Chicago Fed President Charles Evans spoke at last week’s Minsky conference, and news reports have focused on his comments regarding the expectation that the Federal Reserve will wait at least six months after the end of QE before beginning to raise interest rates (Evans: “It could be six, it could be 16 months”; “If I had my druthers, I’d want more accommodation and I’d push it into 2016,” but “the actual, most likely case I think is probably late 2015”).

But his speech might also be of interest to those who have been following the debate over whether the Federal Reserve is, let’s say, equally passionate about the two sides of its “dual mandate” (price stability and maximum employment). Right now, the Fed is missing both of its ostensible targets, with inflation below 2 percent and unemployment above the Fed’s estimate of the “natural” rate, which ranges from 5.2 to 5.6 percent (for Evans, it’s 5.25 percent). Many have suggested that the Fed appears much more concerned about inflation rising above 2 percent than it does about high unemployment, or below-target inflation, for that matter.

In the video below, Evans shares his view of how the Fed should “score” its hits and misses on unemployment and inflation:

the 9 percent unemployment rate we faced back in September 2011 can be depicted in “inflation-loss equivalent units” by showing the inflation rate that gives an equivalent loss when unemployment is at its sustainable rate. So what is that rate? If unemployment was at its natural rate, what would be the inflation rate that would make you equally uncomfortable as if you were facing the 9 percent [unemployment] rate? The answer is 5-1/2 percent inflation. […]

I think we need continued strongly accommodative monetary policy to get inflation back up to 2 percent within a reasonable time frame. After all, notice that the red and green regions of the bull’s-eye chart [posted below] show modest inflation above 2 percent is much more acceptable than even 6 percent unemployment.

Here he is on the outlook for inflation:

Despite current low rates, I still often hear people say that higher inflation is just around the corner. I confess that I am somewhat exasperated by these repeated warnings given our current environment of very low inflation. Many times, the strongest concerns are expressed by folks who said the same thing back in 2009, and then in 2010, and … well, you get the picture. […]

[A]nother potential source of inflationary pressures would be rising inflation expectations. Here, I mean a breakout of inflation expectations separate from any fundamentals that might accompany the previously discussed cases of rising commodity prices and stronger bank lending. One could think of this as the spontaneous combustion theory of inflation. The story goes like this: Households and businesses simply wake up one day and expect higher inflation is coming without any further improvement in economic fundamentals. Without appealing to esoteric economic theories of sunspots, these expectations don’t seem sustainable in the current environment.

The rest of the videos of speakers and panelists from the conference will be posted here.

(The following is an extended version of a piece that originally appeared in Greek in Kathimerini.)

The responses to unemployment by the last three governments in Greece have been characterized by sloppy proposals and an insignificant amount of funds in relation to the size of the problem. Regardless of whether there were political considerations behind it (or not), the recent announcement of the Prime Minister highlights, unfortunately, a relentless continuation of a lack of understanding of reality.

The Prime Minister recently (on January 29) told us that unemployment is a “sneaky enemy” and proceeded to announce measures to tackle the problem. He also indicated that “we do not promise things we cannot do, and we say no to populism and fine words.” The goal of the proposed measures, we heard, is to create 440,000 “work opportunities,” of which 240,000 will target the unemployed 15-24 years of age with no prior work experience. The announced measures totaling 1.4 billion euros will be financed by funds from the National Strategic Reference Framework (NSRF), social funds from the EU, and are classified into three pillars.

Specifically, the first pillar sets a target to recruit 114,000 unemployed for the private sector; an initiative that essentially subsidizes wages and social security contributions for businesses that hire unemployed who are up to 29 years old and some who are unemployed between the ages of 30 and 60. The second pillar concerns 240,000 young persons. This program will provide work experience and training for all unemployed up to 24 years old who have no prior work experience. These unemployed will also go to private companies for some time, or participate in vocational training centers (VTC) to improve their skills in order to find their first job, or both. The third pillar concentrates on hiring 90,000 unemployed from households that have no employed person, who will work in community service projects in the public sector and local government.

