On Saturday, Daniel Alpert delivered the closing remarks at the Levy Institute’s Hyman P. Minsky Summer Seminar:

Minsky had the rarely seen ability to stand back from all he had learned—even at times from his own mentors—and not only see and articulate what was misunderstood, what wasn’t working, but also to explain why conventional wisdom is often not always all that wise and why markets often proceed in delusional fashion.  And by this I mean not merely the often irrational animal spirits of markets, nor the Keynes’ casino, nor his beauty contest, but an almost collective agreement to ignore the most obvious of fact-pictures staring right back at us.  And often, to ignore them because they force consideration of exogenous variables that aren’t readily incorporated into existing mainstream models, to ignore them because they are too heterodox to be considered by those who have invested their lives work in developing and interpreting mainstream theory, or to overlook them because they involve understanding the often obtuse complexities of actual market operations that go beyond ivory tower theories of market behavior.

Read Alpert’s full remarks here.

Monetary Mechanics: A Financial View
Éric Tymoigne
“This paper presents an alternative framework that can be used to analyze monetary systems by drawing on the work of Smith, MacLeod, Knapp, Innes, Hawtrey, Keynes, Murad, Olivecrona, Wray, and Ingham, among others. The analysis asks what “money” is instead of what “money” does. Monetary instruments are not defined by what they do, or by what a researcher thinks they do, but by specific financial characteristics. By defining explicitly what “money” is, this framework provides some insights into past monetary systems and into monetary mechanisms.”

Autonomy-enhancing Paternalism
Martin Binder and Leonhard K. Lades
“Behavioral economics has shown that individuals sometimes make decisions that are not in their best interests. This insight has prompted calls for behaviorally informed policy interventions popularized under the notion of “libertarian paternalism.” This type of “soft” paternalism aims at helping individuals without reducing their freedom of choice. We highlight three problems of libertarian paternalism: the difficulty of detecting what is in the best interest of an individual, the focus on freedom of choice at the expense of a focus on autonomy, and the neglect of the dynamic effects of libertarian-paternalistic policy interventions. We present a form of soft paternalism called “autonomy-enhancing paternalism” that seeks to constructively remedy these problems.”

The Political Economy of Shadow Banking: Debt, Finance, and Distributive Politics under a Kalecki-Goodwin-Minsky SFC Framework
Eloy Fisher and Javier López Bernardo
“[T]he financial operation of the shadow financial system is not a mere mechanical outgrowth of advances in securitization and risk management, but the natural result of tensions in the political economy of democratic capitalism …
[T]he dynamics of shadow banking rest on the distributive tension between workers and firms. Politics wedge the operation of the shadow financial system as government policy internalizes, guides, and participates in dealings mediated by financial intermediaries. We propose a broad theoretical overview to formalize a stock-flow consistent (SFC) political economy model of shadow banking (stylized around the operation of money market mutual funds, or MMMFs). Preliminary simulations suggest that distributive dynamics indeed drive and provide a nest for the dynamics of shadow banking.”

Shadow Banking: Policy Challenges for Central Banks
Thorvald Grung Moe
“I discuss the expanding role of the shadow banking sector and the key drivers behind its growing importance. There are close parallels between the growth of shadow banking before the recent financial crisis and earlier financial crises, with rapid growth in near monies as a common feature. This ebb and flow of shadow-banking-type liabilities are indeed an ingrained part of our advanced financial system. We need to reflect and consider whether official sector liquidity should be mobilized to stem a future breakdown in private shadow banking markets. Central banks should be especially concerned about providing liquidity support to financial markets without any form of structural reform. It would indeed be ironic if central banks were to declare victory in the fight against too-big-to-fail institutions, just to end up bankrolling too-big-to-fail financial markets.”

What Do We Know About the Labor Share and Profit Share?
Olivier Giovannoni
Part 1: Theories
“This series of working papers explores a theme enjoying a tremendous resurgence: the functional distribution of income—the division of aggregate income by factor share. This first installment surveys some landmark theories of income distribution. Some provide a technology-based account of the relative shares while others provide a demand-driven explanation (Keynes, Kalecki, Kaldor, Goodwin). Two questions lead to a better understanding of the literature: is income distribution assumed constant?, and is income distribution endogenous or exogenous? However, and despite their insights, these theories alone fail to fully explain the current deterioration of income distribution.”
Part 2: Empirical Studies
“In this second part of our study we survey the rapidly expanding empirical literature on the determinants of the functional distribution of income. Three major strands emerge: technological change, international trade, and financialization.”
Part 3: Measures and Structural Factors
“Economic theory frequently assumes constant factor shares and often treats the topic as secondary. We will show that this is a mistake by deriving the first high-frequency measure of the US labor share for the whole economy. We find that the labor share has held remarkably steady indeed, but that the quasi-stability masks a sizable composition effect that is detrimental to labor. The wage component is falling fast and the stability is achieved by an increasing share of benefits and top incomes. Using NIPA and Piketty-Saez top-income data, we estimate that the US bottom 99 percent labor share has fallen 15 points since 1980. This amounts to a transfer of $1.8 trillion from labor to capital in 2012 alone and brings the US labor share to its 1920s level.”

