Archive for September, 2014

No, Tourism Will Not Save Greece

Michael Stephens | September 25, 2014

From Dimitri Papadimitriou today in New Geography:

Will Lindsay Lohan Save Greece?

It’s September, but island beaches from the Aegeans to Zante are still buzzing in Greece. Mykonos has been the summer’s Go-To spot for superstars and supermodels; the mainland and cities are also seeing the British and Europeans coming back.

Greece’s reemergence on the tourist circuit and the celebrity-watch sites has brought travel revenue, which accounted for 12 billion euros through April, actually above the previous peak in 2008. And, based on arrivals, the national tourism agency predicts that visitors will account for 13 billion euros this year.

So did the appearance of Lindsay Lohan and friends in the Greek isles signify, as one newspaper put it, a template for Greece’s economic recovery?

It didn’t. It’s even still possible that Greece’s economic troubles have yet to hit bottom — no one really knows. There is one definite, though. Even with a dramatic increase in its significant tourism industry, the dance floor under Greece’s summer parties has been resting on a breathtakingly shaky foundation.

Read the rest here.

The supporting research mentioned in the piece is from the Levy Institute’s latest strategic analysis: “Will Tourism Save Greece?


Post Keynesian Conference Goes Live Tonight

Michael Stephens | September 24, 2014

The 12th International Post Keynesian conference, cosponsored by the University of MissouriKansas City, Journal of Post Keynesian Economics, and Levy Institute, with support from the Ford Foundation, begins this evening at UMKC with a keynote by Bruce Greenwald. The full schedule for the conference can be accessed here.

If you can’t attend, portions of the event will be livestreamed at this link, beginning tonight at 7pm EST with Greenwald’s talk. Here is the livestreaming schedule*:

*All times below listed in Eastern Standard*

Wednesday, 7:00-9:00pm: Bruce Greenwald, “Value Investing and the Mis-measures of Modern Portfolio Theory”

Thursday, 6:45-8:30pm: Panel: “What Should We Have Learned from the Global Crisis (But Failed To)?” (with Bruce Greenwald, Lord Robert Skidelsky, and Steve Kraske)

Friday, 6:45-8:15pm: James Galbraith, “The End of Normal”

Saturday, 12:45-2:00pm: Lord Robert Skidelsky, “The Future of Work”

Saturday, 8:00pm: Lord Robert Skidelsky, “Economics After The Crash: What Should Students Be Taught?”


Europe at the Crossroads: A Union of Austerity or Growth Convergence?

Michael Stephens | September 19, 2014

Co-organized by the Levy Economics Institute of Bard College and Economia Civile with support from the Ford Foundation

Megaron Athens International Conference Centre
Athens, Greece
November 21–22, 2014

On November 21 and 22, the Levy Economics Institute of Bard College will hold its second annual conference at the Megaron Athens International Conference Centre in Athens, Greece. Co-organized by the Levy Institute and Economia Civile, the conference will focus on the continuing debate surrounding the eurozone’s systemic instability; proposals for banking union; regulation and supervision of financial institutions; monetary, fiscal, and trade policy in Europe, and the spillover effects for the US and the global economy; the impact of austerity policies on US and European markets; and the sustainability of government deficits and debt.

To register, click here.


George Argitis, Professor of Economics, University of Athens; Scientific Director, Institute of Labour, GSEE

Emilios Avgouleas, Chair, International Banking Law and Finance, University of Edinburgh

Elga Bartsch, European Chief Economist, Morgan Stanley

Marek Belka, Governor, National Bank of Poland

Peter Bofinger, Member of the German Council of Economic Experts; Professor of Monetary Policy and International Economics, University of Würzburg; Research Fellow, Centre for Economic Policy Research

Carlos da Silva Costa, Governor, Bank of Portugal

Stanley Fischer, Vice Chair, US Federal Reserve System*

Richard W. Fisher, President and CEO, Federal Reserve Bank of Dallas*

Heiner Flassbeck, formerly Director, Division on Globalization and Development Strategies, UNCTAD, and Deputy Finance Minister, Germany

