Archive for the ‘Employment’ Category

A Cycle of Financial Fragility?

Greg Hannsgen | June 3, 2015

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(click image above to enlarge)

Can a bull market founded largely on credit survive? A forthcoming Levy Institute working paper I wrote with Tai Young-Taft of Bard College at Simon’s Rock (link for those interested) represents an attempt to deal with the role of financial instability—along with other sources of economic fluctuations—in the dynamics of the economy. Here, I’ll focus mostly on the role of margin loans that are used by many investors and traders to leverage positions in stock. The model developed in the paper includes a role for several policy tools that might be used in attempts to stabilize the economy: a fiscal-policy rule with public production and unemployment rate targets, along with public-sector R&D, financial supervision and regulation, and a target for the inflation-adjusted interest rate on government debt.

Now, for the current situation. The figure above highlights one potential threat to stability designed to arise spontaneously in runs of the model: surges in the use of margin debt to finance investments in stock. The chart shows that the amount of such debt outstanding in the US relative to GDP rose sharply during the tech bubble and the period leading up to the financial crisis and recession of 2007–09, achieving a new peak each time. Subsequent financial market collapses led to cyclical declines in the use of this form of leverage. On average, for the first quarter of 2015, this ratio stood at more than .028, suggesting that the stock market’s vigor again rests to a great extent on heavy borrowing (see figure). (Moreover, some different but closely related uses of credit, such as bond issues that wind up financing stock buybacks, have also contributed to the post-recession bull market.) This column from the New York Times’s Floyd Norris from a couple of years back discussed evidence that margin-credit cycles helped fuel cyclical movements in stock prices and the economy. His column displayed a longer but now outdated margin loan series.

In the model, margin loans can generate positive feedback effects: a cycle of increasing margin loan balances and rising stock prices, or vice-versa.  The story is similar to that of the “levered losses” in housing that took place in a number of countries earlier in this decade (see the recent book House of Debt for one account of the story, although even in this version of the story, I am inclined to see excessive optimism about the usual cure by wage and price adjustments); indeed, big, unsustainable run-ups in asset prices tend to be driven at least in part by credit booms. The situation shown in the figure is only one of many somewhat worrisome signs of market fragility. At the moment, fragility generally seems to be manifested most clearly in big increases in the quantities of various assets and liabilities relative to flow variables such as income and GDP, rather than in yield data.

More on the new paper and the model in it, for those inclined to look into it: continue reading…

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The State of Labor, New Models of Organizing, and the Future of Work

Michael Stephens | March 18, 2015

The Levy Institute and SEIU 775 are cosponsoring a labor workshop at Bard College on April 20th. The workshop, which is free and open to the public, will focus on three major themes, each corresponding to a panel: The State of the American Labor Movement, The Future of Work, and New Models of Organizing and Worker Power.

The flyer for the event, including the schedule and list of participants, is below (click to enlarge; download pdf here):

Bard Labor Workshop_Flyer p1

Bard Labor Workshop_Flyer p2crop

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Beyond the Debt Negotiations: Greece’s New Deal?

Michael Stephens | March 10, 2015

The negotiations over Greece’s public debt and the terms of its bailout agreement have understandably taken center stage. Behind all the twists and turns, the key consideration is that even if the public debt could be repaid through continuing with austerity policies — and there is little reason to believe it can — it would still be a mistake, for both moral and pragmatic reasons. But dealing with Greek debt and the impossible terms of the agreement signed by the previous government is just the first step in dealing with Greece’s needless humanitarian crisis.

As noted, our own Rania Antonopoulos, senior scholar and director of the Levy Institute’s Gender Equality and the Economy program, has joined the new Syriza government as Deputy Minister of Labor. Particularly germane to her new role in helping to combat unemployment, Antonopoulos has done extensive research on direct job creation policies for Greece, featuring estimates of the macroeconomic and employment payoffs and the fiscal impact, as well as work on setting up systems of monitoring and evaluation.

At the last Minsky conference in Athens, she spoke about the necessity for a targeted job guarantee or employer-of-last-resort proposal in the context of the perilous state of the Greek labor market, including discussion of the scale of the program, estimated macroeconomic outcomes, and potential financing:

Antonopoulos was also recently interviewed by Deutsche Welle on the subject of this targeted direct job creation policy (the whole interview can be found here):

Have Greece’s existing job support programs been successful?

The problem with the existing programs is that they focus on reskilling. They offer a maximum of two months or 80 hours of pay support, with the intention of helping people get some initial work experience.

But the main problem in Greece is lack of aggregate demand and consequent lack of jobs, not lack of skills. In fact, large numbers of highly qualified professionals have been leaving the country. And 80 hours isn’t enough to learn a new professional skill anyway. Also, the agencies managing the retraining programs ate up 75 percent of the available budget. Only 25 percent went to the unemployed as wages.

What kind of jobs do you envision creating?

We’ll work with local communities and initiatives to identify socially useful jobs. A key aim is to match people’s existing skills with socially needed tasks. We also want to stimulate economic activities that move in the direction of the new government’s development priorities.

