Otmar Issing Is Still Living in His Monetary Fantasy World

Jörg Bibow | April 22, 2022

Otmar Issing can look back on a long and consequential central banking career. Even in his retirement he is still living the part, evaluating whether his successors at the European Central Bank are pursuing stability-oriented monetary policies to his liking. His most recent critique (“‘Living in a fantasy’: euro’s founding father rebukes ECB over inflation response” https://www.ft.com/content/145b6795-2d21-48c6-984b-4b05d121ba16) shows him on the wrong side of events and debates about sound monetary policy, again.

Mr. Issing spent an eight-year stint at the Bundesbank as chief economist of Germany’s legendary central bank and retired guardian of European monetary affairs. Misled by M3 overshots that were the result of the Buba’s own rate hikes inverting the yield curve, Buba kept on hiking until it crashed newly unified Germany, and the ERM too. Recession-caused fiscal troubles then saw Mr. Issing’s Buba cheerleading pressures for fiscal austerity. These involved hikes in indirect taxes and administered prices that were distorting headline inflation upwards and delaying Buba easing (see https://www.levyinstitute.org/publications/on-the-burdenr-of-german-unification). The ensuing malaise in Europe was so pronounced that it almost prevented Mr. Issing from becoming a founding father of the euro.

But the euro got lucky, courtesy of a last-minute push from America’s dot-com boom. And so Mr. Issing got his chance as the ECB’s influential first chief economist. Unfortunately, lessons from Germany’s debacle ten years earlier were not learned. continue reading…


An Accommodative Fiscal Stance Is Crucial for India

Lekha Chakraborty | January 18, 2022

by Lekha Chakraborty and Harikrishnan S.

Omicron is a reminder that the COVID-19 pandemic is still not over. This ongoing health crisis should act as a trigger for greater investments in public health in India. Public spending on health by the union government is still below 1 percent of GDP, though the estimate has increased from 0.2 percent of GDP in 2020–21 (revised estimates) to 0.4 percent of GDP in 2021–22 (budget estimates). Strengthening investments in the healthcare sector is crucial at this juncture, as another lockdown can accentuate the current humanitarian crisis and deepen economic disruptions.

In India, the lockdown was announced on March 24, 2020 by invoking the National Disaster Management Act of 2005. As per the Seventh Schedule of the Constitution, healthcare is addressed at the state-level while interstate migration and interstate quarantine are in the Union List (entries 28 and 81), that is, responsibilities of the central government. While the lockdown helped to flatten the curve, an almost irreversible economic disruption resulted in many sectors.

The National Statistics Office released the advance GDP estimates January 7, 2022, revealing that in the financial year 2021–22 (FY 22), India’s GDP growth rate will be 9.2 percent. In FY 21 it was 7.3 percent. However, this growth estimate is lower than that published by Reserve Bank of India (RBI) in December 2021, which was 9.5 percent. The growth in nominal GDP is estimated to be 17.6 percent. These GDP estimates published ahead of the announcement of the FY 23 union budget are significant as they will be used for projections—including those for the fiscal deficit—in the upcoming budget. How India emerges from the pandemic to meet these estimates will depend largely on an accommodative fiscal policy stance when monetary policy has limitations in triggering the growth recovery. continue reading…


Join Us for the 2022 Levy Institute Summer Seminar

Michael Stephens | January 11, 2022

The Levy Economics Institute of Bard College is pleased to announce it will be holding a summer seminar June 11–18, 2022. Through lectures, hands-on workshops, and breakout groups, the seminar will provide an opportunity to engage with the theory and policy of Modern Money Theory (MMT) and the work of Institute Distinguished Scholars Hyman Minsky and Wynne Godley. Intended for those who are introducing themselves to these approaches as well as those who are looking to deepen their understanding, the seminar will be of particular interest to graduate students, recent graduates, and those at the beginning of their academic or professional careers.

Topics will include the history and theory of money, central bank and treasury operations, inequality and austerity, the job guarantee, MMT and developing economies, current debates over inflation, the Green New Deal, the stock-flow consistent approach to macroeconomic analysis and modeling, financial innovation and the financialization of the economy, cryptocurrency and central bank digital currencies, and more. The teaching staff will include well-known economists, legal scholars, monetary historians, writers, and financial market professionals working in the relevant topic areas.

The seminar will be limited to 60 attendees. Admission will include provision of room and board on the Bard College campus. The fee for the seminar will be $3,000; a fee waiver is available for all those in need.

Applications may be made to Emily Ungvary ([email protected]) and should include a current curriculum vitae and letter of application. Your letter should indicate the nature of your interest in the program and, if applicable, your reasons for requesting a fee waiver. Applications will be reviewed on a rolling basis.

The current list of confirmed faculty and speakers, which continues to grow, is below the fold (in alphabetical order): continue reading…


Are Concerns over Growing Federal Government Debt Misplaced?

