This is the first in a series of blog posts on financing infrastructure assets

Insufficient or inadequate infrastructure in both developing and developed economies has sparked a debate about whether financing is sufficient to sustain infrastructure investment to at least keep pace with projected global GDP growth. The task of keeping the minimum investment required to maintain current levels and fostering incremental spending to close the infrastructure gap has revived the debate over the role played by each actor in closing the gap and how to finance this process (see for instance G-20 2013; OECD 2013; World Bank 2015).

One of the major post-crisis challenges is that in spite of an ultra-low interest rate environment or even negative nominal and real rates, investment has been anemic in developed and developing economies (IMF 2015). This is particularly important because, since the crisis, investment has collapsed across all sectors (public, business, and household sectors) in Europe (McKinsey 2016, 2). And in the United States, “the trajectory of net fixed capital formation, which decreased from 12 percent of GDP in 1950 to 8 percent in 2007, then fell to only 4 percent in 2014. Average depreciation rates accelerated by about 20 percent during the 1980s as companies invested in shorter-lived assets such as ICT equipment but did not compensate in terms of higher gross investment rates. This amplified the decline in net investment” (2). To make matters worse, most governments in developed and developing nations (with the exception of a few cases) are cutting back on infrastructure spending due to fiscal consolidation (Figure 1), generating a public-funding shortfall in infrastructure investment.

Figure 1

Source: Mckinsey 2016, p.11

Moreover, insufficient private investment and declining real public investment have contributed to reduce the stock of public capital as a share of output over the past three decades (Figure 2). continue reading…

The 27th Minsky Conference — “Financial Stability in a World of Rising Rates and the Repeal of Dodd-Frank” — just wrapped up yesterday. Anyone interested in the slide presentations can find them below:

Video of all the sessions, speakers, and Q&A will eventually be posted on the Institute YouTube page.

Director of Research Jan Kregel is one of the editors and contributors for a new collection of essays devoted to the work of Alessandro Roncaglia:

Classical Economics Today: Essays in Honor of Alessandro Roncaglia is a collection of essays that pays tribute to Alessandro Roncaglia whose research is based on Schumpeter’s dictum that good economics must encompass history, economic theory and statistics, and therefore does not generally take the form of elegant formal models that are applicable to all and everything. In this direction, Roncaglia is inspired by the Classical economists of the past and becomes a model for present-day Classical economists. A perceptible family air imbues the essays: all the contributors are friends of Roncaglia and see his personality and his interests as a common point of reference.

View the table of contents below the fold:

continue reading…

The Levy Economics Institute of Bard College is pleased to announce the ninth Minsky Summer Seminar will be held from June 17–23, 2018. The Seminar will provide 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 outlook. It will also provide an introduction to Wynne Godley’s stock-flow consistent modeling methods via hands-on workshops.

The Summer Seminar will be of particular interest to graduate students, recent graduates, and those at the beginning of their academic or professional careers. The teaching staff will include well-known economists working in the theory and policy tradition of Hyman Minsky and Wynne Godley.

Applications may be made to Kathleen Mullaly at the Levy Institute (mullaly@levy.org), and should include a letter of application and current curriculum vitae. Admission to the Summer Seminar will include provision of room and board on the Bard College Campus. The registration fee for the Seminar will be $325.

Due to limited space availability, the Seminar will be limited to 30 participants; applications will be reviewed on a rolling basis starting in January 2018.

Last year’s seminar featured the following faculty (the roster changes somewhat from year to year, but will be broadly similar for ’18):

Robert J. Barbera
Codirector, Center for Financial Economics, The Johns Hopkins University

Leonardo Burlamaqui
Associate Professor, University of the State of Rio de Janeiro

Fernando J. Cardim de Carvalho
Senior Scholar, Levy Institute; Emeritus Professor of Economics, Federal University of Rio de Janeiro

Steven M. Fazzari
Research Associate, Levy Institute; Professor, Washington University in St. Louis

John F. Henry
Senior Scholar, Levy Institute

Arturo Huerta González
Professor of Economics, Universidad Nacional Autónoma de México

Fadhel Kaboub
Research Associate, Levy Institute; Associate Professor, Denison University; President, Binzagr Institute for Sustainable Prosperity

Stephanie A. Kelton
Research Associate, Levy Institute; Professor, University of Missouri–Kansas City

Jan Kregel
Director of Research, Levy Institute; Professor, Tallinn University of Technology

Tracy Mott
Associate Professor and Chair, Department of Economics, University of Denver

Michalis Nikiforos
Research Scholar, Levy Institute

Felipe Rezende
Assistant Professor of Economics, Bard College

Pavlina R. Tcherneva
Research Associate, Levy Institute; Associate Professor, Bard College

Mario Tonveronachi
Professor, University of Siena

Frank Veneroso
President, Veneroso Associates, LLC

L. Randall Wray
Senior Scholar, Levy Institute; Professor, Bard College

Gennaro Zezza
Research Scholar, Levy Institute; Associate Professor, University of Cassino

Today at the New School, L. Randall Wray and Stephanie Kelton take part in a public workshop organized by the National Jobs for All Coalition that is focused on developing a “A New ‘New Deal’ for NYC and the USA.”

