The preliminary program has been posted for the 25th Annual Hyman Minsky Conference, being held April 12-13 here at Blithewood on the Bard College campus.

The deadline for registration is April 1st.

Tuesday, April 12

Wednesday, April 13

Related: “Euroland’s Original Sin” (pdf)

Bloomberg just published an article focused on the rise of Modern Money Theory (MMT), featuring comments by Senior Scholar Randall Wray:

The 20-something-year-old doctrine, on the fringes of economic thought, is getting a hearing with an unconventional take on government spending in nations with their own currency.

Such countries, the MMTers argue, face no risk of fiscal crisis. They may owe debts in, say, dollars or yen — but they’re also the monopoly creators of dollars or yen, so can always meet their obligations. For the same reason, they don’t need to finance spending by collecting taxes, or even selling bonds. […]

No one’s saying there are no limits. Real resources can be a constraint — how much labor is available to build that road? Taxes are an essential tool, to ensure demand for the currency and cool the economy if it overheats. But the MMTers argue there’s plenty of room to spend without triggering inflation.

These are not happy times for Europe. Ukraine, Russia, and rising anti-democratic influences in Hungary and Poland represent latent threats at the European Union’s eastern front. The prospect of Brexit is a more acute one at its western front.

After letting loose manifold conflicting forces that continue shaping internal politics in many EU countries and setting them on collision course with their partners, the refugee situation appears to be on the verge of bestowing another humanitarian crisis on the union’s most vulnerable and unfortunate member: Greece. Never mind the Catalan question: it almost appears minor by comparison, but actually represents yet another fundamental challenge to the European project. “Misfortune seldom comes alone,” a German saying goes; the nation that is increasingly pulling the strings in European affairs but appears at risk of alienating itself even more so than its partners while doing it.

Considering all this, the European political authorities may almost be forgiven for having lost sight of the smoldering crisis of the euro, the union’s flagship endeavor that was meant to foster prosperity and political union – but turned out to deliver quite the opposite. One key player, the European Central Bank (ECB), does not wish to partake in the peculiar mix of denial and delusion about the state of the euro. As the specter of deflation and lasting “Japanization” (or worse) is taking hold, again, the euro’s guardian of stability readies itself for unleashing a fresh round of unconventional policies to prop up the Eurozone’s feeble recovery.

So it’s Draghi showtime again. But how much good, if any, can the ECB really do at this point? I fear the ECB showman’s display of apparent power may be turning into a sad saga of hope and desperation. The ECB can no longer camouflage the fact that ample central bank liquidity alone will not heal the manifold and deep euro fault lines that are plaguing the currency and symbol of European unity. Make no mistake: Europe will very likely be facing crunch time this year – with nowhere to hide for anyone. continue reading…

The eurozone has been in crisis since 2008. By the end of 2015 domestic demand was still 3 percent below its pre-crisis peak. Throughout, the European Central Bank (ECB) has acted as the eurozone’s prime crisis manager.  As capital flows reversed and inter-bank lending seized up, the ECB provided emergency liquidity to keep banking systems afloat.

However, for legal and political reasons, the ECB was restrained in supporting sovereign debt. But, given that there are close linkages between banks and sovereigns, supporting only one party in the duo proved insufficient. From 2011–2012, interest rate differentials between eurozone members soared and credit dried up, as the risk of default on national debt and currency redenomination became investors’ foremost concern. In the end, Mario Draghi’s famous promise to “do what it takes” calmed the markets – at least for now.

The ECB’s monetary policy course was rather less helpful. The ECB is legendary for its reluctance to ease interest rates in the face of downside risks, and it even prematurely hiked rates in 2011. And so it took the ECB until the summer of 2014 to finally contemplate unconventional monetary policy measures to counter deflation risks, which were by then acute. Meanwhile, the ECB has indeed adopted a negative interest rate policy, pushing short-term money market rates below zero. It has also embarked on quantitative easing, including the large-scale purchase of national sovereign debts, as part of monetary policy rather than for government financing reasons.

Falling Interest Rates Reduce Incomes

The ECB’s more aggressive monetary policies are working, to some extent. Credit and the economy are growing again – albeit sluggishly – after years of shrinkage. Overall, however, the eurozone’s recovery remains fragile and uneven, while the ECB is falling short of its primary price stability mandate by a wide margin.

Arguably, the ECB’s negative interest rate policy even risks self-defeat: as a means to weaken the euro, the ECB’s global competition is getting fiercer; as a means to boost lending, it may not help to undermine bank profitability by effectively taxing them as the negative deposit rate amounts to taxing banks. Quantitative easing has at least successfully diminished interest differentials and reduced borrowers’ interest burden, opening up some fiscal space, among other things.

However, there is a downside, as falling interest rates actually reduce incomes. In the end all may come to nothing unless someone boosts spending. Neither exports nor private spending are a promising proposition here. Government spending is the last resort. Halting the brutal austerity policies that were imposed from 2010 until 2012 was an important first step towards ending the two-year decline in domestic demand. Today it is time to take the next step: governments must step in and boost infrastructure investment spending. continue reading…

Servaas Storm means well. He is alarmed that the eurozone’s official strategy of “internal devaluation” might do more harm than good by unnecessarily forcing countries that have lost their competitiveness into deflation (see here, here, and here). This is a very real concern indeed and Storm should be applauded for raging against the colossal folly that is wrecking Europe. Unfortunately, Storm goes astray in seemingly dismissing any role for unit labor cost competitiveness and German wage moderation in causing the still unresolved eurozone crisis in the first place.

Referring to bits and pieces of evidence derived from mostly partial-equilibrium empirics of one type or another, Storm fails to notice that no coherent macroeconomic analysis of the eurozone crisis emerges unless German wage moderation gets assigned a prominent role in the play. At the heart of the whole confusion is Storm’s attempt to attribute to those who emphasize German wage moderation as a key causal factor in the eurozone crisis the view that “expenditure switching” would explain 100 percent of the eurozone’s internal current account imbalances (and related balance sheet troubles). This would be a very peculiar view indeed – and I am not aware of anyone who actually holds it. Certainly the proponents of the “wage moderation hypothesis” that I know, including those who responded to Storm’s “critical analysis” (see here and here, and also this author), definitely do not hold this view. Effectively, Storm set up a straw man that he then defeats with flying colors; not realizing that his arguments are self-defeating and make a mess of the whole analysis of monetary union. continue reading…