Eckhard Hein, Research Associate, Levy Institute; Professor of Economics, Berlin School of Economics and Law; Adjunct Professor of Economics, Carl von Ossietzky University Oldenburg

Stuart Holland, Professor, University of Coimbra

Patrick Honohan, Governor, Central Bank of Ireland

Lex Hoogduin, Professor of Economics and Business, University of Groningen

Joanna Kakissis, Correspondent, NPR and PRI, Athens

Stephen Kinsella, Lecturer in Economics, Kemmy Business School, University of Limerick

Jan Kregel, Senior Scholar, Levy Institute; Professor of Finance and Development, Tallinn University of Technology

Roberto Lavagna, formerly Minister of Economy and Production, Argentina*

Panagiotis Liargovas, Director of the Budget Office, Greek Parliament; Jean Monnet Chair in European Integration and Policies, University of Peloponnese

Lubomír Lízal, Member of the Board, Czech National Bank

Gyorgy Matolcsy, Governor, National Bank of Hungary*

Michalis Nikiforos, Research Scholar, Levy Institute

Dimitri B. Papadimitriou, President, Levy Institute

Sarah Bloom Raskin, Deputy Secretary, US Department of the Treasury*

Engelbert Stockhammer, Professor of Economics, Kingston University

Mihai Tănăsescu, Vice President, European Investment Bank

Andrea Terzi, Professor of Economics and Coordinator of the Mecpoc Project, Franklin University Switzerland

Mario Tonveronachi, Professor of Financial Systems, University of Siena

Raymond Torres, Director, Research Department, International Labour Organization



Options for an Independent Scotland

Michael Stephens | September 18, 2014

People in Scotland are heading to the polls today to decide the question of secession. One of the major policy questions for an independent Scotland is whether the country should attempt to keep the pound. As many have now begun to appreciate — with a little help from the eurozone spectacle — this would likely be a big mistake.

In “Euroland’s Original Sin,” Dimitri Papadimitriou and L. Randall Wray explained why a separation between fiscal and monetary sovereignty — when countries do not issue their own currency yet retain responsibility for fiscal policy — is the root of the problem in the eurozone. Any country with this setup will face budgetary constraints to which currency-issuing nations are not subject; the kind of constraints that can generate a sovereign debt crisis if, for instance, the country’s fiscal authority is forced to handle the fallout from a large banking crisis. This is a drum that many people affiliated with the Levy Institute have been banging for some time (well before the eurozone fell into its current mess).

Recently, both Paul Krugman and Martin Wolf  have written columns in which they make similar arguments in the context of Scottish independence (and the SNP’s ostensible plan to retain the pound). Philip Pilkington wrote a policy brief a few months ago in which he also argued, with the aid of an analysis of Scotland’s financial balances, that retaining the pound would leave the country open to a eurozone-periphery-style crisis. Pilkington’s story focuses on Scotland’s reliance on oil and gas revenues and the particular instability that could be generated, for a currency-using (vs. issuing) Scotland, by oil price fluctuations.

Although Pilkington suggests it might make sense to retain the pound in the short run (during which time he advocates the use of “tax-backed bonds” to limit instability, a proposal Pilkington originally developed with Warren Mosler [see here and here] for the eurozone), he argues that Scotland ultimately needs to move toward issuing its own freely-floating currency. The question is how to move from the first to the second phase with a minimum of disruption. The policy brief thus lays out a “dual currency” transition plan for Scotland: continue reading…


Mission-Oriented Finance (Video)

Michael Stephens | September 10, 2014

The following clips are from the Mission-Oriented Finance for Innovation conference held in London, organized by Mariana Mazzucato as part of a research project with L. Randall Wray on “Financing Innovation.”

