|
on Post Keynesian Economics |
| By: | Marshall Auerback; L. Randall Wray |
| Abstract: | The United States has the most expensive health care system in the world, yet its system produces inferior outcomes relative to those in other countries. This brief examines the health care reform debate, and argues that the basic structure of the health care system is unlikely to change, because "reform" measures actually promote the status quo. The authors believe that the fundamental problem facing the U.S. health care system is the unhealthy lifestyle of many Americans. They prefer to see a reduced role for private insurers and an increased role for government funding, along with greater public discussion of environmental and lifestyle factors. A Medicare buy-in ("public option") for people under 65 would provide more cost control (by competing with private insurance), help to solve the problem of treatment denial based on preexisting conditions, expand the risk pool of patients, and enhance the global competitiveness of U.S. corporations--thus bringing the U.S. health care system closer to the "ideal" low-cost, universal (single-payer) insurance plan. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levppb:ppb_110&r=pke |
| By: | Yeva Nersisyan; L. Randall Wray |
| Abstract: | This brief by Yeva Nersisyan and Senior Scholar L. Randall Wray argues that deficits do not burden future generations with debt, nor do they crowd out private spending. The authors base their conclusions on the premise that a sovereign nation with its own currency cannot become insolvent, and that government financing is unlike that of a household or firm. Moreover, they observe that automatic stabilizers, not government bailouts and the stimulus package, have prevented the U.S. economic contraction from devolving into another Great Depression. The authors dispense with unsubstantiated concerns about deficits and debts, noting that they mask the real issue: the unwillingness of deficit hawks to allow government to work for the good of the people. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levppb:ppb_111&r=pke |
| By: | Rania Antonopoulos; Kijong Kim; Thomas Masterson; Andajit Zacharias |
| Abstract: | In his State of the Union address President Obama acknowledged that "our most urgent task is job creation" - that a move toward full employment will lay the foundation for long-term economic growth and ensure that the federal government creates the necessary conditions for businesses to expand and hire more workers. According to a new study by Levy scholars Rania Antonopoulos, Kijong Kim, Thomas Masterson, and Ajit Zacharias, the government needs to identify and invest in projects that have the potential for massive, and immediate, public job creation. They conclude that social sector investment, such as early childhood education and home-based care, would generate twice as many jobs as infrastructure spending and nearly 1.5 times the number created by investment in green energy, while catering to the most vulnerable segments of the workforce. |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levppb:ppb_108&r=pke |
| By: | Gennaro Zezza |
| Abstract: | Research Scholar Gennaro Zezza updates the Levy Institute’s previous Strategic Analysis (December 2009) and finds that the 2009 increase in public sector aggregate demand was a result of the fiscal stimulus, without which the recession would have been much deeper. He confirms that strong policy action is required to achieve full employment in the medium term, including a persistently high government deficit in the short term. This implies a growing public debt, which is sustainable as long as interest rates are kept at the current low level. The alternative is an ongoing unemployment rate above 10 percent that would represent a higher cost to future generations. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levysa:sa_mar_10&r=pke |
| By: | Yeva Nersisyan; L. Randall Wray |
| Abstract: | While most economists agree that the world is facing the worst economic crisis since the Great Depression, there is little agreement as to what caused it. Some have argued that the financial instability we are witnessing is due to irrational exuberance of market participants, fraud, greed, too much regulation, et cetera. However, some Post Keynesian economists following Hyman P. Minsky have argued that this is a systemic problem, a result of internal market processes that allowed fragility to build over time. In this paper we focus on the shift to the "shadow banking system" and the creation of what Minsky called the money manager phase of capitalism. In this system, rapid growth of leverage and financial layering allowed the financial sector to claim an ever-rising proportion of national income--what is sometimes called "financialization"--as the financial system evolved from hedge to speculative and, finally, to a Ponzi scheme. The policy response to the financial crisis in the United States and elsewhere has largely been an attempt to rescue money manager capitalism. Moreover, in the case of the United States. the bailout policy has contributed to further concentration of the financial sector, increasing dangers. We believe that the policies directed at saving the system are doomed to fail--and that alternative policies should be adopted. The effective solution should come in the way of downsizing the financial sector by two-thirds or more, and effecting fundamental modifications. |