Assuming that strict rules are in place, with dedicated control mechanisms that will guarantee non-replacement of existing positions in the private and public sector (really, is there a sufficient number of public sector inspectors for this task?), prima facie, it all sounds positive and leads to the conclusion that at last the Prime Minister himself has publicly accepted his responsibility toward the citizens that have been left without a job. But appearances can be deceiving.

Let’s start with the obvious. continue reading…

Roughly a year after President Johnson used the occasion of his first State of the Union address to declare war on poverty, Hyman Minsky presented a paper on the subject at a conference in Berkeley. Here’s what he wrote:

The war against poverty is a conservative rebuttal to an ancient challenge of the radicals, that capitalism necessarily generates “poverty in the midst of plenty.” This war intends to eliminate poverty by changing people, rather than the economy. Thus the emphasis, even in the Job Corps, is upon training or indoctrination to work rather than on the job and the task to be performed. However, this approach, standing by itself, cannot end poverty. All it can do is give the present poor a better chance at the jobs that exist: it can spread poverty more fairly. A necessary ingredient of any war against poverty is a program of job creation; and it has never been shown that a thorough program of job creation, taking people as they are, will not, by itself, eliminate a large part of the poverty that exists.

The war against poverty cannot be taken seriously as long as the Administration and the Congress tolerate a 5 percent unemployment rate and frame monetary and fiscal policy with a target of eventually achieving a 4 percent unemployment rate. Only if there are more jobs than available workers over a broad spectrum of occupations and locations can we hope to make a dent on poverty by way of income from employment. To achieve and sustain tight labor markets in the United States requires bolder, more imaginative, and more consistent use of expansionary monetary and fiscal policy to create jobs than we have witnessed to date. …

The single most important step toward ending poverty in America would be the achieving and sustaining of tight full employment. Tight full employment exists when over a broad cross-section of occupations, industries, and locations, employers, at going wages and salaries, would prefer to employ more workers than they in fact do. Tight full employment is vital for an anti-poverty campaign. It not only will eliminate that poverty which is solely due to unemployment, but, by setting off market processes which tend to raise low wages faster than high wages, it will in time greatly diminish the poverty due to low incomes from jobs.

Jesse Myerson created a firestorm over mainstream media with his Rolling Stone piece “Five Economic Reforms Millennials Should Be Fighting For.” I’d like to address the very first of these reforms, the Job Guarantee (JG), as Myerson references my proposal for running the program through the non-profit sector and discussed it in several interviews on Tuesday.

Last month, I did a podcast with him about this program. Let me focus on some questions that keep popping up about the proposal, e.g., Josh Barro’s Business Insider piece.

What is the problem?

It is fundamental. It’s not just a problem of today’s deeply ailing economy. It’s permanent. There are always people willing to work, whom profit-driven firms do not wish to hire.  Even when economies are growing rapidly, there are never enough job openings for all who want to work. That number is 24.4 million people today: 10.9 million officially unemployed and 13.5 million in hidden unemployment (bls.gov).

The mark of unemployment is itself an obstacle to getting a job. The average employer equates 9 months of unemployment to 4 years of lost work experience. (Eriksson and Rooth AER, 2014). And so unemployment breeds unemployability, feeding the decades-long uptrend in long-term unemployment, while the economic, political and social costs are mounting.

Whenever I write about unemployment, I always stress the long run. The point is to solve the problem in recessions and expansions. Virtually no economist or pundit outside MMT makes this point. I predict that, while it is fashionable to entertain various solutions for the unemployed today, as soon as the economy recovers sufficiently, they will be forgotten.

It’s time to change the conversation from creating jobs for the jobless now, to creating jobs for the jobless always. The Job Guarantee provides the solution. I have explained elsewhere why neither the private sector nor the flawed bastard Keynesian pump-priming policies can get us there (here and here).