L. Randall Wray, “Financing the Capital Development of the Economy: A Keynes-Schumpeter-Minsky Synthesis” (slides)


Pavlina Tcherneva, “Full Employment, Value Creation and the Public Purpose” (slides)


Can Fiscal Policy Stabilize the Economy?

Greg Hannsgen |

[WolframCDF source=”” width=”397″ height=”448″ altimage=”” altimagewidth=”397″ altimageheight=”448″]
Here is a new Wolfram CDF, which I have constructed based on a macro model. The assumptions behind the model–other than the exact parameter values–are loosely stated in this list:

1) industries dominated by a handful of firms, rather than perfect competition
2) production technology that requires capital and labor inputs
3) chronic underemployment and less-than-full capacity utilization (percent of capital stock in use at a given time)
4) sovereign money and a policy-determined interest rate
5) two groups of households, only one of which has money to save
6) net investment a function of the profit and capacity utilization rates
7) budget deficits offset by the issuance of treasury bills and sovereign money
8) a government that employs workers to produce free public services
9) a fiscal policy rule with (a) a balanced budget target (labeled “0” in the CDF above) or (b) public production and capacity utilization targets (labeled “1” in the CDF above)
10) nonlinear functions that result in endogenous cycles in this figure for some parameter values and policy functions (try different parameter values with policy rule “1” for example)
11) gradual adjustment of public and private-sector output toward levels indicated by one of the two fiscal policy rules and output demand, respectively.

The arrows in the CDF show directions of movement in 2D space, where the two axes represent public production (horizontal) and capacity utilization (vertical). We got a different look at the same model in this previous post. In this new CDF, I have tried to improve on the realism of the parameter values. Here is a link to the download site at Wolfram for the needed CDFPlayer software.

The most serious omissions in the model above, by the way, are a foreign sector, a mechanism by which the broad price level can change over time, and commercial bank deposits and loans. As mentioned before, I am working on adding these and other new features to a larger version of the model depicted above for the upcoming International Post Keynesian Conference in Kansas City later this month. Any macroeconomic model, of course, is only an abstract and simplified version of a real economy. But the bottom line is that (1) guiding fiscal policy with a balanced-budget target leads to instability in all cases, while (2) the output-stabilizing fiscal rule generates a business cycle of varying size or convergence to a point.


Is the Eurozone Turning into Germany?

Jörg Bibow | September 8, 2014

It has been pretty clear since at least the spring of this year that the ECB was keen to see the euro weakening. At the time the euro stood near to $1.40. Policymakers in a number of euro area member states issued calls for a more competitive exchange rate, directing barely hidden criticisms in this regard at the ECB.

The ECB itself ever more forcefully asserted that international factors, including euro strength, were largely responsible as the bank’s price stability misses got ever crasser. Either through direct references to the euro’s exchange rate expressing discomfort about its strengthening, or by highlighting that the prospective monetary policy stances on either side of the Atlantic were on diverging paths, inviting the markets to bet on the dollar and against the euro, Mr. Draghi applied his magic in talking the euro down.

The latest package of ECB easing measures introduced in early June steered the euro overnight rate closer to zero, raising the euro’s attractiveness as a funding currency for carry trades. All along Mr. Draghi has held out the prospect of some kind of quantitative easing even beyond the credit easing measures promised to be unleashed in the fall. As inflation has declined even more and the so-called recovery stalled once again, the beggaring for a weaker euro has brought some visible success: in late August the euro was approaching the $1.30 mark.

Should the Euro Weaken?

Should the euro have weakened, should it weaken even more? The euro area as a whole, which is the relevant entity here, does not lack international competitiveness. Most common measures suggest that the euro is valued about right in its recent range. Certainly the euro area’s soaring current account surplus together with inflation close to zero – and lower than in competing economies – suggest otherwise. Are the world economy and global trade booming and overheating so that more relief through even bigger euro area export surpluses might seem warranted and welcome?

Quite the opposite. continue reading…