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on Post Keynesian Economics |
| By: | Pedro Nicolaci da Costa |
| Abstract: | A bursting asset bubble inevitably requires central bank action, usually when it is already too late and with adverse spillover effects. In this sense, the Federal Reserve and other central banks already target asset prices; yet, by taking aim at them only on the way down--as in the current housing and credit crisis--the "Big Banks" create a self-perpetuating cycle of perverse incentives and moral hazard that often gives rise to yet another round of bubbles. The U.S. central bank's current premise is that policymakers cannot and should not target asset bubbles. However, the housing story has rendered untenable the prevailing belief that bubbles are impossible to spot ahead of time. The warning signals were ubiquitous--for example, price charts showing home values rising impossibly into the stratosphere, and Wall Street's increasing reliance on housing-backed bonds for its record-setting profits. It has become abundantly clear that there was plenty the Fed could have done to discourage speculative behavior and put a stop to predatory lending. Recent U.S. experience has bolstered the view that asset prices must come under the central bank's purview in order for the economy to retain some semblance of stability. Former Fed Chairman Paul Volcker recently called for a broader regulatory role for the central bank in light of the housing-centered credit crisis. Indeed, Treasury Secretary Henry Paulson's latest plan for tackling the crisis involves giving the Fed vast new authority to regulate investment banks, not just depository institutions. However, news analyst Pedro Nicolaci da Costa argues that attitude changes among regulators will be even more important than shifts in mandate in ensuring that regulators like the Fed do their jobs properly. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levppb:ppb_95&r=pke |
| By: | L. Randall Wray |
| Abstract: | As homeowner equity continues to disappear, there is a growing consensus that losses on all mortgages will exceed $1 trillion, with financial losses spreading far beyond real estate. Mortgage rates are spiking and, more generally, interest rate spreads remain wide, as financial players shun private debt in the rush to safe Treasury securities. Labor markets continue to weaken as firms shed jobs, and state tax revenues have plummeted. In March, the dollar fell to new record lows against the euro and other currencies. Commodities prices have boomed, fueling inflation and adding to consumer distress. What's a central bank to do? So far, the Federal Reserve has met or exceeded the market's anticipations for rate cuts. It has allowed banks to offer securitized mortgages as collateral against borrowed reserves, and opened its discount window to a broad range of financial institutions to guard against future liquidity problems (remember Bear Stearns?). It helped to formulate a rescue plan for Freddie Mac and Fannie Mae, and Chairman Ben Bernanke even supported the fiscal stimulus package that will increase the federal budget deficit—something that is normally anathema to central bankers. Most importantly, Fed officials have consistently argued that, while they are carefully monitoring inflation pressures, they will not reverse monetary easing until the fallout from the subprime crisis is past. Unfortunately, the policy isn't working--the economy continues to weaken, the financial crisis is spreading, and inflation is accelerating. The problem is that policymakers do not recognize the underlying forces driving the crisis, in part because they operate with an incorrect model of how our economy works. This Policy Note summarizes that model, offers an alternative view based on Hyman Minsky's approach, and outlines an alternative framework for policy formation. |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levypn:08-3&r=pke |
| By: | Dimitri B. Papadimitriou |
| Abstract: | To put an economy on an equitable growth path, economic development must be based on social efficiency, equity, and job creation. It has been shown that unemployment has far-reaching effects, all leading to an inequitable distribution of well-being. But many economists assume that unemployment tends toward a natural rate below which it cannot go without creating inflation. The paper considers a particular employment strategy: a government job creation program, such as an employment guarantee or employer-of-last-resort scheme, that would satisfy the noninflationary criteria. The paper analyzes the international experience of government job creation programs, with particular emphasis on the cases of Argentina and India. We conclude by considering the application of an employer-of-last-resort policy to the developing world and as a vehicle to meeting the Millennium Development Goals. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_545&r=pke |
| By: | Philip Arestis; Luiz Fernando de Paula; Fernando Ferrari-Filho |
| Abstract: | The purpose of this paper is to examine inflation targeting (IT) in emerging countries by concentrating essentially on the case of Brazil. The IT monetary policy regime has been adopted by a significant number of countries. While the focus of this paper is on Brazil, which began inflation targeting in 1999, we also examine the experience of other countries, both for comparative purposes and for evidence of the extent of this "new" economic policy's success. In addition, we compare the experience of Brazil with that of non-IT countries, and ask the question of whether adopting IT makes a difference in the fight against inflation. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_544&r=pke |
| By: | Yilmaz Akyuz (Third World Network) |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:tek:wpaper:2008/15&r=pke |
| By: | Kevin Marechal (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and CEESE, Université Libre de Bruxelles.); Hélène Aubaret-Joachain (Institut pour un Développement durable, Ottignies, Belgique); Jean-Paul Ledant (Institut pour un Développement durable, Ottignies, Belgique) |
| Abstract: | Putting agricultural systems on a more sustainable path is a crucial policy issue. Within that context, the objective of this paper is to show how the unsustainable character of current agricultural systems is strongly related to the prevailing rationale of mainstream economics and the Cartesian-Newtonian worldview on which it is founded. Using the example of the transformation of post-war agriculture in France, our analysis underlines the profound influence of the logic of mainstream economics on the modernisation of agricultural systems. The resulting transformation of agricultural systems based on the triptych specialisation-intensification-concentration is then further explored regarding its negative impacts in terms of sustainability. Particular attention is dedicated to environmental impacts, given their magnitude and the fact that mainstream economics, because of its “mechanistic reductionist” framework, has intrinsic difficulties in dealing with them. Since the fundamental assumptions of mainstream economics are being strongly challenged, it becomes legitimate to resort to an alternative economic framework for designing appropriate policies and measures. Given that many empirical studies demonstrates that agricultural systems may be locked-in to some extent, the choice an evolutionary line of thought in an ecological perspective is quite straightforward. This approach of economic change both underlines its historically-contingent nature and the role played by systemic interdependencies. Through underlining the path-dependence of agricultural systems, the use of the evolutionary framework in an ecological perspective allows us to shed a new light on their transformation by suggesting some strategies (i.e. niche accumulation and hybridisation) that have proven efficient in overcoming cases of lock-in in other fields. |
| Keywords: | Agricultural systems; Mechanistic reductionism; Evolutionary economics; Path-dependence and lock-in; Environmental pressures |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:08-028&r=pke |
| By: | Aaditya Mattoo (World Bank); Arvind Subramanian (Peterson Institute for International Economics) |
| Abstract: | A fundamental shift is taking place in the world economy to which the multilateral trading system has failed to adapt. The Doha process focused on issues of limited significance while the burning issues of the day were not even on the negotiating agenda. This paper advances five propositions: (1) the traditional negotiating dynamic, driven by private-sector interests largely in the rich countries, is running out of steam; (2) the world economy is moving broadly from conditions of relative abundance to relative scarcity, and so economic security has become a paramount concern for consumers, workers, and ordinary citizens; (3) international economic integration can contribute to enhanced security; (4) addressing these new concerns—relating to food, energy, and economic security—requires a wider agenda of multilateral cooperation, involving not just the World Trade Organization but other multilateral institutions as well; and (5) despite shifts in economic power across countries, the commonality of interests and scope for give-and-take on these new issues make multilateral cooperation worth attempting. |
| Keywords: | WTO, Doha, trade, security |
| JEL: | F13 F2 F41 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp08-8&r=pke |