L. Randall Wray | November 10, 2021

If the global financial crisis (GFC) of the mid-to-late 2000s and the COVID crisis of the past couple of years have taught us anything, it is that Uncle Sam cannot run out of money. During the GFC, the Federal Reserve lent and spent over $29 trillion to bail out the world’s financial system,[1] and then trillions more in various rounds of “unconventional” monetary policy known as quantitative easing.[2] During the COVID crisis, the Treasury has (so far) cut checks totaling approximately $5 trillion, often dubbed stimulus. Since the Fed is the Treasury’s bank, all of these payments ran through it—with the Fed clearing the checks by crediting private bank reserves.[3] As former Chairman Ben Bernanke explained to Congress, the Fed uses computers and keystrokes that are limited only by Congress’s willingness to budget for Treasury spending, and the Fed’s willingness to buy assets or lend against them[4]—perhaps to infinity and beyond. Let’s put both affordability and solvency concerns to rest: the question is never whether Uncle Sam can spend more, but should he spend more.[5]

If the Treasury spends more than received in tax payments over the course of a year, we call that a deficit. Under current operating procedures adopted by the Fed and Treasury, new issues of Treasury debt over the course of the year will be more-or-less equal to the deficit. Every year that the Treasury runs a deficit it adds to the outstanding debt; surpluses reduce the amount outstanding. Since the founding of the nation, the Treasury has ended most years with a deficit, so the outstanding stock has grown during just about 200 years (declining in the remainder).[6] Indeed, it has grown faster than national output, so the debt-to-GDP ratio has grown at about 1.8 percent per year since the birth of the nation.[7]

If something trends for over two centuries with barely a break, one might begin to consider it normal. And yet, strangely enough, the never-achieved balanced budget is considered to be normal, the exceedingly rare surplus is celebrated as a noteworthy achievement, and the all-too-common deficit is scorned as abnormal, unsustainable, and downright immoral. continue reading…


Is Climate Change a Fiscal or Monetary Policy Challenge?

Lekha Chakraborty |

Lekha Chakraborty
(Professor, NIPFP, and Member of Governing Board, International Institute of Public Finance, Munich)

Climate change is about risks and uncertainty. How well the monetary policy stance can incorporate such risks and uncertainties is questioned by many economists. There is a broad consensus among economists that fiscal policy is capable of dealing with the climate crisis but monetary policy is not, due to the latter’s lack of tools. It is widely acknowledged that public finance commitments are essential to lowering carbon emissions. Public finance interventions—through taxation to reduce carbon prints or through public expenditure to support green energy and technology—have proven to be effective in reducing emissions. However, such empirical evidence is absent in the case of monetary policy.

India was the first to integrate a climate change criterion in its inter-governmental fiscal transfers. The macroeconomic policy channel of these “ecological fiscal transfers” works through the prioritization of public expenditure on climate change commitments by subnational governments, to make a “just transition” towards a sustainable climate-resilient economy. continue reading…


Women’s Economic Empowerment and Control over Time in Sub-Saharan Africa (Nov 1-2)

Michael Stephens | October 29, 2021

November 1–November 2, 2021

The onset of the COVID-19 pandemic and the subsequent losses in lives and livelihoods are looming over Sub-Saharan Africa. As in the rest of the world, the pandemic has exposed the enduring inequalities and injustices in stark terms, including those based on gender and those intersecting with gender, such as economic deprivation. There is a growing realization that collective action to overcome the long-term and ongoing challenges requires greater engagements between researchers, civil society organizations, and policymakers. Accordingly, we are organizing a two-day virtual workshop that will feature research and policy discussions that address economic aspects of gender inequalities in Sub-Saharan Africa from various angles. Part of the research to be presented is work conducted by scholars at the Levy Economics Institute of Bard College in collaboration with scholars from Sub-Saharan Africa with the generous support of the Hewlett Foundation. The workshop will also highlight recent research by leading scholars in the region. The presentation of research will be accompanied by a free-wheeling exchange of ideas between scholars and participants. A policy roundtable with a select group of prominent members of the academic, policymaking, and civil society communities will conclude the workshop.

The workshop will be held between 13:00 and 15:30 (GMT) on November 1, 2021 and between 13:00 and 16:00 (GMT) on November 2, 2021.

This event is free and open to the public.

The complete schedule and information for participants is available below:

continue reading…


Podcast on Gender Budgeting

Michael Stephens | June 18, 2021

Research Associate Lekha Chakraborty, recently chosen to join the governing council of the International Institute for Public Finance, was interviewed for an Onmanorama podcast on the question of gender budgeting and the advantages of centering care work.

Chakraborty argues policymakers in India should prioritize integrating a comprehensive care economy policy package in macroeconomic management, and laments the separation (disciplinary and otherwise) between questions of gender and of macroeconomics. In the context of the ongoing pandemic, she advocates sending monthly cash transfers to women engaged in otherwise unpaid and undervalued household work.


The Minsky Conference Returns

Michael Stephens | April 29, 2021

After pausing last spring due to the pandemic, the Minsky Conference is back. Join us next week, May 5-6.

It would be an understatement to say this has been an eventful year in world economies and financial markets. It is also a period in which we are seeing some signs of change in economic thought and policymaking. The conference has always been an important occasion for contact between heterodox and more mainstream economics; this year, that could be a particularly interesting dynamic to watch.