Wray and Kelton will be sharing initial findings from an upcoming Levy Institute project that proposes a universal job guarantee for the United States. The program would create nearly 20 million jobs that pay $15 per hour plus benefits, raising national output by over $500 billion annually, stimulating the private sector to create more than 3 million additional jobs. Using standard simulation models, the study finds that impacts on inflation would be negligible, while state and local government budgets would improve by $60 billion annually and as many as 14 million children would be pulled out of poverty.

The entire event begins at 5pm today. You can follow it live here:

The schedule for the two-day event can be found here.

The Levy Institute is accepting applications to the M.S. and M.A. in Economic Theory and Policy for Fall 2018.

The new, one-year M.A.* joins the two-year M.S. in offering students an alternative to mainstream programs in economics and finance. Our graduate curriculum is rooted in the Institute’s distinctive research program, including macroeconomic theory and policy analysis, the development and exploration of alternative measures of economic well-being and poverty, and continuing efforts to extend the work of Distinguished Scholars Hyman Minsky and Wynne Godley.

Students can specialize in one of the Institute’s five research areas:

• Macroeconomic Theory, Policy, and Modeling
• Employment and Labor Markets
• Monetary Policy and Financial Structure
• Distribution of Income, Wealth, and Well-Being
• Gender Equality and the Economy

You can find out more about these programs at the new graduate website:

The application deadline for early decision is November 15th; regular decision is January 15th.

Interested students can join upcoming online information sessions run by program faculty:

October 19th, 7:00pm (EST) with Jan Kregel, Director of the Institute’s Master’s Program (sign up here)

November 3rd, 9:00am (EST) with Ajit Zacharias, Director of the Institute’s Distribution of Income and Wealth Program (sign up here)

A previous session with Director of Applied Micromodeling Thomas Masterson can be viewed here at the Levy Institute Graduate Programs Facebook page.

And don’t miss the work that Levy M.S. students and recent graduates have done at The Minskys.

* The M.A. is currently open only to US citizens and permanent residents — the M.S. accepts international students.

The Council on Foreign Relations’ Brad W. Setser has produced a couple of interesting blogposts on Germany’s fiscal policies of late. The first one, titled “Germany Cannot Quit Fiscal Consolidation,” was published at the end of August. On September 18th, the second one appeared, titled “The Global Cost of the Eurozone’s 2012 Fiscal Coordination Failure.”

The latter is more limited in scope and draws heavily on a recent report by the Banque de France. Setser elaborates on the rather obvious point that the eurozone’s attempt at fiscal austerity in the years 2011–13, when the currency union experienced the second leg of its double-dip recession, was counterproductively harsh:

The consolidation observed between 2011 and 2013, based on the overall change in the primary structural balance of general government, is now estimated by the European Commission at almost 2.9% of potential GDP…the fiscal effort was 1.5 percentage points of GDP in 2012. (Banque de France 2017)

Corroborating the Banque de France’s analysis, Setser points out correctly that there was no sound economic case for Germany to embark on austerity just at the time when it also demanded this form of self-sacrifice, in the name of the “credibility” of the euro regime, from its euro partners. If anything, Germany should have continued with at least mildly expansionary fiscal policy to keep the eurozone’s recovery on track and enable its internal rebalancing. Setser chides the Banque de France for not mentioning that France, too, could have somewhat lessened and delayed its own fiscal tightening to support the regional growth momentum at a critical time.

It is certainly very interesting that the Banque the France today finds the courage to present an argument that implies a severe critique of Germany’s fiscal folly. Perhaps it felt inspired by the fresh spirit of the republic’s new president. Perhaps open debate will also help official Europe to finally catch up with the realities of truly enormous collateral damages caused by its flawed policy doctrines of “growth-friendly” austerity and structural reform. As it stands, the eurozone is at high risk to repeat past mistakes as soon as its current stream of good luck runs out.

The more recent blogpost also echoes Setser’s main concern analyzed in the earlier blogpost of late August: global rebalancing. continue reading…

If you’re in the vicinity of New York City at the end of October, Levy scholars Randall Wray and Stephanie Kelton are taking part in a public meeting organized by the National Jobs for All Coalition. The meeting is part of a series of public events focused on the legacy of New Deal.

Wray and Kelton will be participating in a panel on the job guarantee — “Political and Economic Prospects for Achieving a Federal and a New York City Job Guarantee” — alongside Philip Harvey and Darrick Hamilton (who was recently recognized by Politico for his work on the job guarantee).