| Keywords: | Institutional Investors; Financial Crisis; Financialization; Money Managers; Financial Concentration; Shadow Banking; Subprime Mortgages; Securitized Mortgages |
| JEL: | G21 G23 G28 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_587&r=pke |
| By: | Jan Kregel |
| Abstract: | The current financial crisis has been characterized as a "Minsky" moment, and as such provides the conditions required for a reregulation of the financial system similar to that of the New Deal banking reforms of the 1930s. However, Minsky's theory was not one that dealt in moments but rather in systemic, structural changes in the operations of financial institutions. Therefore, the framework for reregulation must start with an understanding of the longer-term systemic changes that took place between the New Deal reforms and their formal repeal under the 1999 Financial Services Modernization Act. This paper attempts to identify some of those changes and their sources. In particular, it notes that the New Deal reforms were eroded by an internal process in which commercial banks that were given a monopoly position in deposit taking sought to remove those protections because unregulated banks were able to provide substitute instruments that were more efficient and unregulated but unavailable to regulated banks, since they involved securities market activities that would eventually be recognized as securitization. Regulators and the courts contributed to this process by progressively ruling that these activities were related to the regulated activities of the commercial banks, allowing them to reclaim securities market activities that had been precluded in the New Deal legislation. The 1999 Act simply made official the de facto repeal of the 1930s protections. Any attempt to provide reregulation of the system will thus require safeguards to ensure that this internal process of deregulation is not repeated. |
| Keywords: | Financial Regulation; Financial Crisis; Subprime Crisis; Mortgage Affiliate Regulation; Financial Legislation; Supreme Court and Financial Deregulation |
| JEL: | G21 G24 G28 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_586&r=pke |
| By: | Bernard Shull |
| Abstract: | Regulatory forbearance and government financial support for the largest U.S. financial companies during the crisis of 2007–09 highlighted a "too big to fail" problem that has existed for decades. As in the past, effects on competition and moral hazard were seen as outweighed by the threat of failures that would undermine the financial system and the economy. As in the past, current legislative reforms promise to prevent a reoccurrence. This paper proceeds on the view that a better understanding of why too-big-to-fail policies have persisted will provide a stronger basis for developing effective reforms. After a review of experience in the United States over the last 40 years, it considers a number of possible motives. The explicit rationale of regulatory authorities has been to stem a systemic threat to the financial system and the economy resulting from interconnections and contagion, and/or to assure the continuation of financial services in particular localities or regions. It has been contended, however, that such threats have been exaggerated, and that forbearance and bailouts have been motivated by the "career interests" of regulators. Finally, it has been suggested that existing large financial firms are preserved because they serve a public interest independent of the systemic threat of failure they pose—they constitute a "national resource." Each of these motives indicates a different type of reform necessary to contain too-big-to-fail policies. They are not, however, mutually exclusive, and may all be operative simultaneously. Concerns about the stability of the financial system dominate current legislative proposals; these would strengthen supervision and regulation. Other kinds of reform, including limits on regulatory discretion, would be needed to contain "career interest" motivations. If, however, existing financial companies are viewed as serving a unique public purpose, then improved supervision and regulation would not effectively preclude bailouts should a large financial company be on the brink of failure. Nor would limits on discretion be binding. To address this motivation, a structural solution is necessary. Breakups through divestiture, perhaps encompassing specific lines of activity, would distribute the "public interest" among a larger group of companies than the handful that currently hold a disproportionate and growing concentration of financial resources. The result would be that no one company, or even a few, would appear to be irreplaceable. Neither economies of scale nor scope appear to offset the advantages of size reduction for the largest financial companies. At a minimum, bank merger policy that has, over the last several decades, facilitated their growth should be reformed so as to contain their continued absolute and relative growth. An appendix to the paper provides a review of bank merger policy and proposals for revision." |
