This chart, a version of which Pavlina Tcherneva posted on Twitter, has been getting a lot of attention (e. g., NYTimes, Vox, NPR, WaPo, Slate, Moyers & Co.).

The chart shows, for each postwar economic recovery in the United States (trough to peak), the share of income growth going to the bottom 90 percent and top 10 percent of the income distribution. And the trend is unmistakable. This is how Tcherneva puts it in a new One-Pager: “For the vast majority of people in the United States, economic growth has become little more than a statistical sideshow.”

This is a picture of an economy that has been broken for some time; well before the cartoonish result in the last partial expansion (during that 2009-12 period, the top 10 percent received 116 percent of the income growth [possible because the bottom 90 percent saw their incomes drop] — and the top 1 percent alone captured 95 percent of the gains).

But Tcherneva also has a particular view of how we can change our policies to help solve this problem. She writes about two ways of improving the income distribution through public policy:

“One is to work within existing structures and reallocate income through various income redistribution schemes after income has been earned. The other is to change the very way income is earned from the outset.”

The way we normally use fiscal and monetary policy to stabilize the economy represents a lost opportunity to affect the income distribution through the second channel, she says. Most conventional policies operate by aiming primarily to boost investment and growth, with the employment effects following as mere byproducts of this process. These conventional stabilization tools (including fiscal pump-priming) don’t do enough to disrupt what she describes as a broken “income-generating mechanism”; one that benefits capital over labor and the incomes of high-wage workers over low-wage workers.

Tcherneva argues that direct job creation policies are different. They can stabilize the economy by targeting the incomes and employment prospects of people at the bottom of the income scale, rather than, for instance, waiting for the effects of improved bank balance sheets to trickle down through the income distribution. By having the government fund employment in the public, nonprofit, and social entrepreneurial sectors for all who are ready and willing to work, her “bottom-up” reorientation of fiscal policy is meant to bring about full employment while raising incomes at the bottom of the distribution faster than those at the top.

As Tcherneva points out, severe income inequality doesn’t just raise concerns about distributive justice, it’s also a serious economic problem: for instance, the Levy Institute’s last strategic analysis argued that inequality has been a significant driver of financial instability in the US economy.

Download the One-Pager: “Growth for Whom?” (pdf)

Related: An older version of this chart appeared in a Levy working paper, and more recently, in an article published in the Journal of Post Keynesian Economics.

Pavlina Tcherneva was interviewed on the Real News Network about what’s behind the numbers in her chart (below) showing the increasingly inequitable distribution of income growth in US economic expansions–and what we can do about it.

Related: “Growth for Whom?“

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?“

The 12th International Post Keynesian conference, cosponsored by the University of Missouri–Kansas 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?”

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…

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)

 
[WolframCDF source=”http://multiplier-effect.org/files/2014/09/alternative-fiscal-policies.cdf” width=”397″ height=”448″ altimage=”http://multiplier-effect.org/files/2014/09/alternative-fiscal-policies.png” 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.

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…

In a recent interview, C. J. Polychroniou asked Dimitri Papadimitriou about the idea that Greece is on the verge of economic recovery:

Both the International Monetary Fund (IMF) and the European Commission (EC), in their assessments of the performance of the Greek economy, appear more optimistic on the future of Greece because of the deceleration of the negative growth and a very slight decline of the unemployment rate, even though this was due to using statistics based on the new census that has resulted in demographic adjustments, and not due to growth in employment.

An artificial positive sign on Greece that indicates nothing about Greece’s economic condition, yet it was celebrated as a sign of recovery, was the primary budget surplus and “going back to the financial markets” for a new issue of bonds. The budget surplus was achieved at the cost of creating many damaged lives. On the other hand, going back to the markets was purely a public relations exercise, since the interest cost of almost 5 percent of the new bonds was much higher than that paid on the bailout funds. Moreover, the bonds were implicitly guaranteed by the ECB because they could be used as collateral to the ECB for lower-cost bank borrowing. Finally, the demand for these bonds reflected the current state of excess global liquidity available and not because investors considered Greek bonds as a good risk. The latter is in concert with the well-known adage in Wall Street that at times of “excess liquidity, even turkeys can fly.” All in all, even if the economy were to have hit bottom, this does not necessarily mean it is out of the woods and to a better outlook for its future.

In another segment, Polychroniou and Papadimitriou discussed a recent Levy Institute report that features a proposal to reform and expand co-operative banking in Greece:

Greek banks remain fragile and undercapitalized, thus unable to help the economy recover. A recent Levy Economics Institute publication strongly endorses co-operative banking for Greece as a much-needed alternative financing model for start‐up and existing small enterprises and as an all-important poverty policy alternative. Does the American experience with co-operative banking support this recommendation for Greece?

In the United States, there are no co-operative banks per se. There are what we call Credit Unions and Community Development Banks. Credit Unions have been established throughout the United States and are very successful and mostly unaffected by the subprime financial crisis of 2007-09. They were originally established to serve customers who possessed some common characteristic, i.e. employees of a large organization such as the UN, or big business – IBM – or a locality, Hudson Valley in upstate New York and so on. By now depositors do not need to share a common characteristic. The present credit unions are not very big and serve their local customers since they are geographically focused. Community development banks are very similar and provide banking services to individuals and businesses with limited credit history, such as start-up businesses, firms in agricultural and remote regions, or to inner cities that big banks do not find it profitable to extend their services to. They are doing quite well serving the interests of the unbanked.

Co-operative banks are mostly a European phenomenon and some have become very important in their respective countries and quite large. Others continue their mission of providing services, especially depository and lending functions, to people and areas that large banks shy away from. The most successful are in Germany. There is serious interest from these German co-operative banks to establish their model and operation in Greece. We don’t really need them. We can establish the Greek co-operative bank system very much different than the one we now have, which did not perform well all the time. Our proposal for cooperative banking in Greece incorporates a strong regulatory and supervisory structure, fully transparent, guided by a strong and professional board that will serve the liquidity needs not in the form of “red loans” (κόκκιναδάνεια), but to promote regional entrepreneurship. These banks would contribute to restarting the engine of economic growth, especially within the European framework of the social economy. It has been shown that the large systemic banks in Greece are still in the process of strengthening their balance sheets and have created the credit crunch I mentioned earlier.

Read the rest of the interview here.

Related: “Co-operative Banking in Greece: A Proposal for Rural Reinvestment and Urban Entrepreneurship” (pdf)

See also this policy brief from 1993, co-authored by Hyman Minsky, Dimitri Papadimitriou, Ronnie Phillips, and L. Randall Wray: “Community Development Banking: A Proposal to Establish a Nationwide System of Community Development Banks” (pdf)