So let’s move right to the design and implementation of a JG through the non-profit sector.* continue reading…

A new volume edited by the director of the Levy Institute’s Gender Equality and the Economy program, Rania Antonopoulos:

(first appeared in Social Europe)

Never miss a party – especially one you’ve been desperately waiting for for so long. This much the authorities in Europe’s currency union clearly understand. As soon as Eurostat had released its first estimate for GDP growth in the spring quarter in mid August (1^st estimate here), which was missing the by now customary negative sign, the champagne began to flow, it seems, accompanying all-round self-congratulatory shoulder slapping.

For instance, Spain’s economy minister Luis de Guindos confidently noted that “Spain will show clearly the quality of the policies implemented in the eurozone” (FT.com 4 September 2013). And European Commission President José Manuel Barroso declared in his State of the Union Address on 11 September 2013 that “the facts tell us that our efforts have started to convince.” Germany’s finance minister Wolfgang Schäuble also joined the chorus, just in time for the federal election, proudly announcing in The Financial Times that “while the crisis continues to reverberate, the eurozone is clearly on the mend both structurally and cyclically.” Dr Schäuble declared with poise that “what is happening turns out to be pretty much what the proponents of Europe’s cool-headed crisis management predicted. The fiscal and structural repair work is paying off, laying the foundations for sustainable growth,” and then went on to boast that “despite what the critics of the European crisis management would have us believe, we live in the real world, not in a parallel universe where well-established economic principles no longer apply” (“Ignore the doomsayers: Europe is being fixed,” FT.com 16 September 2013; see comment by this author: “The euro crisis is not even close to being over, Mr Schäuble”).

Apparently Germany’s “stability-oriented” prescriptions for the land of the euro are now doing their magic just as Dr Schäuble had always promised they would. Fiscal contractions are now proving expansionary after all, just with a little bit of a delay, while growth-enhancing structural reforms are beginning to bear fruit too, it seems. The euro authorities are making sure though not to miss any chance at emphasizing that more of the same medicine will be needed to do even more good going forward.

Perhaps this is a good time then for a reality check. continue reading…

In case you missed it, what with all the celebrating going on in the eurozone over the incredible success of austerity policies, the unemployment rate in Greece is now at 27.9 percent and the country is likely on its way to a third bailout.

C. J. Polychroniou argues in a new one-pager that offering Greece another bailout package like the first two makes no sense, and he provides some much-needed (and daunting) perspective on how far Greece would need to climb — assuming its economy started growing, and wasn’t still contracting (Greek output shrank by “only” 3.8 percent in the second quarter of 2013) — just to get its economy back to where it was before its version of the Great Depression set in:

“At this stage, in order for Greece to be able to service its debt and recapture its lost GDP and employment levels, one would have to rely on an outrageously optimistic scenario of economic growth: probably somewhere in the range of a long-term nominal GDP growth rate of 7–8 percent.

While Greece may soon end up with wages comparable to those of China, the odds of its experiencing growth rates close to those of China are probably the same as achieving time travel.”

C. J. Polychroniou, Fiscal Sadism and the Farce of Deficit Reduction in Greece

In this video, Pavlina Tcherneva and Philip Harvey look at the job guarantee and basic income grant proposals in the context of a discussion of economic rights.

Tcherneva begins with the theory behind the job guarantee — a federally-funded (and in Tcherneva’s version, locally-administered) program that would offer a paid job to anyone willing and able to work — and then (16:10) turns to a real-world example that, while not quite a job guarantee, was in the family of direct job creation programs: Argentina’s Plan Jefes. (Tcherneva has a related working paper that analyzes the socially transformative potential of direct job creation, over and above its macroeconomic stabilization benefits, in the context of the alteration of Plan Jefes into a pure cash transfer program, Plan Familias.)

Philip Harvey (31:45) looks at the legal bases of the rights to work and income (beginning with US statutes) before moving on to a comparison of basic income guarantees with job guarantees:

This talk was delivered as part of Columbia’s “Modern Money” series; you can find links to background reading for this seminar here.