The Great Recession and Unpaid Work Time in the United States: Does Poverty Matter?
Tamar Khitarishvili and Kijong Kim
“In times of economic crises, household production, and the unpaid work time associated with it, can serve as a coping mechanism for absorbing the impact of shocks. Evidence from the Great Recession has been supportive of this possibility, and has revealed the presence of gender asymmetries stemming from men having experienced disproportionately high job losses. In this paper, we further examine the presence of poverty-based asymmetries in the unpaid work time changes of men and women given that the role of household production as a coping mechanism may vary by poverty status. … Our findings reveal that the changes in men’s and women’s unpaid work time indeed varied by poverty status.”

Minsky and the Subprime Mortgage Crisis: The Financial Instability Hypothesis in the Era of Financialization
Eugenio Caverzasi
“The aim of this paper is to develop a structural explanation of the subprime mortgage crisis, grounded on the combination of two apparently incompatible financial theories: the financial instability hypothesis by Hyman P. Minsky and the theory of capital market inflation by Jan Toporowski. …
… we firmly reject the idea that ‘black swans’ or exogenous shocks of any type might have caused the crisis. We believe that the pathogens which led to the crisis were congenital to U.S. capitalism and that the bursting in the mortgage market happened for specific reasons. This is what is meant in this paper by ‘structural interpretation’: the identification and the understanding of the endogenous forces which made the U.S. economy progressively reach an unsustainable financial position, making the crisis an inescapable event.”

Growth with Unused Capacity and Endogenous Depreciation
Fabrizio Patriarca and Claudio Sardoni
“This paper contributes to the debate on income growth and distribution from a nonmainstream perspective. It looks, in particular, at the role that the degree of capacity utilization plays in the process of growth of an economy that is not perfectly competitive. The distinctive feature of the model presented in the paper is the hypothesis that the rate of capital depreciation is an increasing function of the degree of capacity utilization. This hypothesis implies analytical results that differ somewhat from those yielded by other Kaleckian models. Our model shows that, in a number of cases, the process of growth can be profit-led rather than wage-led. The model also determines the value to which the degree of capacity utilization converges in the long run.”

Structural Asymmetries at the Roots of the Eurozone Crisis: What’s New for Industrial Policy in the EU?
Alberto Botta
“In this paper, we analyze and try to measure productive and technological asymmetries between central and peripheral economies in the eurozone. We assess the effects such asymmetries would likely bring about on center–periphery divergence/convergence patterns, and derive some implications as to the design of future industrial policy at the European level. … All in all, future EU industrial policy should be much more interventionist than it currently is, and dispose of much larger funds with respect to the present setting in order to effectively pursue both short-run stabilization and long-run development goals.”

Quality of Statistical Match and Employment Simulations Used in the Estimation of the Levy Institute Measure of Time and Income Poverty (LIMTIP) for South Korea, 2009 *
Thomas Masterson
“The quality of match of the statistical match used in the LIMTIP estimates for South Korea in 2009 is described. The match combines the 2009 Korean Time Use Survey (KTUS 2009) with the 2009 Korean Welfare Panel Study (KWPS 2009). The alignment of the two datasets is examined, after which various aspects of the match quality are described. The match is of high quality, given the nature of the source datasets. The method used to simulate employment response to availability of jobs in the situation in which child-care subsidies are available is described. Comparisons of the donor and recipient groups for each of three stages of hot-deck statistical matching are presented. The resulting distribution of jobs, earnings, usual hours of paid employment, household production hours, and use of child-care services are compared to the distribution in the donor pools. The results do not appear to be anomalous, which is the best that can be said of the results of such a procedure.”
* Related: Time Deficits and Hidden Poverty in Korea (pdf) Kijong Kim, Thomas Masterson, and Ajit Zacharias

The Levy Institute’s annual Minsky conference will be held at the National Press Club in Washington, D.C. on April 9-10.

Day one features a speaker lineup that includes Sen. Sherrod Brown, Rep. Carolyn Maloney, head of the Chicago Fed Charles Evans, member of the Fed Board of Governors Daniel Tarullo, and many others. On day two, Jason Furman, Chair of President Obama’s Council of Economic Advisers (and recently featured in this Washington Post profile), asks “Is the Great Moderation Coming Back?”

The full conference program is online. Session titles include:

Financial Reregulation to Support Growth and Employment

Financial Regulation and Economic Stability: Was Dodd-Frank Enough, or Too Much?

The Global Growth and Employment Outlook: Cloudy with a Risk of … ?

The Euro and European Growth and Employment Prospects

What Are the Monetary Constraints to Sustainable Recovery of Employment?

Registration is open.

Central Bank Independence: Myth and Misunderstanding
L. Randall Wray
“This paper argues that the Fed is not, and should not be, independent, at least in the sense in which that term is normally used.
…
Our understanding of policy, of the policy space available to the sovereign, and of the operational realities of fiscal and monetary policy would be improved if we abandoned the myth of central bank independence.”