The full program is below. Register here for the online event.


Wednesday, May 5, 2021
9:15–9:30 a.m. Welcome and Introduction
Dimitri PapadimitriouPresident, Levy Institute
9:30–10:30 a.m. Speaker
Charles EvansPresident and CEO, Federal Reserve Bank of Chicago
MODERATOR: Binyamin AppelbaumEditorial Board Member, New York Times
MODERATOR: Robert HuebscherAdvisor Perspectives
SPEAKERS: Charles GoodhartEmeritus Professor of Banking and Finance, London School of Economics
Paolo SavonaChairman, CONSOB
Jan KregelDirector of Research, Levy Institute
12:00–1:00 p.m. Speaker
Robert Barbera, Director, J.H.U. Center for Financial Economics; Economics Department Fellow, The Johns Hopkins University
1:00–2:30 p.m. Session 2. WHAT’S AHEAD FOR THE US ECONOMY
MODERATOR: Michael StephensLevy Institute
SPEAKERS: Lakshman AchuthanCofounder, Economic Cycle Research Institute
Michalis NikiforosResearch Scholar, Levy Institute; Professor University of Geneva
Frank VenerosoPresident, Veneroso Associates, LLC
MODERATOR: David Henry, Reuters
SPEAKERS: Jason Furman, Aetna Professor of the Practice of Economic Policy, Harvard Kennedy School (HKS) and the Department of Economics at Harvard University
Bruce GreenwaldProfessor, Columbia Business School
L. Randall WraySenior Scholar, Levy InstituteProfessor, Bard College
Thursday, May 6, 2021
10:00–11:00 a.m. Speaker
Robert KaplanPresident and CEO, Federal Reserve Bank of Dallas
MODERATOR: Deborah SolomonEconomics Editor, New York Times
11:00 a.m.–12:30 p.m. Session 4. FINANCIAL GOVERNANCE AND REGULATION
MODERATOR: Peter CoyBloomberg
SPEAKERS: Michael GreenbergerProfessor, University of Maryland Law School
Kathryn JudgeHarvey J. Goldschmid Professor of Law, Columbia Law School
Patricia McCoy, Liberty Mutual Insurance Professor, Boston College Law School
12:30–2:30 p.m. Session 5. US FINANCIAL MARKET INSTABILITY
MODERATOR: Jeanna Smialek, New York Times
SPEAKERS: Jan Hatzius, Chief Economist, Goldman Sachs
Bruce KasmanManaging Director and Global Head of Economic Research, J.P. Morgan
James PaulsenChief Investment Strategist, The Leuthold Group, LLC
2:30–4:00 p.m. Session 6. WHAT’S AHEAD FOR EUROPE
MODERATOR: Dimitri Papadimitriou, Levy Institute
Lex HoogduinProfessor, Groningen University, the Netherlands; Founder, GloComNet
Denis MacShaneFormer Europe Minister, UK; Senior Advisor, Avisa Partners, Brussels
Gennaro Zezza, Research Scholar, Levy Institute; Professor, University of Cassino

continue reading…


Direct Job Creation in Greece

Michael Stephens | April 28, 2021

Senior Scholar Rania Antonopoulos recently participated in a webinar for the European Trade Union Institute, during which she discussed the rationale behind and experience with the implementation of the “Kinofelis” direct job creation program—a limited job guarantee for Greece. Watch her presentation below (accompanying slides are here).

The Levy Institute’s previous Strategic Analysis for Greece found that supplementing EU Recovery Funds with a more expansive job guarantee program (employing up to 300,000 people by 2022Q1) would help lift the Greek economy closer to its pre-pandemic growth trend.

[youtube https://www.youtube.com/watch?v=RBhzK2M-hWU&w=504&h=284#t=15m2s]


The “Thing” with Job Guarantee Programs…

Martha Tepepa | February 21, 2021

In a February 18th front page article in the business section of the New York Times, Eduardo Porter surveys the potential for a job guarantee program. After starting with the caveat issued by Republican politicians—why trust your life choices to bureaucrats?—the piece goes on to present opinions of various experts on employment programs.

It is noteworthy that even among the specialists, not one has ever been involved in actual fieldwork or research in the various experiments with job guarantee programs. In an era in which we are asked to respond to facts, none of those consulted on the implementation of job programs has ever provided statistical analysis of results, nor studied the communities where the programs were actually successful in achieving their stated goals—which in general are much wider than the suggestions that the programs have not contributed significantly to lessen economic recessions, or that they are too expensive and that they might produce “useless make-work.” Indeed, there are no references to the many existing experiments.

Consider Argentina, where there is ample evidence that the Head of Households Program (HHP) played an important role in alleviating the recession and actually had a significant impact on the recovery of the economy after the 2001-2 economic, political, and social collapse. In situ fieldwork based on participant interviews conducted in urban irregular settlements shows[1] that the impact of program work experience was much greater than a simple impact on sustenance incomes. Indeed, program design produced significant impacts on gender equality and environmental preservation. continue reading…