Dimitri Papadimitriou in Bloomberg View yesterday:

In December 2010, the so-called troika of lenders — the European Commission, the European Central Bank and the International Monetary Fund — predicted that their measures would move Greece’s unemployment rate to just under 15 percent by 2014. A year later, it changed the forecast to almost 20 percent.

This month, the Hellenic Statistical Authority reported that unemployment rose to a record in May, with a seasonally adjusted jobless rate of 27.6 percent. The rate was 64.9 percent for people 15 to 24.

Bold declarations that belt-tightening would produce growth have been pared back, too. Since 2010, the troika has gradually dropped its forecast for 2014 gross domestic product (in money terms) by almost 40 percent. IMF staff reported last week that GDP contracted 6.4 percent in 2012 and will drop 4.2 percent this year before expanding only a little in 2014.

Yet, despite admissions that mistakes were certainly made, no consideration is being given to ending austerity measures. Nor has there been effort to devise a renewal agenda for Greece. The Marshall Plan offers a spectacularly successful model that could easily be adapted.

… Here is how an EU-funded plan for recovery could succeed. Although past bailout funds benefited banks and financial institutions, with a large portion devoted to interest payments for creditors, the new program would focus on debt forgiveness, and then turn to reconstruction projects to rebuild national infrastructure and create public projects at the local level.

Read it all here.

This is what the troika’s constantly-downgraded predictions look like, compared to the actual paths of growth and unemployment and projections based on the Levy Institute’s stock-flow model for Greece (from “The Greek Economic Crisis and the Experience of Austerity“):

On the face of it, the troika’s (ECB/IMF/EU) bailouts of Greece, with their attendant demands for budget austerity, privatization, and labor market reforms, have failed and failed again — whether we’re talking about basic material well-being or debt ratios:

Currently, the official unemployment rate stands at 27 percent, while youth unemployment is above 62 percent and more than 30 percent of the population lives near or below the poverty line. In a nation of less than 11 million people, more than half a million children live in poverty—that’s one out of three—with nearly 60 percent of them living in households that experience “severe material deprivation.” The debt-to-GDP ratio declined from 170 percent at the end of 2011 to 156 percent at the end of 2012 (following a rather sizable “haircut” among private holders of Greek bonds) and will remain at unsustainable levels for the unforeseeable future. In fact, the best scenario envisioned by Greece’s international lenders is that the country’s debt-to-GDP ratio will be reduced to 120 percent by 2020 — only 6.8 percent less than what it was when the debt crisis began in late 2009.

When the same policies are tried over and over again, with the same dismal results, there are plenty of potential reasons for an unwillingness to change course. As frequently noted, the allure of fashionable economic theories can long outlast the nuisance of uncooperative empirical results.

Along with ideology and pet economic theories, C. J. Polychroniou suggests another (far more cynical) interpretation. The bailout programs, he says, are succeeding in some respects; the problem is that we may be incorrectly assuming what the main priorities are:

Amazingly enough, in the face of this ongoing and uncontrolled catastrophe, and despite the IMF’s admission that it misjudged the impact of austerity on Greece’s economy and its people, IMF and EU officials remain as committed as ever to the policies responsible for Greece’s collapse. But while many seem surprised by this apparently contradictory posture, they shouldn’t be. The austerity “shock treatments” administered by the IMF and the EU have two explicit goals: (1) to ensure that the loans are paid back no matter what the cost, and (2) to roll back the average standard of living in order to create highly favorable conditions for international business-investment opportunities and to increase the rate of profit for the corporate and financial elite at home. It is an avowedly class-warfare approach, cloaked in the organization’s holier-than-thou rhetoric about the overall benefits of a neoliberal economic order and the economic drag created by organized labor and workers’ rights, social welfare provisions, and decent wages.

He makes the rest of his case in a new policy note.