Those priorities include renewable energy and sustainable fisheries, cooperative structures for locally produced food, organic farming… Plenty of initiatives have sprung up, but they need some support. The unemployed people trying to make them happen would be very happy to have wage support until they become sustainable independent businesses.

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Spain’s Proposal for a Job Guarantee

L. Randall Wray | March 5, 2015

Yesterday I participated in a press conference and gave the first of a series of lectures in Madrid on MMT and the Job Guarantee. At the press conference, Alberto Garzón announced his party’s plan to create a million jobs in a targeted JG: “IU plantea un plan de 9.600 millones para crear un millón de empleos en un año

Alberto and his brother, Eduardo, are well-versed in MMT. He emphasized that the barrier to full employment is not technical but political. If the political will exists, full employment can be achieved and sustained. MMT shows the way to understanding the policy options that are available to sovereign government.

The newspaper article summarized some of the points I made, arguing that we should no longer see the finances of a government as similar to those of a household:

Por su parte, Randall Wray, que ha estado presente en la presentación de la propuesta, ha rechazado las teorías que equiparan el funcionamiento del Estado con el de una familia, ya que el primero puede emitir su propia moneda y no puede quedarse sin dinero, por lo que sus opciones de gasto e inversión son diferentes y la austeridad no es la única salida posible.

Esto hace plausible el trabajo garantizado, que ya se aplicó de alguna manera en los años 30 del siglo XX en Estados Unidos con el ‘New Deal’ de Franklin D. Roosevelt, pero también en Argentina y, más recientemente, en la India, que incluso ha “incluido en su Constitución el derecho al trabajo”, que la Declaración Universal de los Derechos Humanos de la ONU también recoge.

La diferencia con este tipo de propuestas aplicadas hasta la fecha en otros países –”Casi todos los que tienen un paro inferior al 2%”, según el profesor estadounidense– es que la ambición de IU es que sea “universal y permanente”, y que no se desactive una vez superada la crisis.

Many other links to yesterday’s events are here.

A universal and permanent Job Gurantee will make full employment a reality.

garzon_wray_JG

I’ll report more on MMT in Spain tomorrow.

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Jobs for Greeks and for Americans, Too

L. Randall Wray | February 3, 2015

Here’s a nice piece:

The Workers’ Think Tank: With an eye on the United States and Greece, scholars at the Levy Economics Institute are developing plans to ensure full employment, by Sasha Abramsky, The Nation.

As Sasha notes, the Levy Institute has a novel approach to fighting unemployment: JOBS! Hardly anyone ever thinks about that—that the cause of unemployment is lack of jobs.

For some reason, virtually all policymakers and economists (including progressives) think that jobs will magically appear. True, some suggest that US unemployment is created because China (et al.) “steals” jobs that are rightfully due to America. Hence, the solution is to steal them back.

But why not just create more? Is it really that hard to come up with a list of things that people could usefully do, right here in America?

As Sasha writes, things appear to have improved in America,

“Yet scratch below the surface and you’ll see that the United States still has a considerable economic problem. While the official unemployment rate has fallen to 5.6 percent, the lowest since 2008, the percentage of the adult population participating in the labor market remains far lower than it was at the start of the recession. At least in part, headline unemployment numbers look respectable because millions of Americans have grown so discouraged about their prospects of finding work that they no longer try, and thus are no longer counted among the unemployed. Depending on the measures, only 59 to 63 percent of the working-age population is employed, far below recent historical norms.

Millions who lost their jobs during the recession have found work, but at lower wages and often for fewer hours per week than was the case before the financial collapse. In August, the US Conference of Mayors released data indicating that jobs created during the recovery paid an average of 23 percent less than jobs lost during the recession. That represents an extraordinary collapse in living standards for millions of people. Not surprisingly, according to the latest data, nearly one in six Americans are living below the federal poverty line.”

Unemployment remains far too high—and, more importantly, the employment rate remains far too low—because there are not enough jobs. Job seekers exceed job openings by a wide margin, across the entire spectrum of sectors. Here’s the latest data I could find (2012, and while things have improved a bit, it is not likely that we’d see much difference in 2014 data):

Unemployment by Sector

No matter where you look, there are plenty of job-seekers. And these data do not include those who’ve given up hope: official unemployment rates only include those actively seeking work. If you only hide 5 bones and send out 10 dogs to find them, you can be sure at least 5 dogs come back boneless. That’s what it still looks like across all sectors of our economy—far too few jobs out there. Five years into “recovery.” And with what looks like a possible slowdown coming.