Changes in Global Trade Patterns and Women’s Employment in Manufacturing: An Analysis over the Period of Asianization and Deindustrialization
Burca Kizilirmak, Emel Memis, Şirin Saraçoğlu, and Ebru Voyvoda
“We provide estimates for total and women’s employment effects of world trade, evaluating the changes in trade flows in 30 countries (21 OECD and 9 non-OECD countries) for 23 manufacturing sectors by breaking up the sources of these changes between the trade with the North, the South, and China. …
Our results present a net negative impact of trade on total employment as well as on women’s employment in 30 countries over the period of analysis [1995-2006]. … Country level results show that the United States has by far the largest estimated employment losses from the change in structure of trade: 81 percent of the employment losses in the North originate in the US”

Full Employment: The Road Not Taken
Pavlina R. Tcherneva
“It is common knowledge that Keynesian stimuli are frequent policy tools to deal with recessions and unemployment; what is not commonly known is that modern ‘Keynesian policies’ bear little, if any, resemblance to the policy measures Keynes himself believed would guarantee true full employment over the long run.”

From the State Theory of Money to Modern Money Theory: An Alternative to Economic Orthodoxy
L. Randall Wray
“This paper explores the intellectual history of the state, or chartalist, approach to money, from the early developers (Georg Friedrich Knapp and A. Mitchell Innes) through Joseph Schumpeter, John Maynard Keynes, and Abba Lerner, and on to modern exponents Hyman Minsky, Charles Goodhart, and Geoffrey Ingham. This literature became the foundation for Modern Money Theory (MMT).”

Modern Money Theory and Interrelations between the Treasury and the Central Bank: The Case of the United States
Éric Tymoigne
“[T]here is nothing written in stone in terms of fiscal operations. If tomorrow nobody is willing to take treasuries, the Treasury, with or without the help of the Federal Reserve, has the means to bypass that problem if it chooses to use them; it becomes a political issue rather than an economic one. The theoretical implication that MMT draws from this is that one can simplify the economic analysis without a loss of generality by assuming that the Federal Reserve directly funds the Treasury.”

Unions and Economic Performance in Developing Countries: Case Studies from Latin America

Fernando Rios-Avila

The Rational Expectations Hypothesis: An Assessment from Popper’s Philosophy

Iván H. Ayala and Alfonso Palacio-Vera

Integrating Time in Public Policy: Empirical Description of Gender-specific Outcomes and Budgeting

 Lekha S. Chakraborty

Financial Crisis Resolution and Federal Reserve Governance: Economic Thought and Political Realities

Bernard Shull

Options for China in a Dollar Standard World: A Sovereign Currency Approach

L. Randall Wray and Xinhua Liu

Feasible Estimation of Linear Models with N-fixed Effects

Fernando Rios-Avila

A Stock-flow Approach to a General Theory of Pricing

 Philip Pilkington

23rd Annual Hyman P. Minsky Conference

Stabilizing Financial Systems for Growth and Full Employment

The National Press Club
Washington, D.C.
April 9–10, 2014

Organized by the Levy Economics Institute with support from the Ford Foundation.

In a context of global uncertainty, with growth and employment well below normal levels, the 2014 Minsky Conference will address both financial reform and prosperity, drawing from Minsky’s work on financial instability and his proposal for achieving full employment. Panels will focus on the design of a new, more robust, and stable financial architecture; fiscal austerity and the sustainability of the US and European economic recovery; central bank independence and financial reform; the larger implications of the eurozone debt crisis for the global economic system; the impact of the return to more traditional US monetary policy on emerging markets and developing economies; improving governance of the social safety net; the institutional shape of the future financial system; strategies for promoting an inclusive economy and more equitable income distribution; and regulatory challenges for emerging-market economies.

Registration is now open.

Participants include:

Anat Admati
Professor of Finance and Economics, Stanford University

Robert Barbera
Co-director, Center for Financial Economics, The Johns Hopkins University

Richard Berner
Director, Office of Financial Research, US Department of the Treasury

Sherrod Brown
US Senator (D-OH)

Willem H. Buiter*
Global Chief Economist, Citi

Vítor Constâncio
Vice President, European Central Bank

William C. Dudley*
President and Chief Executive Officer, Federal Reserve Bank of New York

Charles L. Evans
President and Chief Executive Officer, Federal Reserve Bank of Chicago

Heiner Flassbeck
Director, Division on Globalization and Development Strategies, United Nations Conference on Trade and Development (UNCTAD)

Jason Furman
Chairman, Council of Economic Advisers, Executive Office of the President

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Dissatisfaction with the incomplete or timid nature of the 2010 Dodd-Frank financial reforms has generated interest in some alternative regulatory proposals. One alternative that’s fairly prominent in progressive circles revolves around the idea of returning to the structure of the 1933 Glass-Steagall Act.

In this video, Jan Kregel explains why we can’t go back. He argues that recent proposals to revive Glass-Steagall are based on a misunderstanding of what banks do and how they make their money.

You can find this video and others at the Levy Institute’s new YouTube page (videos of speeches and panel discussions from two recent Levy Institute Minsky conferences, in Rio and Athens, will be made available. More to come).