The event is hosted at the New School (Oct. 27) and Columbia Law School (Oct. 28). You can download the flyer and program here. For registration and other details, see here.

It took a very long time. Too long. But just in time for the recent G20 meeting in Hamburg on July 7-8, The Economist’s cover page story featured Germany’s persistent current account surpluses as the world community’ new “German problem”; supposedly an issue of foremost interest to the G20. In fact, Germany has run up current account surpluses exceeding 4 percent of GDP in each and every year since 2004. For the last couple of years Germany’s surpluses even exceeded 8 percent of GDP. Running at over 250 billion euros annually, Germany is the world champion in what is often portrayed as a global competition by the German media and body politic, and not without pride. At close to 300 billion US dollars last year, China’s surplus of 200 billion dollars only came in as a distant second.

Just as with Germany’s, China’s external surpluses had started to skyrocket at the time of the global boom of the 2000s. It reached a peak at over 400 billion in 2008, amounting to close to 10 percent of China’s GDP at the time. Since then China’s current account surplus has roughly halved and amounts to less than 2 percent of China’s GDP today.

At least in that regard, China is a good global citizen. Reducing and containing “global (current account) imbalances” has indeed been one of the agreed upon objectives of the G20 from the time the group of leading countries took fresh prominence in the context of the global crisis. At the 2009 Pittsburgh summit, the G20 leaders conceived the group’s “Framework for Strong, Sustainable, and Balanced Growth.” While other countries have generally significantly reduced their current account deficits or surpluses, respectively, since the crisis, Germany is the conspicuous outlier as the country’s current account surplus has leaped into its unchallenged lead position of today.

The Economist was rather late in pointing this out so prominently on its cover page just prior to the G20 Hamburg summit. Perhaps it is too hard today to miss the writing on the wall that is a signature piece in Donald Trump’s “America first” strategy to global issues. The US president may get some of the details wrong about Germany’s trade and may also be wrong in bringing a sharp bilateral angle to the matter. But, globally, the situation is simply undeniable: Germany is the world champion of large and persistent current account surpluses. The country is in continuous breach of the “rules of the game” without showing any signs of discomfort about an “achievement” that much of the country even takes pride in. continue reading…

The Economist‘s analysis of Germany’s job market miracle of the past ten years offered in “What the German economic model can teach Emmanuel Macron” is more balanced than the usual accounts one hears in Germany itself. Germans are in love with the idea that structural reform of their labor market and persistent budgetary austerity were solely responsible for the German economy’s superior performance in recent years. The Economist highlights that Germany was fortunate enough to embark on its route for national salvation – the decisive lowering of its labor costs relative to its European partners – at a time when the world economy and global trade were booming, when China was craving German capital goods, and German companies were restoring their special relationship with a region reemerging from behind the iron curtain. No doubt France and its struggling euro partners are facing a far less benign regional and global environment today.

The Economist would have done well to remind us that despite enjoying a more favorable economic context, Germany became known at the time as “the sick man of Europe/the euro.” Between 1996 and 2006, Germany managed to almost persistently suffocate domestic demand to such an extent that the economy was growing, if barely, on exports alone: the background to Germany’s 8.5 percent-of-GDP current account surplus today. As for France, the bar is much higher today, not only because of stagnant export markets, but also for the fact that France is a far more closed economy than Germany. In other words, there is more to suffocate in terms of domestic demand, but less to gain in terms of exports. In short, the chances of France getting seriously sick by mimicking Germany are very high indeed.

Also, if Europe’s second-largest economy were to embark on the deflationary path earlier trodden by Germany, bear in mind here that the European Central Bank is already in a quagmire. After overcoming many obstacles, legal and intellectual, the bank is applying its full weaponry today in trying to move Eurozone inflation back closer to its 2 percent price stability norm – while facing the prospect of soon running out of ammunition in terms of the fast-shrinking German public debt available for purchase on the market.

And this directs the attention to the true challenge that France and Europe are facing today: German public debt is shrinking fast because Germany runs a sizeable budget surplus. Quite obviously – as the vast imbalance between private saving and investment reveals, which is closely related to the surge in inequality in Germany –this is only made possible by the fact that Germany runs a massive external surplus: the counterparts to which are current account deficits and rising debts of other countries. The upshot of all this is that France and Europe have a zero chance to rebalance for as long as Europe’s largest economy refuses to rebalance too; which means that Germany’s evangelized, but greatly distorted, narrative of its own success will need some fine-tuning too.

For the sake of Europe, let us hope that Angela Merkel’s newfound wisdom that “we Europeans must really take our destiny into our own hands” means that Germany is finally getting ready for a decisive course change to its own economic affairs. Failure to do so, leaving France out in the cold under Emmanuel Macron, would bring Marine Le Pen back into the limelight much sooner than in five years’ time.