(cross-posted from EconoMonitor)

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Needed Macro Policies: Targeted, Broad, and Universal

Greg Hannsgen | January 30, 2015

The recent 40 percent jump in the value of the Swiss Franc will have some effects similar to those of deflation where it seems to be taking hold, including Japan and much of Europe. When a currency increases in value, foreign debts in those currencies become more of a burden. The New York Times brings it home with the story of households in Poland and other European countries who have some foreign debt of their own—mortgages whose payments are suddenly much higher in their own currency, after the Swiss National Bank (the Swiss counterpart to the ECB and the Fed) stopped using foreign-currency operations to peg its currency against the Euro. In fact, the FT reports that mortgages in the Swiss currency make up 37 percent of Polish home loans. The Swiss decision was encouraged by a European Central Bank that is getting ready to push long-term interest rates down further through its own program of quantitative easing (QE). Instead of printing more Francs to buy Euro and other currency, the Swiss National Bank (SNB) allowed the Franc to rise in one big move, abandoning its peg to the depreciating Euro. This move will increase import demand in Switzerland from Poland and other European producers. But as always with a sudden devaluation, foreign-currency debtors suffer from a so-called currency mismatch problem as the amount of debt rises in terms of the things that they sell to make a living, including hours of labor.

Exchange rate pegs are difficult to maintain for an extended period, especially in relatively poor countries, as changing economic conditions cause misalignments in exchange rates. One reason not to institute a peg is the instability that can ensue when it is abandoned, and this instability can cause penury for debtors, including governments. A second bad policy is interest rates that that need to be reduced generally by the monetary policy authorities where possible. One policy approach is to target help at the debtors themselves, particularly households and countries that must be helped up to maintain autonomy. The latter include Greece, for which our Greek macro team recently suggested an interest-payment moratorium. Sometimes, a reduction in the amount owed, or principal, is in order, as it was —and probably still is—for many subprime and Alt-A (mid-range credit rating) borrowers affected by the US mortgage crisis. Eastern European countries debated converting Swiss mortgages into domestic-currency debts at a higher-than-market domestic exchange rate. A slightly less-targeted form of help is to implement jobs programs of various types and to hold the line on public-sector wages. But when unemployment and other economic indicators suggest stagnation if anything, such targeted policy stimulus helps, yet it has only an indirect impact on private investment, overall economic growth, and unmet infrastructure, poverty-reduction, and pension needs.

The ECB is smart to implement QE, given high rates of unemployment in almost every country in the Eurozone. The SNB may even be smart to allow its currency to rise, given strong economic performance. And by the same token, if the Polish government can broadly raise spending, increasing resources for budget items that encourage economic growth and inflation is under control (2 percent—one common benchmark—is rather low for a target, especially given high unemployment), it should do so. Monetary stimulus might also form part of the picture. With such a move, the government would take steps in the same direction as the ECB and the Japanese government, recognizing the threat of  debt deflation.

Generally, the a combination of the three types of policy outlined here would work effectively in many countries with high unemployment, weak growth, and large amounts of bad private-sector debt. Targeted help for borrowers can take many forms, but writing off a portion of the principal, with the central bank’s help, if necessary, is often the only way to avert widespread private-sector bankruptcies. In contrast, broad measures might include, for example, devaluations of the domestic currency, investments in infrastructure and R&D, wide-ranging open-market purchases, tax cuts, and other available measures to spur all sectors of the economy. Third, universal measures—programs available to all who meet eligibility criteria—would include Social Security and its counterparts in affected countries. (An employer-of-last resort, or ELR, program would fit within both universal and targeted categories.) It is more risky rather than less not to maintain such programs during a crisis.

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Jobs for Greeks

L. Randall Wray | January 28, 2015

With Syriza in the driver’s seat, Greece now has some hope for the end to austerity imposed by Germany and the troika.

Here’s a good short piece in the New York Times by C. J. Polychroniou, a research associate and policy fellow at the Levy Economics Institute. As he explains, what Syriza wants is no more—and no less—radical than what the USA did in the 1930s to deal with its Great Depression: “the bulk of Syriza’s economic program for addressing the catastrophic crisis in Greece, which has evolved into a humanitarian crisis, is inspired by President Franklin D. Roosevelt’s New Deal programs.”

The official press is reacting in horror! Oh the horror of bringing Democracy and Pinko policies into the Officially Neoliberal EMU regime! C.J. continues:

“Interestingly, the task for the implementation of the employment program has been assigned to a colleague of mine at the Levy Institute, Rania Antonopoulos, who has been appointed deputy minister of Labor and Social Solidarity under a Syriza-led government.”

Yes, Senior Scholar Rania Antonopoulos is director of the Gender Equality and the Economy program at the Levy Institute, specializing in macro-micro linkages of gender and economics, international competition, and globalization; job guarantee policies and their macroeconomic and employment impacts; social protection and poverty reduction; and the implications of paid and unpaid work on poverty indicators. She was one of the founders of “Economists for Full Employment” and has been a long-time supporter of the job guarantee.

And so, two Levy scholars have moved into government this month—Rania in Greece and Stephanie Kelton in Washington. What will the world come to?

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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…

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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):

 

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A Recovery for the Top 10%

Michael Stephens | October 7, 2014

Pavlina Tcherneva was interviewed on the Real News Network about what’s behind the numbers in her chart (below) showing the increasingly inequitable distribution of income growth in US economic expansions–and what we can do about it.

Tcherneva_Distribution of Income Growth_Levy OP 47

 

Related: “Growth for Whom?

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