| Keywords: | Too Big to Fail; Banking Policy; Antitrust; Government Policy; Regulation |
| JEL: | G21 G28 |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_601&r=pke |
| By: | Jörg Bibow |
| Abstract: | This paper investigates the spread of what started as a crisis at the core of the global financial system to emerging economies. While emerging economies had exhibited some resilience through the early stages of the financial turmoil that began in the summer of 2007, they have been hit hard since mid-2008. Their deteriorating fortunes are only partly attributable to the collapse in world trade and sharp drop in commodity prices. Things were made worse by emerging markets' exposure to the turmoil in global finance itself. As "innocent bystanders," even countries that had taken out "self-insurance" proved vulnerable to the global "sudden stop" in capital flows. We critique loanable funds theoretical interpretations of global imbalances and offer an alternative explanation that emphasizes the special status of the U.S. dollar. Instead of taking out even more self-insurance, developing countries should pursue capital account management to enlarge their policy space and reduce external vulnerabilities. |
| Keywords: | Financial Crisis; Capital Flows; Self-insurance; Capital Controls; Bretton Woods II Hypothesis; Global Saving Glut Hypothesis |
| JEL: | E12 E43 E44 F02 F10 F32 F33 F42 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_591&r=pke |
| By: | Jan Kregel |
| Abstract: | The extension of the subprime mortgage crisis to a global financial meltdown led to calls for fundamental reregulation of the U.S. financial system. However, that reregulation has been slow in implementation and the proposals under discussion are far from fundamental. One explanation for this delay is the fact that many of the difficulties stemmed not from lack of regulation but from a failure to fully implement existing regulations. At the same time, the crisis evolved in stages, interspersed by what appeared to be the system's return to normalcy. This evolution can be defined in terms of three stages (regulation and supervision, securitization, and a run on investment banks), each stage associated with a particular failure of regulatory supervision. It thus became possible to argue at each stage that all that was necessary was the appropriate application of existing regulations, and that nothing more needed to be done. This scenario progressed until the collapse of Lehman Brothers brought about a full-scale recession and attention turned to support of the real economy and employment, leaving the need for fundamental financial regulation in the background. |
| Keywords: | Financial Regulation; Financial Crisis; Subprime Crisis; Mortgage Affiliate Regulation |
| JEL: | G21 G24 G28 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_585&r=pke |
| By: | Robert Shelburne (United Nations Economic Commission for Europe); Claudia Trentini (United Nations Economic Commission for Europe) |
| Abstract: | The Pan-European Region made significant progress from 1995 to 2007 in improving the economic, social, environmental and health indicators incorporated into the Millennium Development Goals (MDGs). However, given the huge set-backs associated with the transition recession in the early 1990s and the more recent economic declines from the global financial crisis, achievement of some of the MDGs in a significant number of countries by 2015 is now problematic. The degree to which the actual targets can be achieved by 2015 will depend critically on: (i) the speed of recovery from the current crisis and the policy responses to it; (ii) the commitment by national governments to focus resources on the MDG objectives and their willingness to implement new policy initiatives, and (iii) the level of foreign assistance and regional cooperation that can be obtained. The EU new Member States (NMS) are most likely to meet the MDGs, while the prospects for the other European emerging economies are more mixed, especially for MDGs related to poverty and health. All of the Pan-European economies are falling short in terms of achieving environmental sustainability and gender equality. |
| Keywords: | millennium development goals, economic development, Europe, financial crisis, transition economies, CIS, Russia, caucasus, central Asia, health, education, environmental sustainability, gender, HIV, AIDS, Tuberculosis, trade, |
| JEL: | O10 O52 P20 P27 P36 I10 I20 I30 F02 J40 |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:ece:dispap:2010_1&r=pke |