the Fed Funds rate will have no real effectiveness other than psychological.


Paying Banks Interest on Bank Reserves

How it Works:
Prior to the financial crisis, whatever small amounts (less than $200 billion) that the banking industry had on deposit at the Fed earned no interest. In the distress of the crisis, in one of the many ways that the Fed bailed out the banking system, the Fed commenced paying interest on reserves at 25bps per annum. In theory, of course, paying interest to banks to have their funds sit idle is contractionary. But income was far more important to banks in the crisis and reserves were building at a frantic pace relative to lending opportunities. If the Fed were to tighten by increasing interest paid on reserves, it could – in theory – slow (or raise the cost of) market lending.

Effectiveness in Current Environment:
Here we get into a “through the looking glass” sort of policy world. Why, with the economy less than robust, would the Fed want to discourage or limit bank lending in the first place? Yet, the whole purpose of monetary tightening is to do exactly that in order to lessen the chance of the economy overheating in the future (as well as, at the zero bound at which we now find ourselves, to enable the Fed to regain control of monetary levers). But here too there is a problem in assuming that such a move would be effective. There simply isn’t a lot of loan demand by creditworthy borrowers. Sure, there are plenty of non-creditworthy borrowers out there who would love to have money, but lending to them is (at least post-financial crisis) not the business of banking. So paying more interest on reserves (while certainly welcome by the banks) is unlikely to force up market rates all that much.


Reverse Repurchase Agreements

How it Works:
As most everyone knows, the Fed was on a five-year-plus buying binge to acquire U.S. Treasury and Mortgage Backed Bond Securities, beginning in 2009. It now owns trillions of dollars of government debt and government-guaranteed debt. The easiest way to force interest rates higher (which would be traumatic at this time) would be to simply dump those securities back into the market (see next slide). Instead, the Fed can pull money (cash) out of the system by “borrowing” against the securities it holds on a short term basis to banks and non-banks with excess cash. As it offers more of these securities for overnight or short term “repo” it would at some point push the rates it pays on the repo contract higher, because it will reduce the availability of excess cash laying around

Effectiveness in Current Environment:
At this time, reverse repos constitute the Fed’s greatest hope for managing interest rate policy. They have the advantage of being flexible and very reversible if things go downhill in the economy. The NY Fed’s open market operations unit can offer fewer or more repo contracts each day to adjust market interest rates. Furthermore, since the Fed owns securities of varying maturities, it can play up and down the yield curve, in theory. The problem is, this has never been done before in scale and no one knows how it will really play out, or—of greater importance, perhaps—how the market will work to “game” the Fed’s repo activity in order to better profit from it.


“Quantitative Tightening”

How it Works:
As alluded to above, the Fed—in theory—could simply sell back to the market the enormous volume of government securities it acquired post-financial crisis. This would be a blunt instrument of the highest order. If they sell enough securities, it would push interest rates higher by draining cash from the system.

Effectiveness in Current Environment:
This method is anathema in the Fed’s current thinking. It could only be reversed by a resumption of quantitative easing and would push interest rates much higher and very rapidly. This is a supply and demand issue. The Fed holds the largest inventory of U.S. government bonds on the planet and if the market believes that inventory is going to be dumped, the price of bonds will plummet, driving interest rates higher and the economy of the U.S., if not the world, into a nose dive.

Daniel Alpert is the Managing Partner of Westwood Capital, LLC and a fellow in economics at The Century Foundation.


Want More – and Better – Jobs? Put Women in Charge

Tamar Khitarishvili | December 10, 2015

I was recently in Tbilisi to participate in a conference that took stock of what we know about the challenges of job creation in the South Caucasus and Western CIS.

While researching gender inequalities in the labour markets of these countries, I searched for evidence on how the challenge of job creation can be overcome without perpetuating gender inequalities in the region, and preferably, by reducing them.

I quickly discovered that there was no simple answer to this question. Nevertheless, I came away with a couple of key insights.

One was that expanding women-owned businesses could be a way to create more and better jobs.

Female-owned businesses not only tend to operate in labour-intensive sectors but – and more surprisingly – they have greater scale economies than male-owned businesses, which means that their performance benefits more from expansion.

Importantly, they tend to hire proportionately more women.

For example, in 2009 in Georgia, almost 60 percent of full-time workers in firms where women were among the owners were female, compared to 31 percent in firms without women owners.

This suggests that if we push for more female-owned businesses, we can create better jobs. It also suggests that private-sector development policies would be more effective if they had stronger gender components.

For example: Would tax breaks for start-ups with their own daycare facilities increase business formation rates?

Secondly, my research further convinced me of the need to tackle the issue of care work, a burden borne mostly by women.

Childcare burdens are a major factor preventing women-owned businesses from expanding and generating wage employment, which we know makes a dramatic difference in empowering them.

Childcare burdens also prevent women from seeking wage employment. Therefore, alleviating childcare constraints can carry us a long way towards expanding women’s economic opportunities.

It helps that, as independent new research finds, the expansion of the childcare sector directly creates more and better jobs for women – as well as for unemployed men. It is heartening that UN organizations are supporting such work.

Most certainly, a comprehensive approach will be needed to tackle the challenge of achieving inclusive job growth in the region and beyond.

Nevertheless, all this tells us that taking a gender lens to employment creation is an important part of the solution.

(cross-posted at UNDP’s Voices from Eurasia)